House hunting? How to get the right advice for your financial future
When you’re looking for a house, it’s natural to enlist the help of a realtor to tap into their knowledge about housing and markets to help you find the home you want. They can also help you to negotiate and help take care of the paperwork when it comes time to buy the home. It can also helpful to talk with a mortgage professional so that you can understand the mortgage options available to you and their features and benefits.
However it’s important to note that there should be someone else on your team: your financial adviser or other trusted financial professional who can help to counsel you not only on buying a home, but on the financial implications for today and tomorrow with the debt that you’re taking on.
“While buying a home is very much about the house itself, you’ve got to remember the place that homeownership holds in your overall financial plan. It’s likely your biggest asset, but it’s also your biggest debt. It’s important to remember that mortgage loans extend over decades, so it isn’t just about the transaction and qualifying for mortgage payments in the moment; it’s also about how you’re going to afford your life going forward,” says Jeff Schwartz, Executive Director, Consolidated Credit Counseling Services of Canada.
With household debt at record highs in Canada, it’s essential that prospective homeowners understand the implications of taking on more debt to buy a home. Here are a few things that you should have under your belt before you buy a home.
Make sure your price point makes sense
Your realtor and mortgage professional are focused on helping you find the home with the features you want and qualifying for the mortgage to purchase it. But just because you qualify for that mortgage, does it make sense for your income, lifestyle and other debts? Is it worth taking out the full amount?
Remember, your mortgage pre-approval is the maximum mortgage you can take out, not the recommended amount. You should always aim to leave yourself wiggle room instead of maxing out.
Get your financial house in order first
You should take some time to prepare for home ownership before you purchase
“Before you actually buy a house, it’s a good idea to get your financial house in order first. That means paying down your debt and accumulating enough savings for a down payment,” says Schwartz.
This is also the time to take care of any potential issues that you’ve had in the past with bad credit. If your credit score is low, you’ll be subject to a higher interest rate. Take some time to repair your credit by making timely payments and keeping your balances low.
Become financially literate
Get the support of your trusted financial professional to become financially literate about mortgages, other debt and savings. By understanding how your financial products work, you’ll be better able to make informed decisions to plan for your future. You’ll also be able to better understand how home ownership responsibly fits in to those plans.
Establish good financial habits
If you’re not in the habit of setting a household budget, now is the time to do so, before you buy a home. This is one of those real-life tools that you’ll need as a homeowner, which you may not get from your realtor or mortgage professional.
A budget will help you set the parameters for your household spending and help keep your reliance on debt to a minimum.
The other good financial habit you need to establish is saving on a monthly basis. As a homeowner, it’s even more essential to have a healthy emergency fund to rely on.