Finding the right first home starts with a price range and a short list of desirable neighborhoods. But there are many other factors you'll need to consider before investing in what may be your biggest asset. Before You Start: · Grab your current household budget so you can consider your financial situation and your ability to make mortgage payments. · Think about your lifestyle and how it might affect your choice of home and neighborhood. · Do a little research on current home prices in the neighborhoods you plan to target. Buying Your First Home Before you start looking, there are a number of things you need to consider. First, you should determine what your needs are and whether owning your own home will meet those needs. Do you picture yourself mowing the lawn on Saturday, or leaving your urban condo for the beach? The best advice is to look at buying a home as a lifestyle investment, and only secondly as a financial investment. Even if housing prices don't continue to increase at the steady pace seen in recent years in Ottawa, buying a home can be a good financial investment. Making mortgage payments forces you to save, and after 15 to 30 years you will own a substantial asset that can be converted into cash to help fund retirement or a child's education. There are also tax benefits. If you aren't ready to settle down in one spot for a few years, you probably should defer buying a home until you are. If you are ready to take the plunge, you'll need to determine how much you can spend and where you want to live. How Much Mortgage Can You Afford? The shortest answer to that question is: it depends on a number of factors. The most important are your gross household income, your down payment and the mortgage interest rate. Lenders will also consider your assets and liabilities. Your own lifestyle and debt comfort zone also come into play. This calculation is based on two simple rules that lenders use to determine how much of a mortgage you can afford. The first rule is that your monthly housing costs should not exceed 32% of your gross monthly household income. Housing costs include monthly mortgage payments, taxes and heating expenses. If applicable, this sum should also include half of monthly condominium fees. Secondly, your entire monthly debt load should not be any more than 40% of your gross monthly income. This includes housing costs, and other debts such as car payments, personal loans, and credit card payments. Costs of Buying a Home Many home buyers are surprised to find that a down payment is not the only cash requirement. A home inspection can cost between $300-500, or more. Closing costs may application fees, appraisal fee, survey, title search and title insurance, lawyer fees, condo status certificates and land transfer taxes. Finally, adjustments for heating oil or property taxes already paid by the sellers will be included in your final costs. All this will probably add up to be between 2 percent and 5 percent of your purchase price. Ongoing Costs In addition to mortgage payments, there are other costs associated with home ownership. Monthly Utilities, heat, water, property taxes, home insurance are incurred. Major expenses would include roof, furnace and window replacement. Make sure you understand how much you are willing and able to spend on such items. Condominiums may not have the same costs as a house, but they do have condominumum fees. Older homes are often less expensive to buy, but repairs may be greater than those in a newer home. When looking for a home, be sure to check the actual expenses of the previous owners, or expenses for a comparable home in the neighborhood. Choosing a Neighborhood Before you start looking at homes, look at neighborhoods. Schools and other services play a large part in making a neighborhood attractive. Even if you don't have children, your future buyer may. Crime rates, taxes, transportation, and city services are other things to look at. Finally, learn the local zoning laws. A new pizza shop next door might alter your property's future value. On the other hand, you may want to run a business out of your home. Look for a neighborhood where prices are increasing. As the prices of the better homes increase, values of the lesser homes may rise as well. If you find a less expensive home in a good neighborhood, make sure you factor in the cost of repairs or upgrades that such a house may need. Finding a Real Estate Agent If you are a first-time home buyer, you will probably want to work with a Real Estate Agent. Agents know the market and can be a valuable source of information concerning the home buying process. Make sure that the Agent has access to the Multiple Listing Service (MLS). This service lists all the properties for sale by most major brokers across the country. Commissions average 5 percent to 7 percent and are split between the listing broker and the broker that eventually sells the home. Once you've determined a price range and location, you're ready to look at individual homes. Remember that much of a home's value is derived from the values of those surrounding it. Since the average residency in a house is seven years, consider the qualities that will be attractive to future buyers as well as those attractive to you. Although it can be difficult, try to remember that you will probably want to sell this home someday. The more research you do today, the better your decision will look in the years to come. Summary: · Buying a home can mean building significant value through the years. · Think carefully about how much you can afford to spend · Pre-qualifying with your lender is a good way to determine how much house you can afford. · You will need cash for a down payment and closing costs. Generally speaking, the higher the down payment, the lower the interest rate and monthly mortgage payment. · In addition to your mortgage payments, you will also need to consider the other costs of home ownership. · Schools, taxes, services, transportation, and zoning are important considerations when selecting a neighborhood. · Remember to consider resale value when buying your home. A first time buyer needs an experienced agent to help them navigate the transaction and avoid costly mistakes. Please give me a call at 613-612-0137, I'd be happy to assist you in all aspects of the buying process and provide you with important information about current real estate trends in Ottawa. |