Understand true costs of ownership
Unlike a lot of first-time buyers, Jesse MacNevin decided in 2009 to go for a house that cost less than his approved spending limit.
“I started doing the numbers and talked to a few real estate agents,” he says. “Then I went to my credit union for a pre-approval. I realized then that I needed to focus more on what I could actually afford versus how much they would give me.”
While he was given the green light to aim for a $350,000 home, he settled on a condo for just under $260,000 instead. “I didn’t want home ownership at the expense of everything else. I remember looking at my budget at the time and thinking the last thing I wanted was not to be able to travel. It wasn’t exactly what I wanted, but it was cheaper and fulfilled all my needs. In hindsight, it was a good move.”
MacNevin says having a good real estate agent and lawyer helped him determine what he could really afford, where there might be potential problems and the ins and outs of closing the deal. A mortgage broker was also important when it came to making sure there was flexibility in his mortgage terms.
Not everyone entering the home buying market is so diligent.
When doing the mortgage math, it’s not enough to plug some numbers into an online estimator, says David Stafford, managing director, real estate secured lending, for Scotiabank in Toronto.
He says buyers need to look beyond the actual purchase price and factor in a percentage (typically 1.5 per cent of the purchase price) for closing expenses from the outset.
“Land transfer taxes, legal fees, title insurance and other things are all part of the math.” They also need to consider ongoing expenses such as utilities, property taxes, insurance and condo fees.
The immediate financial aspects are only part of the process, which is why a home inspection is a good idea, says Richard Desrocher, a Toronto general legal practitioner and former real estate broker. “You won’t know what’s going on behind the walls and on the roof. It’s pretty scary after you close a deal to have to deal with drain problems.”