Costs involved when buying property

Can you really afford it?

With interest rates at an all time low it seems that it is just as affordable to buy your own home as it is to rent these days. However, not everyone has the "perfect" or "ideal" financial situation that lenders are looking for, so many Canadians are still unsure as to whether or not they can afford to buy a home.

The hard costs

When buying a home there is more to consider than simply the property price. This makes your budget very important because it will tell you exactly what you can afford when it comes to purchasing a new home. Make sure that you take all the necessary costs into account and not just the deposit amount.

Your budget for buying a new home should include the following costs:

• Deposit - this amount is based on the total amount being borrowed.
• Legal fees - your lawyer will perform many searches and duties in the purchase of your home. You will need to pay for these services and lawyer fees may vary and can be quite expensive so do not overlook this aspect of home buying. Your lawyer will also do a check on taxes adding to the fees being charged.
• Home inspection fees - before you buy, it is highly recommended that you get the property checked by a professional. This up-front cost could save you thousands of dollars.
• Appraisal fees - these fees are generally low, but they should still be taken into account.
• Transfer tax - you may be required to pay a percentage of the purchase price to the Provincial Government when the title of the property is transferred into your name. This fee tends to be large and can also vary.
• Property taxes - your lawyer will get a confirm the taxes on the property are up-to-date. The seller must pay any outstanding taxes.
• Registration fees - when you register the title and mortgage for your property, you must pay a registration fee to the Provincial Government.
• Mortgage insurance - insurance costs vary depending on the amount borrowed for your mortgage. This cost can be avoided if you have a down payment of 25 percent or more. (See: Partners in Planning)
• House and content insurance - this amount is not dependant on the size of the mortgage or the land, but the actual cost to replace the dwelling and its contents. The larger the house, the more its going to cost for insurance.
• Moving costs - ensure you can cover moving expenses as they can add up quickly. Take all the likely scenarios and details into account.

Other things to consider

It is also important to remember that being able to afford a home and qualifying for a mortgage are two entirely different things. Personal lifestyle should be taken into account because you do not want to find yourself "house-poor" because you purchased a home that you qualified for, but you cannot really afford if you want to maintain your current lifestyle. For example, if you enjoy being social, dining out, traveling, or partaking in activities and entertainment then you might want to apply for a mortgage that is less than you qualify for so that you can still maintain your interests. Lenders will often approve you for more than you can afford because with the low interest rates there is added competition between lenders. So, don't allow your lender to get you in over your head. You are the only one who knows just how much you can afford. (See: Free Pre-Approval Application)

So, by keeping your financial situation and your lifestyle choices in mind, the best way to determine if you can afford to buy a home is to figure out how much you can truly afford to spend each month on a mortgage payment, property taxes, utilities, maintenance and renovations, groceries, household necessities, etc. Once you have determined how much you can and are willing to spend each month, you can then figure out how much you need for a mortgage.

Calculating all the costs

When figuring out how much you need for a mortgage, be generous when calculating your costs, but be conservative when calculating your income. By doing this, you will be able to remain realistic and hopefully not get caught up in the emotional experience of purchasing your own home. Far too many first-time home buyers end up spending more than they can afford because they often get caught up in the excitement of house shopping. It is definitely better to end up with a smaller mortgage that you can afford than being strapped for cash every month and house-bound because you took a larger mortgage than you cannot really afford.

Seek professional advice

If you are still unsure of what you can afford to spend on a mortgage, why not consult a mortgage broker? Mortgage brokers are trained professionals who deal with the mortgage process every day. They are skilled at assessing their client's personal situations and they will work to find you the best possible mortgage to suit your needs. (See: More About Mortgage Brokers)