TORONTO, ONTARIO--(Marketwired - April 2, 2013) - Making the decision to purchase your first home is huge. In fact, it's probably the biggest financial decision you will ever make - and one not to be taken lightly. That is why it is important to do your research and understand the true costs of ownership before you take the plunge.
"We have this notion that in order to be successful, you have to get an education, get a job and buy a home," says Jeffrey Schwartz, executive director of Consolidated Credit Counseling Services of Canada, Inc. "Unfortunately, what we see happening is an increasing number of first-time home owners who have bitten off more house than they can chew - which often results in financial crisis."
Your first house doesn't need to be the home of your dreams. In fact, it will probably be far from it. First-time home buyers who plan well and do their research can potentially make their first home the foundation for a financially successful future.
For those ready to take the plunge into home ownership, Consolidated Credit offers these tips to consider:
Check your credit - Credit scores have a major impact on the amount of money a lender will be willing to give you, and at what interest rate. Before you even begin the house hunting process, get copies of your credit reports. If your scores are low or your report contains inaccurate information, take the time to correct errors and repair your credit.
Learn to budget - Buying a home is the biggest financial decision you will probably make. Sit down with your budget and figure out how you're going to comfortably carry a mortgage and still live the life you want. Don't forget to leave yourself a little wiggle room.
Research the true costs - There is a lot more to owning a home than paying your mortgage and calling the place your own. Assess all of your monthly costs; including mortgage payment, property taxes, insurance, utilities and potential condo fees. Add these to your monthly budget.
Pre-approval - It's a good idea to understand how much you can spend before you start looking for your first home. Speaking to your lender or mortgage broker about a pre-approval will give you a better idea of how much mortgage you qualify for.
Buy what you can afford - However, just because the bank pre-approved you for a substantial mortgage doesn't mean you can actually afford it. In fact, lenders will often pre-approve you for far more than you need or want. Again, take a look at your budget. Looking at the true costs of homeownership and the lifestyle you want to live will give you a better idea of the monthly payment you can realistically afford.
Put 20% down - Saving enough money to make a down payment of 20 per cent or more will result in huge savings over the term of your mortgage. Simply put, a larger down payment results in lower mortgage payments and greater savings on the total interest paid. Anything under 20 per cent is considered high risk and will require you to obtain mortgage insurance, resulting in an added monthly cost.
Get your house in order - In addition to the monthly costs associated with home ownership, you also need to be prepared for the hidden costs of buying your first home. Before you make an offer, be sure to have enough money set aside to cover your closing fees, lawyer's costs, home inspection, utility hook-ups, renovations fees, land transfer taxes and home furnishings.
Save for a rainy day - Finally, be prepared for the ongoing and unexpected costs of home ownership. These include maintenance fees, repairs and replacement costs. By setting up an emergency fund you can create a financial buffer in case a leaky roof or broken water heater catches you off guard.
About Consolidated Credit Counseling Services of Canada:
Consolidated Credit Counseling Services of Canada is a national non-profit credit counselling organization that teaches consumers about personal finance. For more information, visit www.consolidatedcredit.ca or call the toll-free phone line at 1.800.656.3920.