Real Estate Topic: Guide to Buying Your Home
Step 1 : Make Sure You’re Ready to Buy
If you’re thinking of buying a home, this 12-step plan will help to guide you in the right direction. But before we jump right in, you have to make sure three things are ready: you, your bank account, and the real estate market.
Are you ready? Be sure.
Owning the roof over your head will bring you great pride, but with that pride comes accountability and sacrifice. There’s the obvious financial responsibility, but your home will also require constant care and upkeep. That’s what real pride of ownership is all about.
Is your bank account ready? Check it twice.
Your first home will be the biggest financial obligation you’ve ever faced. You should already be an experienced saver, and good at managing debt like student loans or credit cards. Ideally, you’ve also saved up some money for a nice down payment. Talk to your financial institution about the Home Buyers Plan too. Our next step will give you a crystal clear picture about how much you can afford.
Is now a good time to buy? Here’s the hottest market tip you’ll ever get.
Markets go up, markets go down and even the smartest experts can’t accurately predict when a market will peak or bottom out. The good news is, if you’re buying a home as a long-term investment (and for long-term enjoyment), you’re protected from short-term changes in the market. Over time, real estate has almost always increased in value.
All you have to do is pick a home that meets the needs of you and your family. Then you’ll enjoy living in your investment as it grows in value. A home is one of the best financial decisions you can make, so make sure you think things through.
Step 2: Figure Out How Much You Can Afford
Before you start looking for your dream home, let’s find out how big you can dream. Knowing your true budget is the first and most important step in buying a home. Why?
A home is a big purchase.
It’s probably the most expensive thing you’ll ever buy, and there are lots of expenses you might not even know about. Everybody’s total costs are different, but it’s almost guaranteed you won’t have that much money saved up. Hopefully you have enough for a nice down payment. Here’s the reality in detail:
Cost of buying a home = One time costs (down payment, legal fees, inspection fees, taxes)
Monthly costs (mortgage, utilities, maintenance, insurance, property taxes)
How much will a bank lend you?
Well that depends on how much you can afford each month. This is determined using two lending principals.
The first lending principle is that your monthly housing cost should not exceed 32% of your gross monthly family income. This principle is known as the Gross Debt Service (GDS) ratio calculation.
The second lending principle used, the Total Debt Service (TDS ) ratio calculation, is that your monthly housing cost and payments on all of your other debts (including loans, credit card and lease payments) should not exceed 40% of your gross monthly income.
