Most potential first-time home buyers have a lot of questions about the market. They want to know whether property values will calm down, or if they will soar; and they want to know when!
The real estate market isn’t an entity to dismiss or overlook. But when anyone, especially an inexperienced first time buyer, obsesses over it the results can be problematic.
This fixationcan lead to a ‘wait and see’ attitude, which quickly turns into a roller-coaster ride for the buyer, their realtor, plus the sellers of properties that might be offering a great deal. ‘Wait and see’ can mean missed opportunities and a lot of wasted energy.
But the main problem with keeping a hawk-eye on the real estate market is that first time buyers are not putting their focus where it belongs – on what they can afford.
Affordability is a key factor in buying a home. It’s also a known variable in your life. Aside from an unforeseen event or emergency, most people know what they can afford for housing costs.
Many realtors and mortgage advisers remind us that markets fluctuate, and always will, but home-ownership is a long-term commitment and therefore will ride through those fluctuations.
The right time to buy a home is when you’re ready, and when you can afford the mortgage payments. There are mortgage calculator tools online and with any bank, brokerage or realtor, so there is little excuse not to sit down and crunch your numbers.
Basic affordability assessments include:
Emergency or Contingency Fund
Begin with ensuring that emergencies can be met. Keep in mind thatcontingency funds for home owners are different from those recommended for renters. Most renters heed advice to have several months of payments saved, in case of an unforeseen event. A home owner, on the other hand, needs to have a longer-term vision that includes annual property tax and home insurance, as well as maintenance and unexpected expenses.
Next, assess the amount that can be forked over for a down payment.A solid down payment will save money down the road in the form of high ratio mortgage insurance premiums. This is about paying more up front, in order to save in the long run.
Monthly and Annual Cash Flow
Then take a critical look at cash flow. This will help to dictate monthly mortgage payment affordability. A record of past rental payments is an excellent barometer of what a potential buyer can manage. If a potential buyer has been able to handle x amount of rent for many years, then chances are sound that they’ll be able to continue that.
Debt has become reality for most Canadians. Maybe we can’t get away from assuming debt, but be wise when it comes to managing it.
You don’t want to find yourself “house poor.” Ensure that you’ll continue to have enough money for life outside of housing costs. Things like child support and education, long-term investments and retirement savings, vehicles, travel and vacations need to be built into the budget. Forward planning is critical in any long-term commitment.
There’s never a perfect time to buy or sell a home, and people need to make peace with that.
Focus on known factors and those things you can control then carefully calculate what you can realistically afford.