Planning the Requirements for new Home Ownership

Moving into your fist home may give you a euphoric sense of wealth and happiness, but you face far more expenses than you do living in an apartment. Many home buyers mistakenly think that a 20% down payment on a home is all they really need to become a permanent homeowner. But buying a home means more than just paying down a mortgage. 

Owning a home outright is the goal many homeowners look forward to once the last mortgage payment has been made. But along that route, there are sacrifices that must be made. In today’s economic climate, many homeowners need to forgo vacations, gift giving and backyard parties to ensure their mortgages are paid in a timely manner.

Managing finances is an important activity for every homeowner. Mortgage payments are going to eat a large part of the family income. Since many first-time home buyers are young, they should remember to plan for the additional costs of marriage, raising a family and education for their children. Managing finances can be tricky even if the income is secure.

Expense-to-Income Ratio

You know how much you make at your job. Home expenses are costly, so factor in all possible expenses before comparing costs to your income. If there’s not enough to cover those expenses, you may need to cut back on some luxuries or find additional ways to bring in more money.

Mortgage Payments

Mortgages are the biggest drain on every home owner’s budget. Remember that over a 25-year amortization term, you pay more for your home than just the basic mortgage, depending upon interest rates. Generally a $100,000 home will cost you nearly $250,000 over the life of the mortgage. Obviously you need to have a steady income to sustain you through that length of time.

Property Taxes

Remember to figure property taxes into your budget. Taxes vary depending if you live in an urban, residential or rural area, and payments may be either emi annual or yearly.

Home Insurance

It’s not always a requirement, but a fire, theft or any act of nature can quickly negate any equity you built into your home. A good homeowner insurance policy can give you peace of mind for as long as you own your home.

Maintenance Costs

Replacing a light bulb isn’t a great expense, but you do need to cut the lawn and attend to the costs of making the home look livable. Good maintenance helps increase the value of the home should you decide to sell it.

Home Repairs

Cracked basements or the failure of your central air conditioning system do add up to considerable expenses. If you plan on living in your home for many years to come, salt away funds from every paycheck that can be used for emergencies. Many homeowners get caught when they must rely on credit cards to make necessary repairs, but the high interest rates on those cards can add up to considerable debt that can’t be paid off.

Renovation and Remodeling

An unfinished basement or the need for new rooms to accommodate growing family members are other expenses that need to be planned for. If you’ve built substantial equity in your home, you may be able to borrow on your RRSP or IRA. A renovation will add to the value of your home, but, of course, borrowing still comes at a price so you need to weigh the advantages of making those renovations.

While a home can be a dream come true for some, for many it becomes a fiscal nightmare. With more than one mortgage, many feel locked into a system that gives them no financial advantages. If you find yourself in such a predicament, selling your home and moving back to apartment life may be the best alternative.