Buying a home is likely one of the biggest purchases you’ll ever make, but according to a recent TD survey, homebuyers too often let emotions cloud their judgement that results in spending more than originally budgeted. Of those surveyed, 60 per cent said they would be willing to exceed their budget, with more than half (56 per cent) saying they would be willing to go over budget by up to $50,000.
"Emotions are playing too big of a role in the home buying process and are tempting buyers to spend more than they can afford," says Roy D'Souza, Associate Vice President, Real Estate Secured Lending at TD Canada Trust. "$50,000 might lose its sticker-shock compared to the overall price of a house, but it's still a substantial amount of money that could be used to meet other financial needs."
Post purchase blues
The survey also found that virtually all homeowners (97 per cent) wish they had the financial knowledge they have now about owning a home that they didn’t have when navigating the home buying process. If they could turn back time they would factor in their other financial obligations when determining how much mortgage they could really afford, including property taxes, home maintenance costs, home insurance, and overall lifestyle expenses.
"How you live is just as important as where you live," says D'Souza. "Owning a home is a lot more expensive than buyers expect. Buyers who don't account for these extra costs are potentially putting themselves under a lot of financial stress should their circumstances unexpectedly change."
To help buyers account for the costs associated with buying and owning a home, TD offers the following tips:
- Give yourself some financial breathing room before you buy: For the first time in years, mortgage rates have risen and you’ll want to save up on the chance that they may continue to rise. TD recommends maintaining a financial buffer of at least three to six months’ worth of mortgage payments, to help offset the impact of potential future rate changes.
- Be honest about your lifestyle: The mortgage you qualify for may not actually support the lifestyle you want to live. Assess what you can live with, what you can live without, and how your mortgage payments (and ongoing home costs) will affect your quality of life.
- Take your mortgage for a test drive: If you live at home with your parents, set aside what you expect to pay monthly in mortgage payments. If you rent, set aside the difference between what you pay monthly in rent and what you expect your mortgage payments to be. Then, set aside the other costs of owning a home you don’t already spend money on; things like property taxes as well as hydro, natural gas, and water.
When it comes time buying a home, there’s another reason to not exceed your budget: closing costs. The Canadian Mortgage and Housing Corporation (CMHC) estimates that typically you’ll need to have 1.5 per cent to 4 per cent saved up to cover things like legal fees and land transfer taxes.
Ready to make homeownership a reality?
Once you’re ready to take the plunge into homeownership, there are a few insurance-related items you’ll need to explore, including home insurance and life insurance. Chances are your mortgage lender will require that you have both.
House insurance: Severe weather. Fire. There’s a lot that can go wrong and a home insurance policy will offer you financial assistance for damages that stem from the unexpected. A home insurance policy is basically broken down into two main components: it will provide coverage for damages to your property (e.g. the home and your possessions) as well as your liability (e.g. if someone slips and falls).
Life insurance: If you’re buying a home, make sure you review your life insurance options. While some might suggest that you get mortgage life insurance, this isn’t always the best choice for everyone. Mortgage life insurance only pays the balance of your mortgage and the beneficiary is your lender. On the other hand, you can get a life insurance policy that goes to your family—not the lender—that includes enough coverage to take care of the mortgage as well as all your family's other needs. A popular, affordable option is term life insurance.
You shopped around for your new house, now it’s time to shop around for your insurance
When buying a home, staying within budget can be tough. InsuranceHotline.com can help you ensure that you’re not overspending on the insurance protection you’ll need. Shop around today for the best prices and get quotes from competing insurers for both your home insurance and life insurance must-haves.