You’ve had it with your roommates and you’ve had it with paying rent. You’re ready to move out and you’re seriously considering taking the leap into homeownership. But just because you want to buy a home, doesn’t mean you should. Before you start planning your housewarming party, take a minute to sit down and consider everything that comes along with homeownership. From mortgage rate trends to better budgeting, there’s more to buying a house than simply signing an offer.
Do Your Housing Marketing Research
While your personal finances are important, it’s only half of the equation. You also need to take into account the housing market in your area. Housing prices fluctuate constantly and unfortunately, there’s no real way of knowing when the next price drop will occur. The best thing to do is review pricing trends to see whether homes in your area are gaining or losing value. A local realtor should be able to help you navigate through recent stats and data.
Renting vs. Buying
Is buying really more affordable than renting? Once you’ve received your mortgage pre-approval and are considering potential properties, remember to take costs like association fees and utility bills into consideration. A quick way to compare the costs of buying with the cost of renting is to use the “rent ratio.” Find two similar houses, one for sale and another one for rent. Take the sale price of the home and divide it by the annual rent rate. This will provide you with the rent ratio. Rent ratios that are above 20 are normally indicative of a housing bubble, so hold off for a couple of months. Housing prices could go down in the future, which could also result in a drop in mortgage rates.
Another factor to consider when looking into the rent ratio is how long you plan to live in the property. If you plan to live in your new home for longer than the life of your mortgage, then it may be worth it to buy. Plus, if you think your property value will appreciate by the time you’re ready to sell, all the more reason to make a purchase.
Watch the Mortgage Market Closely
The world of mortgage fluctuations and trends can be confusing. That’s why it’s critical that you work with a mortgage broker in order to ensure sound financial decisions. Of course, lower rates provide bigger incentives to buy sooner rather than later – assuming you can afford it. It’s your mortgage broker’s job to find a lender that can lock in a low rate for the life of your mortgage. To do this, check the mortgage trends of the last five years. This will help you make an educated estimate if rates are set to rise or fall.
Thinking about taking your first step onto the property ladder? Here are a few quick questions to help you wrap your mind around the commitments:
- How much money have I been pre-approved for?
- Can I comfortably cover housing payments and closing costs?
- Will I have any money left over for emergencies?
- What is my rent ratio?
- What do mortgage rates look like now?
Investing in a home is one of the biggest decisions you’ll ever make. Make sure your journey is an informed one with help from the mortgage brokers are FamilyLending.ca.