Why pay rent to someone else when you could build up your own equity by owning a home? It only makes sense, right? Yes, owning a home can help you create wealth, but you have to take on a significant amount of debt in order to purchase one. That means you need to really think through the financial implications of the costs and debt you’ll take on.
“While owning a home can be a wise financial move, you’ve got to make sure that it makes sense for you on a number of different fronts,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
“There is a common belief that paying a mortgage and paying rent are more or less the same thing. They’re not. Don’t underestimate all the other costs that are associated with homeownership, like taxes, closing fees, maintenance and repairs. There are also “hidden costs” when it comes to homeownership, so you need to plan ahead,” says Schwartz.
Remember all of the costs
On the surface, maybe your mortgage payment is awfully close to what you pay in rent, so it’s a no brainer to buy, right? Not necessarily. When you are looking at buying, you’ve got to compare apples to apples. Don’t forget closing costs. These can include things like lawyer fees, realtor fees, mortgage interest adjustment, home inspection, title insurance, appraisal, property survey, GST or HST (if applicable) and mortgage insurance.
And then there are the ongoing costs that you can expect in addition to your mortgage payment, like property taxes, common fees (if you are in a townhome or condominium) and possibly additional utility bills.
What are your savings habits?
If you are going to buy a home, you should start the process years before you actually do your house hunting. The most important thing in your house hunting tool kit isn’t your housing wish list or your mortgage pre-approval, it is your savings. And savings can take years to accumulate.
You don’t just need savings for your down payment (although the more you can manage the better). You’ll need to have savings put aside for a home maintenance on an ongoing basis. Plan on spending anywhere from one per cent of your purchase price annually for maintenance and upkeep. However you can add a cushion of two or three per cent if you like. And if you don’t have the cash to cover those emergency expenses, you’ll be forced to take on even more debt.
What’s your plan?
You’ve probably heard people talking about buying and selling houses in quick succession, allegedly making tons of money in the process. While this does happen on occasion, that is the exception to the rule.
Without getting too deep into the economics and the math of how you build equity, it can take years just to make enough to cover the closing costs on a purchase.
How long are you planning on staying put in your home? If it’s less than five years, you may be better off renting, because if you had to (or wanted to) sell, you may not come out ahead.
If homeownership is your goal, it is important that you start your journey off on the right foot- with little debt and lots of savings. We can help you get your balance sheet in order. Call one of our trained credit counsellors at or visit our free online debt analysis.