For many of us living in the GTA, owning a piece of the lucrative Toronto real estate market is one of the key goals in life.
Are you thinking of buying a home or a condo? Have you considered all the financial risks, unknowns, and expenses associated with buying a home? Is your credit in good standing? Do you know how much you need to cover for your down payment, closing costs, and monthly expenses? In a nutshell, do you have a financial plan?
For most first time homebuyers, buying a home is one of the biggest financial investments in their lifetime especially in Toronto real estate market. There is a lot to consider with regards to financial risks, unknowns, and expenses. What is affordable today may not be affordable tomorrow.
Is your job really secure and how quickly can you land another opportunity? The location has short term and long term implications and it can be personal or financial. How far away is the location from my work? Is this the right neighborhood for your family? In the next 5 years, can your house equity increase by $ 10,000 or $ 100,000?
How much money do you need to save for down payment and closing costs? What are your expenses to move in? The service provider expenses, closing cost, and moving expenses can add up. What will be the cost of living? How do you save for your child, vacation, and retirement considering all the monthly expenses (i.e. mortgage, property tax, transportation, maintenance, utility, insurance, and food)?
The rule of thumb is that you would need to set aside approximately 3 % for closing cost but they can go as high as 5 %. That amount does not include the money you want to put as your down payment which can range from 5% to 20 %. If your down payment is from 5 - 19 %, a default insurance premium will automatically be applied to your mortgage. The default insurance covers the lender in case you default on your mortgage.
For a $ 500,000 home, you would need a minimum down payment of 25,000 (5 %) and you would need to save approximately 15,000 (3%) for your closing cost. The closing cost list is very long, you may need to pay the lender for appraisal, for your home inspection, real estate legal fees, record your deed, property transfer taxes, the lender may collect advance payments on property taxes and insurance.
If you are planning to renovate before you move in, depending on what you want to do the costs can be substantial in addition to moving expenses. I have included the statistics canada link for your reference which lists the average household expenditures by household type. It gives a good estimate as to what you can expect as monthly expenses based on your household type.
Can you imagine the state of our economy, if most of the potential home buyers decided against buying a home? There are a lot of industries and business dependent on the real estate market. Yes, specifically on you buying and owning a home. When you buy a home, you are not just fulfilling your dream but you buy into the economy directly and indirectly. According to a published report by TREB (Toronto Real Estate Board), 92,335 homes were sold in 2017.
When you buy a home, you buy the economy
We established that there are a lot of financial implications of buying a home. Home buyers need to take into account and plan for a financial future that is beyond just covering the down payment and closing cost. The question is what can be done today to prepare for the future to ensure that you can protect your investment and your dream home.
AskGauge can help you at every step of your home buying journey.