Indian envoy warns of 'big red line,' days after charges laid in Nijjar case
India's envoy to Canada insists relations between the two countries are positive overall, despite what he describes as 'a lot of noise.'
The journey to home ownership can be very exciting, especially with your realtor selling you dreams of the perfect home.
However, it’s important to avoid the trap of becoming house poor -- a situation where an overwhelming portion of your income is devoured by housing costs, leaving little for other aspects of life.
Below, I’ll explain some practical strategies to maintain better financial health while owning a home. With careful planning and smart decisions, your home will enhance your quality of life, not constrain it.
The next time that you drive through a nice neighbourhood to admire the homes, take a minute to consider how much the home owners are paying to live there:
Buying a home is often presented as a more affordable alternative to renting. If you were to compare monthly rent versus mortgage payments on the same property, the mortgage payments would almost certainly be smaller.
However, as the property owner, you’ll also have more financial obligations. You’ll bear full responsibility for maintenance, taxes, and repairs -- all of which you should account extra for in your monthly housing budget.
If you fail to do so, it’s easy to find yourself house poor, with a large portion of your monthly income going toward living expenses, and little left over for saving, investing, or doing other things you enjoy.
It’s also important to consider how mortgage interest rates change over time. For example, many Canadians are facing drastic mortgage payment increases this year, as renewal rates reflect today’s high interest rates.
The good news is that being a homeowner doesn’t have to make you house poor. The key lies in proper planning and budgeting so you don’t find yourself in over your head.
Before you even begin looking for a home or working with a realtor, you should have a good idea of what you can afford in terms of a monthly mortgage payment.
Remember that real estate agents are, at their core, sales professionals. As much as it’s their job to help you find something within your budget, it’s also their job to help you find a house that you really love and upsell you on all of the benefits of it.
Similar to buying a car, the home buying process can often lead you on an emotional rollercoaster, and you may find yourself willing to go outside of your budget for the perfect home.
As much as I’d encourage you to find your dream home, make sure that you’re also evaluating your options logically, with your budget in mind.
Remember, your mortgage payment will not be your only expense.
You’ll have to include utilities like electricity, water, and internet. The bigger your house is, the more your space will cost to heat in the winter and cool in the summer. Bigger homes may also require Wi-Fi extenders to ensure the whole home has coverage.
Then, you have to account for maintenance and upkeep costs. Unless you’re a hardcore DIY pro, you’ll have to account for monthly maintenance costs like landscaping, weed control, snow shovelling, and pest control, as well as semi-annual repairs to plumbing, electrical, appliances, or your roof.
The size of your property relative to the dwelling unit itself can also play a factor here. A larger, more rural property may come with higher landscaping costs or require you to buy a four-wheel drive vehicle so you can drive up and down your dirt driveway.
The age of the dwelling unit could also play a part in your maintenance costs, as older homes are likely going to have more impending repairs compared to newer builds.
For example, a new roof could cost you $8,000 or more, and will usually be required every 15 years. This means you’ll need to budget $544 per year or $44 per month extra to account for inevitable roofing expenses.
Last, but not least, you’ll want to account for annual property taxes on the home as well as home insurance costs.
To get the best picture of how much home you can realistically afford, it’s best to factor in all estimated costs, including:
Your real estate agent or financial planner should be able to help you out here, as long as you’re asking the right questions.
Many financial advisors recommend using the “30 per cent rule” when it comes to housing. This rule advises keeping your combined living expenses below 30 per cent of your income. Only around 20 to 25 per cent of Canadian home owners exceed this, according to the latest studies by the CMHC and Statistics Canada.
If you’re married or buying a home with a friend who will also contribute to your household income, you may be able to use your joint income to purchase a larger home while still staying within your budget.
While it may not be feasible for everybody, making a larger down payment on your home will reduce your monthly mortgage payments, making home ownership more affordable in the long run.
If you never got a chance to plan ahead and you’re already feeling the financial pressure, you have a couple of different options. These could include refinancing your home at a lower interest rate, renting out an extra room or space on your property, or it may come down to downsizing by selling your home and moving into something more affordable.
Christopher Liew is a CFA Charterholder and former financial advisor. He writes personal finance tips for thousands of daily Canadian readers on his Wealth Awesome website.
Do you have a question, tip or story idea about personal finance? Please email us at dotcom@bellmedia.ca.
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