Posted by: Daryl & Wendy Ashby | July 7, 2010

Is Your Home a Burden on Your Back Like the Tortoises

But for many people, the thought of buying a home is just that, a weight.

Where to look? What to look for? How much to pay? What is the impact of the new the government rules for qualifying for a mortgage? The considerations go on and on.

You can take much of the anxiety out of the process by doing some homework first.

The best place to start is figuring out just how much you can afford. After all, answering that question will help you focus on your realistic options.

First, there is plenty of confusion over the recent government changes made to qualify for a new mortgage. To begin, you can still have as little as five per cent as your down payment to purchase a home you are going to live in.

The down payment change the government made in April was for people who already own their home and want to refinance it to do things like renovations, take a major vacation or pay some debts.

In that case, they must have 10 per cent equity and can take the mortgage up to a maximum of 90 per cent of the appraised value of the home.

You must qualify at the government prescribed rate when:

– The mortgage is more than 80 per cent of the value of the purchase cost

– The fixed term of the mortgage is less than 5 years

– Or the mortgage is a variable rate mortgage, you must qualify at a government prescribed rate.

At the time of writing this article, the prescribed rate was 5.99 per cent.

However, if you select a five-year closed term mortgage or longer, the actual mortgage rate you are paying on your mortgage will be the rate at which you will qualify.

The significance here is that actual mortgage rates being charged now on five-year terms are significantly lower than the prescribed rate of 5.99 per cent.

Next, get a fix on your net worth. That’s the difference between your assets (what you own, such as savings accounts and bank deposits, stocks, bonds, vehicles and so on) and your liabilities (what you owe, such as loans, credit card balances, unpaid bills, your existing mortgage, etc.)

You’ll need this information when visiting your financial institution to discuss a mortgage.

It will also help you assess how much you have available for your down payment and other costs.

When you look at what you can afford, don’t just consider the purchase price.

There are all sorts of “extras” associated, including the inspection fee, appraisal fee, legal fees, closing costs, property insurance and moving costs.

It all adds up, perhaps tacking on two per cent or more to the price of the home — which in this market comes out to several thousand dollars.

Then there are the financial obligations that you must be prepared to assume on an ongoing basis:

– Monthly mortgage payment;

– Property/school taxes;

– Utilities; on going maintenance and,

– With a new home, you will have:

– Landscaping;

– Fencing and decks;

– Driveways, etc.

A turtle might be able to stick its neck far out, but you don’t want to. By realistically evaluating your financial situation and accounting for all expenses, you can establish just what you can afford up front, and the maximum you can put toward your monthly housing costs.

That’s a lot to think about.

A great place to get a handle on all of it is your bank’s website.

For instance, at http://services.rbc.com/advice/main.xml you’ll find all sorts of practical tips and tools, including calculators that help you determine your net worth, your personal budget, what you can afford, your mortgage payments and more

Courtesy of Bill McFarlane, Calgary Herald

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