Should I Worry About Debt Management Before I Buy?Apr 24, 2019
As you consider buying a home, is debt management a priority or an afterthought? Are you looking at all aspects of your finances before you decide on a mortgage amount?
What does affordable mean to you?
According to Zoocasa’s list of unaffordable places to live, Newmarket falls in ninth place. Newmarket’s median income sits at $95,589 (a reach for younger millennials) and the average home price is $755,000.
Rent prices seem no better for cash-strapped young families who are forced to spend a disproportionate amount of their income on housing costs. This “rock-and-hard-place” dilemma is all-too common for millennials who often look to the housing market as the lesser of two evils. Deciding what’s affordable for you can depend on a variety of factors.
5 questions to ask yourself before you buy a home
Now is the time to do a thorough review of your finances. Here are five questions to ask yourself before you buy:
- How much personal debt do I have? Your existing debt load can affect your mortgage application. The more debt you carry, the less you may be able to borrow. You may also end up paying a higher interest rate for your mortgage if you don’t have a good credit score. Too much personal debt can lead to real affordability challenges, affecting your quality of life as a homeowner. Think about how you’ll handle personal debt management once you have a monthly mortgage payment. Will you be able to continue paying off your credit cards, lines-of-credit or loans along with the additional expenses that come with owning a home?
- Do I know my homeowner budget? Take an in-depth look at your current budget, expenses and income. How will your budget change when you’re carrying a mortgage while you’re paying property taxes, insurance and home repairs. Remember, if you plan to purchase a condo or townhome, your budget should also include condo fees.
Use our budgeting worksheet to plot your expenses.
- Will owning a home affect my goals? You may be planning to get married, start a family or save for retirement. Perhaps you’re paying off student loans. What about vacations, entertainment and other “nice-to-haves”? Our Affordability Index poll last year found that 80 per cent of homeowners found it very difficult to save for retirement and other important life goals.
Use this tool to map out your financial goals, making sure they fit within your projected budget.
- Am I being too optimistic? Consider your future affordability — are you counting on higher wages or financial help from your parents? Think about the cost of childcare in your area, including the hit your finances could take when you or your spouse takes parental leave. Even the costs of extracurricular activities and school trips should be considered. It’s never too soon to factor in these future costs. Just be sure you’re taking a realistic approach.
- Am I saving for the future? An emergency fund is essential, no matter what stage of life you’re in. As you contemplate buying a home, think ahead to possible home repairs, vehicle costs and new furniture. All of these expenses will add up. It’s best to be prepared so you can keep your debt load at a manageable level and avoid adding to it in the case of an emergency.
Follow this guide to start an emergency fund now, no matter what your income level.
On-going debt management
If you’re renting and carrying debt, dealing with it now is the best way to ensure your future self is in a better position to take on home ownership successfully. Do yourself a favour and get acquainted with your options by checking out our debt options calculator.
Are you ready to take the plunge into home ownership? Check out more debt management tips and solutions by connecting with our Twitter community. #LeaveDebtBehind #Rent #Millennials