Buying a Home One Step at a Time

The decision to buy a home may be the most important purchase decision of your life - one that should be shaped entirely by your own personal needs and preferences and assisted by a professional who is sincere in helping you in becoming knowledgeable about the process. Owning a home can be a long time source of pride and pleasure and a satisfying and lucrative investment. By ensuring BEFORE you make the commitment that it is what you want and with the limits of what you can afford, you are on your way to making your house hunting an adventure.

The Costs Of Owning

Buying a home is the largest purchase of our lives. While home ownership is rewarding, the true foundation of security rests in owning the home that falls within your financial limits. Here are 4 financial obligations that you should be prepared to assume as a homeowner.

Initial Costs

• Down payment

The down payment is the portion of the purchase price you furnish yourself. The balance is obtained from a financial institution in the form of a MORTGAGE. It is necessary for you to determine the amount of down payment you have before you become involved in full-scale house hunting.

A common down payment or conventional mortgage as it is commonly referred to is equivalent to a minimum of 25% of the purchase price. There are other conditions that exist however that will permit as little as 5% down. The one overriding consideration in determining how much you put down is:

The larger the down payment, the less your house will cost in the long run.
For example:
House price $100,000

Interest Rate	Down Payment	Mortgage Principal	Total Interest Paid
5%	$ 5,000	$95,000	$122,512
10%	$10,000	$90,000	$116,063
25%	$25,000	$75,000	$96,717

• Purchase closing costs and extras

Potential homeowners often overlook several costs that could add up such as:

Inspection Fee

It is recommended that you have an inspection by a professional home inspector before finalizing your offer to purchase. They will explain areas where repairs or maintenance are required and will assure you that the house is structurally sound. Request a written report when one is available.

Mortgage Application Fees

Some financial institutions will charge a mortgage application fee for processing your application fee. If your mortgage is turned down, they may return this fee to you.

Appraisal Fee

The financial institution that is extending the mortgage will hire an appraiser to ensure that the property meets the criteria for a mortgage. You are generally responsible for the cost of the appraisal.

Legal or Notarial Fees

You will be required to retain a lawyer or notary to act on your behalf in the purchase and mortgaging of the property and you will be responsible for payment of the fees and disbursements. Fees can vary significantly, so shop around before you make your decision!

Closing and Adjustment Costs

These costs are payable through your lawyer when the sale is closed. These could include property and school taxes, utility bills or condominium common expenses.

Property Insurance

All homes must have adequate insurance against fire, theft and liability. Your lender will require that you provide your lawyer will proof of insurance by the closing date.

Moving Costs

Whether you are moving by yourself or hire movers, there will be costs involved.

Additional Costs

Depending on whether or not you have existing services in your name, you may be required by utility companies to put down a deposit for their services. Also remember there is a possibility that you will require kitchen appliances, cleaning materials, furniture draperies, etc.

Net worth is the difference between what you own and what you owe. You will need this information when your visit your financial institution to discuss a mortgage.

Monthly Costs

• Mortgage payments

Mortgage payments constitute the largest monthly outlay of cash.

• Other monthly obligations

Property Taxes
Property taxes are usually billed in six-month intervals and can be paid either directly to the municipality or you may include a provision for the payment in your monthly mortgage payments. Your financial institution may have the latter as part of the lending criteria.

School Taxes
School taxes are generally part of the property taxes that everyone pays.

Utilities
You will be responsible for your utility bills, which could include, heating, gas, electricity, water, telephone and cable.

Condominium Fees
If you are purchasing a condo, you will likely be required to contribute to exterior maintenance and upkeep to the common grounds and public areas on a monthly basis. Your property manager can provide full details of the services and monthly fees.

Maintenance and Upkeep
Remember you will have to cover the costs of interior and exterior maintenance, painting, roof repairs, electrical, plumbing, walks, driveways, lawn and snow removal. Remember that a well maintained home preserves your homes market value and could add worth to your property.

Determine if you qualify for a Mortgage

Two simple calculations that will tell you how much you can afford.

• GDS gross debt service ratio
  The general rule is that the payments should not exceed 32%
• TDS total debt service ratio
  The general rule is that the payment should not exceed 40%

GDS formula is:

i.e. Gross annual income of $48,000 ($4,000 per month)

Gross Monthly Income $4,000

$1,020 x 100 =25.5%
$4,000
Gross debt service ratio should not exceed 32%

Total Debt Service Ratio
This calculation is made by your financial institution, which examines the relationship between all monthly debts and your gross monthly income should not exceed 40%.
The TCD formula is:

Monthly housing costs
Monthly Housing Costs	$1.020
Other Liabilities (car payments, credit cards, etc)	$ 450
	$1,470

Gross monthy income $4,000

$1,470 x 100 = 36.8%
$4,000

Total Debt Service Ratio should not exceed 40%

Now calculate how much you can afford by visiting the Mortgage Calculator page.