How to financially prepare to buy a home

Whether it’s a condo downtown or a fixer-upper of your dreams, there are a few things you can do to financially prepare for if you're in the market to buy a new home.

Now is the time to make an assessment of your overall financial picture to ensure that you balance your home purchase with all your other personal and lifestyle goals.

The first step is to get your credit report. If you are purchasing your home with someone else, they will also need to get their credit score.

• You’ll want to make sure it is accurate, and that you have a good score.
• If your score is low, look to see if your debt-ratio is too high, or if you have any outstanding debts you can work on.

Your credit score will be affected by your (and if you are purchasing a home with a partner — his or her) existing debt.

• Are you making car payments or have credit card debt? The bank will factor these things in when they consider which mortgage you can afford.

Next, go to a bank and see if you can be pre-approved for a mortgage. They will give you a range so you can start shopping for a new home.

It’s in your best interest to be realistic about what you can afford.

• If you can’t come up with a 20 per cent down payment, then you will need to get mortgage insurance (an added expense).
• Mortgage insurance doesn’t protect you if you default on a payment, it protects the bank.

That’s why it is a good idea to save as much as possible before purchasing your home. The more you can put down, the better your mortgage terms will be.

• Create a “must-have” list and a “nice-to-have” list. This will help you stick to your  budget.

Saving up for a home is about more than just a mortgage. You’ll need to factor in closing costs.

• Realtor fees, land transfer taxes, lawyer fees, appraisal fees, home inspections, and moving costs all have a funny way of adding up.

You’ll also need to consider on-going costs. Mortgage experts recommend you allocate 32 per cent of your household income to housing costs.

There’s more than the mortgage amount to consider when looking at the costs of owning a home.

Potential home ownership costs:

• Mortgage
• Property insurance
• Property tax
• Condo fees
• Utilities
• Renovations and maintenance

As a homeowner, there will be no landlord to call. So make sure your budget allows for unexpected expenses like emergency repairs.