first-time home buyers is comparing a month’s rent to a month’s mortgage payment. Many people don’t have all the numbers. There are additional costs necessary to include to make a fair comparison: principal interest, property taxes, property insurance, condo fees (if applicable), and maintenance. Are you prepared for the down payment? This is the lump sum payment that funds your equity in the property (how much of the property you actually own). Down payments vary; 20% is preferred as you can avoid CMHC fees however some lenders will give better rates for an insured mortgage. Most lenders will allow down payments as low as 5%. Some lenders will give cash back at closing or even pay off your credit card in order to help you qualify. You can also get a gifted down payment from a family member. If you have a choice, take a gift rather than a loan because lenders will add the loan debt to other monthly obligations and potential mortgage payments to determine your debt-to-income ratio, which generally can’t top 40% to qualify for a mortgage. Can you afford the monthly mortgage and its components? Generally, a mortgage includes mortgage principal and interest. The other extra costs are property taxes, utilities, & condo fees (if applicable). Obviously, interest rates can affect the monthly mortgage-only payment by several hundred dollars. Are you emotionally ready? Can you handle the responsibility? A big factor to consider when buying a home is the stress. The Holmes and Rahe Stress Scale, a landmark stress study, ranks many events that go along with buying a home in the top 43 most stressful circumstances in life. Four events are specifically home-related: change in financial state (No. 16), large mortgage or loan (No. 20), change in living conditions (No. 28), and change in residence (No. 32). If someone has recently made other life changes, such as marriage (No. 7), switching careers (No. 18), or having a child (No. 14), it might be wise to postpone buying a
25
Powered by FlippingBook