The homebuying process, especially for first-time homebuyers, can be an exciting time. The idea of purchasing a home conjures up many emotions, dreams, and possibilities. While the homebuying experience is positive for most, it can be daunting for many. The importance of working with qualified professionals (Realtor, Mortgage Advisor, Lawyer) cannot be understated.

As a licensed mortgage pro, I help people like you achieve the dream of homeownership. In my experience, there is one element of the process that I regularly see being overlooked… The importance of preparing a budget and determining the true affordability of home ownership.

Why is it important?

People are generally under the impression that getting approved for a mortgage means they can move forward with the purchase. It’s not so simple. The calculations used by lenders to determine affordability do not include many expenses that most Canadians incur. Preparing a budget will help you factor in all your monthly costs to give you a true sense of affordability.

When should you prepare it? What should your budget tell you?

Prepare a budget before you begin looking for a new home. This will allow you to determine how much of your take-home pay you are spending, where it is being spent (discretionary vs. non-discretionary expenses), and how much you have left at the end of the month. Preparing and analyzing your budget at this point should give you an idea of what kind of mortgage payment you can comfortably afford while maintaining your current lifestyle. It can also give pause for thought… Perhaps you did not realize the effect a mortgage payment might have on your monthly budget. Consider whether you want to take on this added cost, or start restructuring your budget to accommodate for this new expense.

If you are not sure how much your potential mortgage payment might be, get in touch with me and I can take your expenses into account and provide you with your monthly mortgage payment based on today’s rates, which will give you an approximate dollar amount. 

If you feel like running some numbers right now, download my free app “My Mortgage Toolbox” on the Apple App Store or Google Play Store. My app guides you through all the expenses and considerations you’ll need to be aware of and generates clear reports for you to download and keep for your reference.

If you have zeroed in on a few properties or are ready to submit an offer, it would also be wise to prepare a budget at this point. If you have already created one, revisit it and add in the numbers based on the property or properties you are considering. You should now be including all the new costs you will be incurring once you’ve purchased your new home, including (but not limited to) your:

  • Mortgage Payment
  • Property Taxes
  • Home Insurance 
  • Estimated amounts for Heating, Hydro & Water
  • Car Insurance –  
    • If you are moving to an area where you’ve never lived, you should check to see what impact (if any) it could have on your car insurance premiums. If you have 2 or more vehicles, this is an added expense you will want to factor in.
  • Cable & Internet – 
    • If you are a first-time homebuyer, chances are you have not paid for this in the past, making this a new expense.

You should also allocate some money for miscellaneous expenses such as repairs, as there are always unexpected costs that arise when you are a homeowner. Once you’ve factored in every expense, your budget should clearly show if you can afford a new home. It can be a real eye-opener but also a valuable tool that you can use to help plan for your immediate future. Remember, if your budget shows it would be difficult to afford your new home, it doesn’t mean that home ownership is out of reach. It may just require some thoughtful consideration on your part in your other areas of spending. 

The purpose of these budget exercises is not to discourage you from home ownership, but to help you prepare for it!

Who can help you prepare the budget?

A budget is something that you can easily prepare yourself. There are many templates available online. The point of the exercise is to provide you with an accurate breakdown of where your money is being spent, so do yourself a favour and set aside some time to prepare a comprehensive budget.

If you feel that you would be better served if you had some assistance in preparing your budget, possibly because you would not be honest enough with yourself, or you may not think of all the expenses to include, reach out to someone you know and trust. Consider speaking with your Accountant, your Financial Planner, or a trusted member of your family. If nobody comes to mind, I’d be happy to introduce you to professionals who can provide you with the objectivity you need.

Not just for first-time homebuyers…

Preparing a budget is recommended not just for first-time homebuyers — it should be done by anyone purchasing a new home. If you are moving into a larger home, where the mortgage expense and other homeownership costs will increase, it would be prudent to put everything down on paper to see exactly how your total monthly expenditures will change. What can you afford? Will you be able to afford your current lifestyle? Or do you need to reduce your spending in other areas?

Preparing and maintaining a budget is something everyone should do regularly, even if it’s simply to determine where your money is being spent. It can help to identify areas where spending can be curbed and where opportunities to save may exist. Budgeting is an essential part of any Financial Plan and something we should all get in the habit of doing.

Check out my Homebuyers Guide, which outlines the homebuying process, great tips for securing your financing, and references to all the things you need to know! Request a copy of the Homebuyers Guide here!

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