Potential buyers looking at real estate in Calgary may wonder if they’re financially ready to buy a house. Whether a first-time homebuyer or a homeowner looking to upsize their home, there are financial steps that every buyer should take before reaching out to a REALTOR®. These steps are as follows:
Know Your Debt Load
The first thing any potential buyer should take a look at is their debt load. Debt may seem unavoidable, but not all debt is the same. For example, any buyers owing to the CRA must pay off this debt first. Looking at the different credit cards carried will also indicate what kind of debt load buyers have. It’s important to remember that being approved for a mortgage and being able to afford that monthly cost is not the only expense homeowners will have. High-interest credit card debt is also not debt buyers want to bring along with them when looking to get a mortgage.
Do You Have an Emergency Fund?
Maybe potential buyers don’t have credit card debt. The next thing they should consider is an emergency fund. If homeowners are paying most of their income into their mortgage, property taxes, and all the other bills that come with being a homeowner, they may not have anything left for unexpected costs or emergencies. If there is no money left in the bank to pay for repairs when their car breaks down, they may not be as ready to get into real estate as they thought.
Do You Have a Retirement Fund?
After an emergency fund, the next step to know if potential buyers are financially ready to buy a home is if they have a retirement fund. Depending on the mortgage’s length and the buyer’s age, it is possible that the homeowners may transition into retirement while still paying the mortgage on their property. If the homeowner can’t afford to retire due to the cost of the mortgage, then they are not financially ready to buy a house.
Make a Budget
After all those hypotheticals – which will vary from potential buyer to potential buyer, the next thing to examine is the budget. How much is your take-home check from work? What are other expenses in your life? Will salary cover the mortgage, taxes, utilities, and other things that may come up in the life cycle of owning a house, such as roof repair, furnace maintenance, or more?
Know the Upfront Costs
Next, it’s essential to review the upfront costs that come with buying a house. These costs include a down payment, home inspection, insurance, property tax, legal fees, and moving expenses. If any of these fees will add financial stress, then taking a step back and waiting until it doesn’t raise alarms is the best step.
A good credit score is crucial, and getting a mortgage pre-approval requires a hard credit check. That means it can decrease the credit score by approximately five points. It is also an important step to find out what mortgage amount your lender will approve and get it in writing. Potential buyers should wait to get a mortgage pre-approval until after they’ve examined all the other elements in their budget, as listed earlier.
From 2018 on, all potential homeowners must complete a mortgage stress test whether buying a new home, taking out a homeowner line of credit, refinancing the mortgage, or changing mortgage companies. This stress test will indicate whether the mortgage holder can still pay their mortgage if interest rates increase. While it may seem to limit, as it will affect the mortgage amount, protecting the homeowner is the ultimate reason should interest rates soar.
There are a lot of factors for buyers to consider when deciding if they are financially ready to buy a home. Constant security in your finances is one of the most important. Keeping your debt load low and your finances secure and in order, attaining an affordable mortgage is within your reach!