Know What You Can Afford Before You Buy a Home

**This post may contain affiliate links. I may be compensated if you use them.

**This is a sponsored post written by me on behalf of BMO. All opinions are my own.

Everyone knows that home prices are insane in Canada, but despite how much we complain, many homeowners love seeing their property values go up in price. It’s first-time homeowners – who are usually younger – that really end up being most affected by rising home prices.

To help deal with this increase in home prices, the government has introduced various factors to help make homes more affordable. British Columbia and Ontario introduced a foreign buyer tax, and more recently OFSI brought in new mortgage stress-test rules which affected how much you can borrow.

No one knows if these steps taken will actually lower housing prices in Canada which is why you need to take a few extra steps to ensure that the home you’re buying is affordable to you!

know how much home you can afford

Figuring out how much home you can afford

Now, before you head out and start looking at homes, it’s important to figure out exactly how much you can afford. BMO has a new website for all your home buying needs. Their mortgage calculation tool will allow you to see how rising interest rates will affect your payments so you can build a buffer when you’re ready to put down an offer. In addition, if you see a rate you like, you can lock it in right away for 90 to 130 days – that’s longer than all of the major banks in Canada.

Keep in mind that affordability calculators only look at your current income, debts, and savings. It’s impossible for them to factor in your daily lifestyle, so if you’re the type of person who likes to eat out or travel, then you probably don’t want to want to borrow the entire amount that’s offered to you.

You’ll also want to consider any future expenses such as your retirement savings or the cost of having kids. Heck, even immediate needs such as the cost of buying furniture for your new home needs to be considered. All of these things need to be factored in when you’re buying a home, the last thing you want is for your mortgage payments to affect your daily life.

Educate yourself when it comes to housing

Everyone seems to have an opinion of real estate these days, but the best advice I can give you is to educate yourself. Buying a home isn’t something you just jump into. You need to do your research and assemble a team that includes a realtor, a mortgage broker, and a real estate lawyer.

You’ll also want to learn about how mortgages work. They’re pretty straightforward, but you actually have a ton of options. There are variable vs. fixed rate mortgages – which one you choose is a personal preference but it affects how much you’ll pay each month. Having a long amortization means lower monthly payments, but you’ll end up paying more in interest. Then there are your payment options; what schedule you choose can greatly reduce how much you pay, so make sure you understand what’s available to you.

I know, it sounds confusing, and your head may be spinning which is why BMO’s mortgage page is so helpful since it answers many common home buying questions. By taking the time to learn about how real estate works and what options are available to you, you’ll be in a better position when you’re ready to buy.

Final word

With all these new mortgage rules and a trend of rising interest rates, it’s never been more important to understand how much home you can afford. Consider what your long-term goals are and how housing will affect those plans before you make an offer.

About Barry Choi

Barry Choi is a Toronto-based personal finance and travel expert who frequently makes media appearances. His blog Money We Have is one of Canada’s most trusted sources when it comes to money and travel. You can find him on Twitter:@barrychoi

1 Comment

  1. Eric Bowlin on July 7, 2018 at 3:14 PM

    Great point. I still remembered when I got my first house, those words my realtor tried to get me into something bigger than I can afford. “You know, for every $1,000 you spend, your payment will only go up $15.”; “You will have kids soon – you need a house you can grow into.”; “Interest rates are so low. You can get a lot more house for your money in today’s market.” In the end, we bought exactly what we wanted, and actually spent less than we planned. And it didn’t end up that way just because we’re cheap; we based our decision on our shared beliefs and goals.

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