Don’t buy what you can’t afford – now this statement may seem painfully obvious but you’d be surprised with how many people don’t follow it. Everyone knows they shouldn’t overspend but whether they actually live within their means is a completely different story. It happens all the time in the home building world; there is that idealistic fantasy of a perfect, dream home and people insist on completely stretching every last penny to make it a reality. Now I’m not trying to be a Debbie Downer and crush those dreams, but it goes back to the argument of expectations vs. reality. That dream can still exist but maybe it’s not realistic for right now. Some things to consider:
- Just because you’re pre-approved for a certain amount, doesn’t mean you should buy a home that costs that much “unless you want to eat Kraft Dinner for the next five years” – lovely words from our Sales Manager but true none-the-less. I’m not going to lie, I love KD, but the sentiment behind this statement goes beyond what you eat – it’s sacrificing vacations, a night out at the movies, brand new clothes and makeup, basically any other “extras” that make life awesome. Not to mention being prepared in the event of an emergency or simply having enough to retire off of. Don’t choose to be house poor.
- Consider your debt ratios, your bank sure will –
- As a general rule of thumb, your GDSR (Gross Debt Service Ratio) should not exceed 32%. The GDSR considers what the percentage of your gross income it would take to cover all your housing costs including mortgage payment, taxes, heating costs, and 50% condo fees (if applicable). For example if your housing costs amount up to $1,500 and your house income (before tax) is $4,700, your GDSR will be (1,500/4,700*100) = 31.9%. You’re still good… for now.
- On top of the GDSR, your TDSR (Total Debt Service Ratio) should not exceed 40%. The TDSR considers everything in the GDSR PLUS all your current debt payments to your gross household income. For example, if you were also making monthly student loans payments of $500, your TDSR will be calculated as ((1,500+500)/4,700*100)=42.5%. No Good.
- What about the other stuff? – Buying a home isn’t simply just that. There’s insurance costs, upkeep, maintenance, furniture, food, internet, cable, etc. I don’t know that many people who are satisfied with living in an empty shell of a home. Sure it may be large and grand and awesome from the outside, but are you really going to be happy missing that episode of The Big Bang Theory? Make sure you buy a home that’s right for you and for family, and not simply to “impress the neighbours.”
Finding the right home to fit your family and your budget doesn’t have to be hard, and the right sales person should lead you in the right direction. Just make sure your “Barbie Dream House” doesn’t make you overextend yourself and take away from really enjoying owning your own home.
