5 Ways to Financially Prepare to Buy a Home
For a lot of people, the main obstacle separating them from their goal of buying a home vs.renting is their financial situation. However, there are ways to prepare for buying a property.
Here are 5 ways to financially prepare to buy a home:
1. Evaluate your borrowing capacity
The best way to assess your borrowing capacity is to meet with a financial advisor.
By analyzing your current financial situation as well as your income, your lender will be able to make recommendations as to how to financially prepare to buy a home. Should you become a homeowner at this point in time? Do you have enough income to pay your mortgage as well as other debts? A financial advisor will guide you through this process.
Meeting at the beginning of the purchasing process (even before you start looking for the home of your dreams) is a wise decision. The financial advisor can offer you a pre-approved mortgage, giving you the maximum amount of money that you would be able to borrow. This is a very useful tool for guidance throughout your research.
2. Pay your debts
A good way to clean up your personal finances and improve your financial situation is to settle any outstanding debts. By paying off debts with high interest rates, you’ll have more financial freedom. This will make it easier for you to save up for your down payment.
Also, if you have little debt and some financial capital, you can use this opportunity to accumulate savings on loan fees and interest.
3. Create a well-thought-out budget
To avoid unpleasant surprises once you become a homeowner, try to set a realistic budget.
Your budget should take into account your ability to repay your mortgage and all of the other expenses associated with owning a property. These expenses include municipal and school taxes, heating, electricity, condominium fees (if you’re moving into a condo), and various maintenance expenses (like snow removal, renovations, exterior maintenance, etc.).
You should also take into account the costs related to the acquisition of property and relocation. These expenses include the cost of mutation (the welcome tax), notary fees, and reconnection fees on utilities.
4. Save your money
To acquire a property, you will need a down payment of at least 5%. This means that to buy a house worth $200,000, you will need a cash amount of at least $10,000. If you plan to own, begin immediately to put money aside for your down payment.
Remember this: The larger your down payment, the lower the loan to pay off will be and, consequently, the less you will pay in interest.
Also, if you are making a down payment that is less than 20% of the price of the property, you will need to purchase mortgage insurance. It usually varies between 0.5% to 2.90% of the amount borrowed and it is added to the total amount of your loan. However, a significant down payment will help you save money.
5. Change your spending habits
If you plan to own a property, then you must reconsider your spending habits. Paying off debts, making (and sticking to) a budget, and trying to accumulate some savings all require some discipline. In order to accomplish this, you will have to change the way that you spend your money.
Use credit cards carefully, limit your expenses as much as possible, and create a budget that allows you to either save for a down payment or pay off existing debts.
In the end, if you want to own your own home, you must adopt a new lifestyle (but it will definitely pay off!).