Wednesday, February 17, 2010

Five steps to buy your home: Step 2 - Setting the budget

Your house is one of the larger purchases you make in your life and it has an important place in how you envision your life. Some people consider their residence strictly as investment. However, for most people it is more than that; it is your home for years to come. Therefore, buying your home is often an emotional event for you and your family. Yet when doing such a major transaction, nothing is more important than keeping a cool head. Strange as this may sound from a guy that is selling houses, I would like you to realize that there is hardly ever a ‘once in a life-time opportunity’. In my experience there exists always another deal that is at least as good as the one that right now makes you feel all ‘woozy’. The other thing not to forget is that the average Canadian buys another house every three to five years. So this is not likely going to be your ultimate dream house. I myself have yet to buy the perfect home, although I did buy my current place nearly 30 years ago. I am an exception to the 3-5 year rule and maybe you will too. But for buying purposes let’s assume you will move on in 3 to 5 years.

You can buy a house to the maximum of what you can afford and sweat at every little bump in your life fearing its loss. You may tie a lot of money up in your house paying interest galore. Interest payments which could have been invested in your retirement or your child’s education. So, do you really need the most expensive castle in Mount Royal or Pumphill? I suggest, just like with a car, especially when starting out, that you only buy what you truly need. If you wish we can sit down at this point and discuss how this new house will fit in your future. We also will have to set up a budget as to what you can afford, or better how much you are willing to spend on a house.

Most people finance their home, i.e. they use a mortgage. I am not a mortgage expert or broker. In our discussions I can give you some ideas as to how to finance your new home.
But to really know what you can afford financially, I suggest you sit down with a Mortgage Broker. With a mortgage broker you can discuss your financial decision in detail. The broker can also give you an idea what the maximum amount is that the banks will lend you.

There are some people that have money for a down payment and would financially qualify for a mortgage, however their credit score is damaged and conventional lenders would decline the mortgage. Some people have money for a down payment, but just not quite enough. In such cases, a ``Rent-To-Own`` arrangement could be appropriate. I know investors who may be willing to help.

Now, here is an important point for thought. Remember, I suggested buying the home that you need, not the most expensive one you can afford. Lenders are in the business of lending you as much money as they safely can. Lenders don’t want to lose money but the more you lend from them, the more they make.

Your Mortgage Broker will also help you find financing on terms favourable to you. The broker will tell you what loan you pre-qualify for. This is just a ‘statement of intent’ not a guarantee that you get such a loan. So anything we buy, we will buy on condition that you will truly get the financing you are hoping for.

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