Congratulations! Being ready to purchase your first home is a major milestone in your life – and with that milestone, comes a lot of questions, moving pieces, and stress. One of the biggest struggles most first-time home buyers have is with organizing their finances or knowing what to expect financially; you’ve saved up the down payment – now what?
We’ve put together a few tips to help you prepare for buying your first home, to try and alleviate some of the stress that comes with those unknowns.
Step 1: Budget
It might sound obvious, but the very first thing you’ll want to do is create a budget that includes your net income and all of your expenses to determine exactly how much you can afford to pay towards your home each month (mortgage, utilities, condo fees if applicable, maintenance, etc.) The last thing you want to do is purchase a home that you may be technically pre-approved for, and end up stretching your monthly income too thin.
Know what you can afford, and stick to it!
Step 2: Prepare for a Mortgage Approval
It might seem like there are mortgage brokers everywhere, but it’s not quite as simple as just walking to a firm or a bank with a paystub and signing some papers. You’re going to need to get your finances in order to prove that you’re financially ready: this means that you have a down payment and enough cash to pay for all of the expenses associated with the process – and of course, you’ll need to be able to prove your income.
Start paying off any credit card debt and try to avoid using them in the months leading up to your approval process. It’s also wise not to make any big purchases – don’t go buy a new car right before wanting to be pre-approved!
Make sure you have a down payment saved, and finally, start getting all of your documents in order (like tax returns and proof of income).
Step 3: Before house-hunting, get pre-approved
Yes, even before looking at houses you’ll want to make sure you are pre-approved for a mortgage, for a couple of reasons. First, you want to make sure you are shopping within your means (and also remember that just because you are pre-approved for a certain amount, doesn’t mean you need to spend that much! Shop within your budget). Second, if you do find the house of your dreams, having your mortgage ready to go helps the home-seller see you are serious and ready to move.
Step 4: Your New Budget
Congratulations! You’re in your new home; now what? Now it’s time to sit down and re-evaluate your budget. You’ll have new expenses, like home-owners insurance and property taxes to add into your planning, and you’ll want to revisit your costs on utilities like electricity. Set yourself up for success with a realistic budget that factors in your lovely new home and the changes that it brings with it!
Bonus: Make sure you’re aware of any first-time home buyer incentives available to you. Here in Canada, the federal government has a number of benefits available. Working with a trusted financial advisor can help ensure you don’t miss out on any of the credits that you qualify for.
If you’re in the home-buying process and have questions about getting your finances in order, book a free consultation call with Steven today! We’re always here to help.