Weigh your cash flow and get that pre-approval
Province
CREDIT: Jason Payne, The Province Before you sign on the dotted line, figure out how much your new house will really cost.
While all the signs point to another banner year for the Canadian housing industry — especially across the Lower Mainland, where housing values just keep climbing — buyers should still be cautious before plunking their money down.
While employment remains strong and interest rates are forecast to stay low for a good while, it’s a much different housing market now than during the hot conditions of the late 1980s, when interest rates were much higher and so were down payments.
Now you can get into the market for five per cent down — or even less.
Trouble is, these kind of conditions can produce impatient buyers who want to get into the market — or move up to something nicer — before it’s “too late.”
“The problem is, many Canadians don’t appreciate the impact a large mortgage will have on their discretionary spending,” says Patricia Lovett-Reid, vice-president at TD Waterhouse.
“And the last thing you want to do is become really house-poor by spending too much on your home and not having enough to live on.”
Experts say the first thing you want to do before you start house hunting is to talk to a financial adviser who can help you navigate your way through what a house really costs — and how to finance those costs.
You could easily spend two per cent of the cost of the house by the time you rack up legal fees, transfer taxes and insurance for the new home.
You may want to use a mortgage broker or you may prefer to shop around on your own — which often starts with walking through the door of a financial institution for some advice.
Finding out how much you are good for is a fairly straightforward process that gauges how much you take in and how much goes out.
“One [formula] is the gross debt service ratio so your gross housing costs per month should not be greater than 32 per cent of your gross monthly income,” says Reid.
Now that you’re set to get into the market, it’s important to try not to get emotional about the process of buying a home — because you’ll be tempted to forget that advice you got at the bank and spend money you shouldn’t.
You probably want to avoid getting into a bidding war, because that can be the time when emotion really threatens to overwhelm logic and good sense.
And there isn’t much point in buying the home of your dreams only to find out after the closing date that it’s a money pit because there is a list as long as your arm of urgent house repairs to be done quickly.
And that means you really should make a commitment to buy contingent on a house inspection.
“And I think when the inspection is happening, you [should] walk through with the inspector,” said Reid.
“I mean, what better way to learn about the home you are likely to buy?”
© The Vancouver Province 2005