Buying your first home will probably be the biggest financial transaction you will ever make (a close second is your hydro bill). The idea of finally being able to have your very own home is an exciting and stressful time – looking at houses on MLS, picturing your kids playing in a big backyard, having family over for special occasions, decorating and renovating the house in the way you like it. The last thing you think about is paying the mortgage, property taxes, heat and hydro and mowing the lawn – although some guys do dream about sitting on a ride on lawnmower. With our current low mortgage rates, buying a home has become very affordable and there is a wide variety of houses to choose from, it is important to know that there are other costs associated with buying a home apart from paying the mortgage. If it is your first time buying a house, you might overlook other costs of buying a home due to the excitement the process involves and jumping in headfirst into home ownership.
The unexpected costs might be the determining factors between enjoying your new home and putting a strain on your finances and your relationship. You will not just spend what the lender qualified you for the mortgage for the house. You will have to spend on other things such as decorating, repairs, improvements, moving and maintenance, just to mention a few.
Happily ever after
If you are a happy couple buying your first home, you might possibly have some disagreements during the home buying process. When looking at houses you might like the kitchen layout but your partner thinks the garage is too small and so on and so on. Before you start looking, it might help to sit down and discuss just what are the important features and ones that you are flexible on in your dream home. Create a checklist to bring with you to each showing and take notes so you can write down your likes and dislikes and talk it over accurately after.
Before meeting with the lender, go over your finances together– savings, debts and any credit issues you might have. Decide together on the size of the mortgage you are both comfortable carrying and look at your monthly cash flow to make sure it works. By doing this there will be no surprise credit card debt that the other didn’t know about, you will have a realistic expectation of the mortgage amount you can qualify and you can fix any financial issues that may come up during your meeting with the lender.
If both of you are on the same page financially and know what your budget can handle, you will be able to solve any financial issues that come up together and stay a happy couple after you move in (that is not a guarantee and please don’t call me settle any domestic disputes).
Not just a mortgage payment
Other unexpected costs include simultaneous unforeseen expenses such as a stove that needs to be replaced and then your car breaks down. In the event that your cash flow is tight, such expenses can overwhelm you and a stove and a car are things that you might not be able to go without for a long time. You need to have about 5,000 to 10,000 dollars in your savings which you can easily access anytime when you need it.
Taxes (Yay!) are also part of the costs you will have when buying a house. As a homeowner, you will be required to pay property taxes. These taxes can be part of your mortgage payment or you can pay it separately. If it is part of your mortgage payment one thing to be aware of is that your taxes for the home can still rise even if you are on a fixed rate mortgage. This will in turn increase your mortgage every month.
Wait there’s more – the utility bills such as water, heat and hydro. Note that these costs may be slightly higher in your home, so you should be prepared to pay more. You will also have to pay for the internet, cable and phone bills, which you might not have paid for if you were living in apartment or with you parents.
When you are moving things to your new home, there are more expenses. You could pay a moving company, or you could rent a truck and bribe friends and family to help with food and drinks.
Just in case
When buying a house, you should make a point of setting aside a “Surprise!” account for unanticipated expenses such as a roof leak or a broken appliances. A month after we bought our first home we had to replace the stove as it became extremely hot on the outside when it was on. Even though you may have homeowner’s insurance cover, it is not something that you can totally rely on since it may have gaps and therefore there may be some things it does not cover.
It is important for you to be aware of the coverage limits of the insurance plan you take as well as deductibles. Before you take an insurance plan, you can shop around and compare the rates so as to use the best one that will allow you to save money with a policy that covers your house as well as automobiles.
These are just a few examples of the additional costs and relationship challenges of buying and owning a home. If you are looking to buy your first home this year I am hosting a “First time home buyer’s edition” of Ottawa Experts on March 10th on Rogers cable 22 starting at 8:30pm. It is a live call in show and I will have a real estate agent and a mortgage broker on to take your calls and answer your questions. You can also e-mail your questions before the show to info@AndrewWBradley.ca or Tweet them to me @AndrewWBradley.