Avoid getting in over your head when purchasing a home...
January 18, 2017 | Posted by: Natalie Wellings
Barbara Knoblach, a certified money coach with Money Coaches Canada. spent some time speaking on Edmonton AM this morning. She offered some great tips on keeping it real when purchasing real estate. She points out that it is extremely important to remember that, when going through the pre-approval process, Mortgage Brokers and lenders do not take into consideration your lifestyle which includes how many vacations you take a year, how often you eat out, or go shopping. We also don't consider the monthly cost of big ticket items like child care expenses, the cost of vehicle insurance (which can vary widely between individuals) or how much you spend on groceries every month (in my house that is a HUGE expense because we try to eat very healthy!). Mortgage lenders are only required to look at your gross income and your monthly debt obligations so that may leave out a large chunk of your monthly spending.
I completely agree with Barbara's thoughts about real estate purchasing. She also speaks a bit about interest rates and how we have enjoyed a low interest rate environment for quite some time. While a low rate environment can save you money, it will not save you in the long run if you borrow more than you should. I often encourage my clients to pretend their mortgage rate is much higher and make a larger payment every month by utilizing the pre-payment privileges offered by their lender.
Barbara is bang-on when she says that it is not up to the bank to approve you; you must approve yourself. Take some time to go through your expenses and ensure you have lots of wiggle room every month to pay for your lifestyle and unexpected expenses. Make sure your mortgage payment would be affordable at 4% or 5%.
Most importantly, the onus is on you to make sure you don't get in over your head and that you can weather the storms that may come your way in life. A home will likely be your largest monthly expense and it is not something that can quickly be changed if you need to get out of it.
Don't let your house own you! A house is only one aspect of your life. If you have any questions at all about how to apply for a mortgage, or how to calculate a monthly budget please get in touch with me. I'd be happy to help!