Think about the associated costs buying a new home: furniture, appliances, window coverings, landscaping and utility hookup fees.
By: Kristin Kent
Breya Skinner and her soon-to-be husband didn’t think they would buy a house in need of renovations.
But they didn’t count it out either. To them, it was more important to be in a desirable neighbourhood
“It came down to price and where we wanted to be,” says the 34-year-old from Burlington, Ont.
They started with a checklist of must-haves. Real estate professionals told them to be realistic, saying they may not get everything on their list.
“We looked and looked for over a year. We were okay in the house we were in. It wasn’t a big deal,” says Skinner.
The couple wasn’t about to settle. They were on the hunt for their “last home.”
“We knew we were getting married and we knew we were going to start a family,” she says. “We knew we wanted to be in a family-centric neighbourhood. We were aiming for an area with kids.”
Then, they stumbled upon a charming tree-lined street in an older neighbourhood.
“We said, ‘Wow, wouldn’t it be amazing to be on that street?’”
A year later, they bought the oldest house on the block.
“We got everything on our checklist and we saved money,” says Skinner.
Not everyone is willing to wait or undergo a massive renovation. Each homebuyer has his or her own needs, wants and financial commitments.
Plus, many homebuyers aren’t just purchasing their next home, they’re selling a current one too.
Julie Hauser, spokesperson for the Financial Consumer Agency of Canada, says the costs of buying your next home can be different.
“This is a very involved process, more so then buying your first home. When you’re selling and buying a new place, it’s a big undertaking,” she says.
Knowing where you stand financially is a good place to start.
It may be prudent to price your current home and calculate potential net proceeds before you search for your next home.
You can easily determine an appropriate sale price by comparing your home to similar homes listed for sale in your neighbourhood. You may also want to seek advice from a real estate professional.
To define potential profit from the sale, you’ll need to know what you’re paying out of pocket.
Costs will include your realtor’s commissions (if you’re using one), your lawyer’s fees, other legal costs, adjustment costs, property taxes, condo fees, repairs, upgrades, staging, storage and utility discharge fees.
If you have time remaining on your mortgage, you’ll need to know if you have an open or closed mortgage.
This will determine whether you can take your mortgage with you to your next home. Called porting a mortgage, this refers to transferring the terms and conditions to another property.
For example, you may be comfortable with your current interest rate and want to stay with the same lender. If this is the case, speak to your mortgage specialist to determine if your mortgage is transferable.
There are ways to settle your current mortgage before moving into another one.
You can transfer your mortgage to the buyer, should that option work for both parties involved. This is called assuming a mortgage.
You can also consider breaking your mortgage. This may be an expensive task, as pre-payment charges will apply.
All federally regulated financial institutions have mortgage pre-payment calculators on their websites. They further offer toll-free numbers to help you determine the actual pre-payment charge at the time of the call.
Some people may have to consider payments to the Canada Revenue Agency (CRA) when selling their home.
If your home is your primary residence, you do not have to report gains from a sale.
However, if your home is not your primary residence or you’ve gained income from the property, you will be required to report earnings to the CRA.
Once you know where you stand with your current home, it might be wise to get a mortgage pre-approval before you begin your house hunt.
One advantage to getting pre-approval is that it allows you to lock in a given interest rate for a period of time, generally from 90 to 120 days.
This can be beneficial should mortgage rates rise while you’re looking.
Another advantage is you’ll know your maximum borrowing amount. That way, you don’t fall in love with a home you can’t afford.
“Remember too, you don’t necessarily want to spend your maximum,” advises Hauser, adding there are other fees to consider.
Make sure you can afford the additional costs related to your home and your move.
For example, you may also have to pay for new furniture, appliances, window coverings, landscaping, home improvements, utility hookup fees and such smaller fees as redirecting mail.
Your new home might come with higher taxes. Or, perhaps the home is larger and requires more electricity. Be sure you can handle the additional costs.
If you’re buying a home in need of renovation, be sure you understand all that’s involved.
Renovations can be costly and time-consuming.
To determine if this is a good route, ask yourself:
-Will you do the renovation yourself?
-Will you hire a contractor?
-What are the labour costs?
-What will the materials cost?
-Will you live in your new home as you renovate?
-Will you live in your existing house while you work on the new house?
-Can you afford to carry two properties?
For Skinner — who’s now eight months into a renovation — there’s no doubt they made the right decision.
“The houses on either side of us were easily $100,000 more,” she says.
“Where we’ve ended up is incredible.”
Keep your home healthy
Buying a home comes with the responsibility of maintaining it. The Canadian Mortgage Housing Corporation suggests you protect your investment. Here’s how:
Save for emergencies Your home will require repairs, especially as it ages. You will have expected costs, like roof repairs. Sometimes, unexpected costs come up. A good rule of thumb is to set aside five per cent of your take-home pay.
Live within your means If you spend more than you earn, you’re putting yourself at risk. Check your spending monthly and make sure you’re sticking to your budget.
Repair promptly Know how your home runs. That way, you’re not second-guessing the parts and components needed to maintain it. Never put off something in need of repair. Neglecting your home can only lead to more expensive repairs in the future.
Consider inspections Stay on top of your home’s to-do list. You can do this by inspecting your home regularly. If you’re not comfortable with this task, bring in a professional to help you learn what to look for.
Don’t go overboard Remember, your home’s value is tied to the other homes in your neighbourhood. Unless you’re planning on staying in your house for years to come, be careful not to spend too much of your money by over-renovating.
Stay fire-safe Create a fire evacuation plan for each room in the house. Share it and practise it with your family. You should be able to open doors and windows at a moment’s notice. Furthermore, place smoke alarms and fire extinguishers on each floor of the house and check them once a year.
Detect the invisible Carbon monoxide is odourless and poisonous. High levels of this gas can cause illness or death. It may be prudent to place a carbon monoxide detector on each floor of your house.
Keep valuables safe Don’t put your family in jeopardy for important papers or family heirlooms. Purchase a fire-safe box or place your valuables in a safety deposit box. This way, each member of the family can concentrate on the most important task during an emergency: exiting the premises.
Pin important numbers Keep a list of emergency phone numbers on the fridge or in a place that everyone knows about. Such numbers include 911, poison prevention, your family doctor doctors and trusted friends and family.
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