heritage-resp_mortgage

Renting vs. Buying

Not sure if you should buy or rent your home?  While some people may get caught up in the excitement of buying a home, it does come with alot of extra costs that you need to take into account.  On the other hand, a house is still considered a good investment if you plan on staying in it for the long run.  There are pros and cons to home ownership, and we have found some questions below to help you determine the right choice.

1) Do you have 10-20 % of the home’s purchase price saved for the down payment?

The more money you put down, the less you need to borrow from the bank, and the less interest you paid. This could dramatically affect your monthly payments, and overall cash flow.

 

2) Do you have another 1.5-5% saved for closing costs?

In addition to covering your mortgage costs, there are others such as legal fees, home inspection fees, land transfer tax (if applicable), and even moving costs to name a few.

 

3) Can you keep debt servicing below 40 per cent of your income?

Your total amount of debt, should be no more than 40% of your income when requesting for a pre-approval.  In total, your household debt and other debt (credit card, line of credit, car loans, student loans) should stay between 35% – 40% of your gross income.

 

4) Are your monthly fixed costs at 50-60 per cent of your after-tax income?

Fixed costs are costs that you need to pay every month, such as your cell phone bill, groceries, housing and transportation.  Staying below this rule of thumb will avoid being “house poor,” and will allow your family to put aside savings every month, or the extra cash to do other stuff.

 

5) Can you save 1-2 per cent of your income in a “housing maintenance fee” each year?

Experts recommend saving 1-2% of your income towards emergency repairs or maintenance costs.  Alot of people underestimate potential renovations that could occur and the high costs associated to making repairs.  This extra cash flow will alleviate the burden of going into debt unnecessarily.

 

6) Do you plan to stay in your home for at least three years?

Homes are still viewed as long term investment so think of your home as a long term plan.  Where do you want to be in 5 years? 10 years?  The longer you stay in a home, the more equity you build as you will be paying more interest than principle in the first couple of years, according to experts.  It may not be worth it to sell after after 1 year.

 

7) Is your job stable?

Will you be at your current job for the long term?  Do you foresee any changes?  Do you plan on staying in your current career path?  Will there be any pay decreases? In today’s economy, it is tough determine job stability for most people, but if you know your job is secure and you are willing to stay in it for the long term, then it definitely helps with the responsibility of home ownership.

 

8) Are you emotionally ready to own a home?

The decision to purchase a home will be one of the biggest financial decisions in your life.  Are you ready to take on home ownership and deal with the financial burden?  Some people can make the sacrifice, but some cannot.  Home ownership may require one to change their lifestyle and live a more modest life, and cutback in spending they are not used to. Owning a home is more of a personal choice instead of the norm in today’s modern society.