So you think you are ready to purchase a home.
Have you done a budget?
What expenses should you be thinking about?
The voice in your head states you are paying rent now so what would be so different if you purchased a home?
With any major purchase you need to research and budget accordingly. I have put some of the main costs you should be thinking about when you purchase a home.
1 Mortgage Payments
You need to know how much you can/should be aiming for. If you have taken a fixed rate mortgage your payments will not change for a period of time. I can get you an exact payment and a rate lock in period, this will ensure you have no surprises at closing. (unless the rate drops and then your payments will also drop). Once the deal is closed you will know exactly the amount to budget and on a 5 year fixed rate this means you will know what you are expected to pay over the next 60 months.
2 Property Taxes
These are different for each province and each municipality. For example if you decide to live in a rural area the taxes are probably going to be cheaper than living in the city or town. This can also be a big closing cost again depending on where you live. In New Brunswick we pay our property taxes for the full year. This means when you pay your property tax bill by the end of May you will have paid from January 1 to December 31 of that year. Now let’s say you purchased the home in July it will mean you need to repay the current owner the taxes from date of purchase (July) to end of December. So if the tax bill for the year was $3600 this means you need to pay back the seller roughly 6 months or around $1800. This amount will be collected on the day of closing and will become part of your closing costs. This can be a big cost so ensure you know what the amounts are going to be. You also need to realize that most times taxes will increase on a yearly basis.
3 Home Insurance
This can also vary from between provinces and areas. You will also be required to have and maintain home insurance if you have a mortgage. Insurance normally would start in the $400 per year range and go up from there. It will help if you bundle with your auto insurance etc and make sure you shop around to ensure the best deal and product. This is also an expense that will probably increase on a yearly basis.
4 Hazard Insurance
This will cover off special cases such as floods, storms, acts of nature etc and are not covered under most normal home owner policies. If you need to take a gondola to work then you need to check this out. You should research the area and even if you do not need the coverage you should see what the cost and benefits are. Buy in a flood zone and be prepared for higher insurance premiums.
5 Condo/CO-OP and Association Fee’s
If you have purchased a condo, town house, co-op or a home on leased land you are going to have a monthly fee. This covers a variety of things and you should know exactly what is covered to ensure no surprises.
6 Utilities
Yes you have probably paid these while you where renting but the amounts are probably going to increase and you may incur other programs you where not aware of. The municipality normally charges for water and sewage and this is paid usually every 3 months. There are some places that you will need to hire a garbage pick up company. Your new home may have gas or propane which will generate a new monthly bill for you. Make sure you know what bills too expect when moving in to your new home.
7 Maintenance
Things are going to break and repairs are going to be needed once you own a home. It could be a leaky/broken faucet, leaky roof, broken window etc. You need to have an emergency fund to cover these costs. Remember it will happen.
8 Yard Care and Overall Care of the Home
You are going to have costs for each season. In the spring/summer you will need to keep the yard up. This will include lawn care, possible flowers/plants, fence repair and maintaining the overall appearance of your homes exterior. Remember cutting a lawn costs money. Now if you purchase a home with a pool you are going to have yearly maintenance to open and close the pool each year. You will also need to maintain. Even if you do it yourself it is still recommended to have a professional inspect it yearly. Depending where you live you will have fall/winter. You will have costs associated with getting ready for the winter and then costs during winter. If you do not want to shovel you will need to pay to clear your driveway either by an outside service or a purchase of a snowblower.
9 Entertainment
I include this so you do not become house poor. You need to have fun and enjoy life. Make sure you do not buy above or close to your maximum. Remember you can always sell and buy in the future. Make sure you allow for yourself each month and ensure you budget this. Enjoy and be proud of your new home.
So make sure you make a list/budget and be prepared. Knowing what to expect will go a long way to a stress free life of home ownership. Enjoy it and take care of it as it will make you money someday.
Eric Gall is the owner of Avanti Mortgages (operating as a mortgage specialist for TMG – The Mortgage Group Atlantic). If you are purchasing, refinancing or renewing your mortgage contact Eric or check out his website and apply online. If you are a First Time Homebuyer then get your free report here. If selling/refinancing a home get your free report here to avoid some common mistakes.
