The dream of home ownership, is most often at the forefront of any renters mind, especially when doing a cost comparison. There are a number of other factors that need to be reviewed before moving forward in the buying process. The simple costs of renting compared to a monthly mortgage payment may seem like a cut and dry positive, but home ownership is a serious financial and lifestyle commitment.
Life Can Throw Curve Balls
Never say forever! So often, buyers buy with the intent of staying there forever! If you bought the home with the intent of making improvements, then those should be addressed before putting it on the market. Selling a home does cost money, so if If you potentially may have to move in the short term, the value of your home may not have appreciated enough to cover the costs of buying and selling.
The length of time that it will take for your home’s value to increase enough to cover those costs depends on various economic factors. Depending on whether it may be a buyers market or a sellers market can greatly affect your homes appreciation. Asking a Real Estate agent what type of market your area is currently in while help you decide if you can afford to sell. On average, in a steady market you should be able to bank on an appreciation of approximately 5% of your purchase price per year. In this scenario, you should plan to stay in your home at least 3-4 years to cover selling costs such as lawyers fees, mortgage penalties, improvements and realtor fees?
Will Your Home Grow with You?
What are your needs and wants in a home to satisfy your present stage of life? Yes, the garage will fit your motorbike, but will it fit a minivan five years from now? Finding a home with potential for growth is not only good fit your lifestyle changes, but can be a good investment. Looking at things like, the size of the yard and distance from neighbours. Would there be room to build an addition or garage? Could the basement be turned into a family room or bedroom? Could an extra bathroom be added? Any of these can add value when ready to sell. On the flip side, maybe renting fits your lifestyle as far as time management goes. Or maybe you should consider condo living, if you don’t have a lot of time to commit to home maintenance?
Get Real About Finances
Calculating your financial readiness is more than comparing monthly rent versus monthly mortgage. You can usually find a lender to lend you money, but if your credit is not the best, it will be at higher interest rates and maybe require a larger down payment. Doing up a current and then a projected budget of income and expenses will give a clearer, more honest picture of your financial health. Do not forget to add in extracurricular activities, hobbies, holidays, and a savings budget for home maintenance and renovations. Even though you may be pre-approved for a higher amount, stick to your personal budget as to what you can afford and stay with in your comfort zone, as it will save a lot of stress later when you are trying to make ends meet.
A good rule of thumb is the 28/36 rule, where as your monthly housing budget does not exceed 28% of your income and all your current debt does not exceed 36% of your income.