Understanding what you can afford and how to budget accordingly
Pro Tips by Kristi Sauter
Shopping for a home, especially your first home can be very exciting. Visualizing how you’re going to decorate your new living room, or nights out on the deck can be very enticing. But before you get too far ahead of yourself, it’s important to understand how much you can afford so you don’t find yourself in a “house-poor” situation.
What does “afford” even mean?
To be able to “afford” something means that you can cover the cost of the payment, while taking into consideration your other financial commitments or other debts. This is important because even if you have a good job, if you are highly leveraged, your affordability bracket is smaller than if you possibly made less money but had less debt.
How do I find out what I can afford?
The easiest way is to speak to a mortgage expert to get pre-approved. They will ask for your employment history, T4’s, investment statements and they will need to get your credit score. They will also need to know if you plan on using any RRSP’s or savings to put towards the purchase of the home. So, here’s a hint* having all these things ready ahead of time will speed up the process and they will also be important once you do decide on a financial product. Once you’ve been pre-approved for a certain amount, then can you start your home shopping.
If you find that you’re reading this and you’re thinking “that all sounds great, but I don’t have a down payment or RRSPs to put towards a house”. That’s okay, there’s no time like the present to start saving. I still recommend getting pre-approved. This will be a good starting point and give you a realistic goal to work towards as far as what you need for a down payment. Then collaborating with a mortgage expert or a financial advisor, you can formulate realistic savings plan to help you achieve your homeownership goals. Whether it’s opening a Tax-Free Savings Account (TFSA) or setting up an annuity so every pay chaqueta you are setting money aside, there are quite a few different options to help you save towards a down payment or maybe pay down some of your existing consumer debt.
All in all, the biggest takeaway I want you to have, is that homeownership is most certainly a possibility, and understanding affordability is key to successful financial management for your future. Have more questions, or are curious about what your affordability bracket is, contact your nearest mortgage expert.