How Much Home Can You Afford? (Closing and Moving Costs)

How Much Home Can You Afford?

Part Two – Closing Costs and Moving Expenses

After you’ve estimated your mortgage payment and other ongoing costs for carrying your first home, you’ll also need to consider the one-time expenses associated with the purchase of a property.  This includes your closing costs, as well as your moving expenses.

Be aware that there is no set rule for what’s included in closing costs, or how they’re calculated.  Closing costs can vary significantly from property to property, but may include home inspection fees, appraisal fees, title search, survey costs, home insurance and lawyer’s fees.  Some of these costs may be shared with the seller, while others are payable by the buyer only.  Your Realtor® can give you helpful advice about specifying a cost-sharing agreement for some of these related costs within your offer to purchase.

You will also be required to reimburse the seller for a proportionate share of specific housing expenses that have been pre-paid by the seller and continue after your closing date.  These pre-paid expenses usually include property taxes and utilities, and the amount is typically equivalent to only a few months service.  Your real estate lawyer will give you an exact accounting of these expenses upon closing, so be sure to discuss this with your lawyer in advance, so you will have sufficient funds available to cover these costs at that time.  After these one-time adjustments are made, and the transfer of ownership is completed, you will pay for such expenses directly in future.

In addition, you’ll also have to budget for your relocation costs.  This could include such costs as a moving company truck and labor, packing charges, boxes and wrapping materials, or rental of a vehicle or trailer if you’re doing all or part of the move on your own.  There can be a wide variation of costs for these types of services, so you should start planning well in advance, and obtain comparative quotes from more than one mover.  Get the quotes in writing and ensure that all the required equipment, staffing and materials are documented.  Ask the provider to specify what charges may apply if your move does not proceed on schedule.  Be sure to read all the fine print carefully, so you understand upfront what other charges, such as waiting time, or a late return charge you might incur that are not planned for in the initial quote. 

 

Your Realtor® can be a valuable resource here too.  Not only can they help you estimate carrying and closing costs, they can also recommend experienced and trusted service providers to help you keep the cost of moving and home ownership affordable and keep your move hassle free. 

Tom Flatt, Coldwell Banker J. Kazi Realty, Brokerage: How Much Home Can You Afford? (Budgeting your Carr...

Tom Flatt, Coldwell Banker J. Kazi Realty, Brokerage: How Much Home Can You Afford? (Budgeting your Carr...: How Much Home Can You Afford? Part One - Budgeting your Carrying Costs Finding the right property at an affordable price can sometimes be ...

How Much Home Can You Afford? (Budgeting your Carrying Costs

How Much Home Can You Afford?

Part One - Budgeting your Carrying Costs

Finding the right property at an affordable price can sometimes be a challenge.  When it comes to deciding just how much home you can afford, there are two kinds of expenses you’ll need to consider – the ongoing or ‘carrying’ costs of the home, and your closing costs. 

The first step in determining your carrying costs is to get pre-approved for a mortgage.  By pre-qualifying for a mortgage, you can find out up front what your maximum mortgage payment might be, even before your home search begins.  Your lender will look at your earnings, credit history and any outstanding debt, and help you determine what size loan you qualify for, at what rate, and what your regular mortgage payments would be.  Being pre-qualified offers another advantage, since it puts you in a stronger negotiating position when you go into an offer with pre-approved financing.

Once you’re pre-approved, the next step is determining what you actually want to spend on your mortgage payments.  Remember, your pre-approved mortgage establishes the maximum amount of loan you’d qualify for, but you may decide that you want to aim at a smaller loan, with a lower payment.  

Be realistic and think about your lifestyle.  Although it may seem feasible to handle a sizable mortgage payment at first, keeping it up may eventually require cutting back on other expenses, such as clothing, or entertainment.  Make sure that if you plan to make any concessions in these areas, you’re prepared to live with your decision until there’s a change in your income.  Owning a home can give you a tremendous amount of pleasure and personal satisfaction, as long as you plan for adequate resources to enjoy it with some peace of mind. 

With your estimated mortgage payment in mind, the next step is to determine your total carrying costs.  Add up all your estimated monthly costs, such as the mortgage payment, property taxes, insurance, heating costs and other utilities.  Then add a figure to cover yearly maintenance and upkeep.  Consider both the interior and exterior of the house, as well as the garage, driveway, landscaping and all other aspects of the property when you arrive at this figure. 

When preparing your budget, be sure that you also make allowance for a “contingency fund” to cover unexpected expenses such as a major repair or the replacement of a large ticket item, such as an appliance. Life sometimes has a way of surprising us, and you don’t want to start out with a budget that’s so tight, there’s no room for the unexpected. 

Tom Flatt, Coldwell Banker J. Kazi Realty, Brokerage: Home Energy Saving Ideas

Tom Flatt, Coldwell Banker J. Kazi Realty, Brokerage: Home Energy Saving Ideas: Home Energy Saving Ideas Energy costs can take a big bite out of any homeowner’s budget, so you need to know how to be energy-wise. Here a...

Home Energy Saving Ideas

Home Energy Saving Ideas

Energy costs can take a big bite out of any homeowner’s budget, so you need to know how to be energy-wise.  Here are a few quick and easy ways to cut your energy bills with a minimum of time and effort. 

One of the biggest energy expenses is your home heating bill, so let’s start there.  You can significantly reduce your energy costs by installing a thermostat with an automatic timer that allows you to set the temperature back by a few degrees at bedtime, and returns the temperature to a more comfortable level before you get up.  After all, why heat the whole house, when an extra quilt will keep you toasty and warm for a lot less money?  On the flip side, when the temperatures ramp up, pre-set timers can reduce air conditioning costs too.

Similarly, if you have a room that isn’t used every day, such as a guest room or workshop, consider shutting the air register, and closing the door until you plan to use the space. Your furnace or air conditioning system won’t have to work so hard and you’ll pocket the savings while the rest of your home environment stays in the comfort zone.

You can also reduce the effect of ambient solar heating in summer and heat loss in winter with lined draperies or installing window blinds.  Adding weather-stripping to seal drafts around doors can also result in big energy savings.

Insulation is an energy saver that works hard for you all year long.  A one-time investment keeps your home cooler in summer and warmer in winter and the cost of installation can be recaptured in energy savings.  Many local utilities and  government bodies offer special incentives or rebates to help offset the cost of energy-saving improvements, so be sure to investigate what options are available in your market.  Your Realtor® may also be a helpful source of information about local programs and access to Energy Audit Professionals.  

Old appliances may also be draining more power than you might think.  Did you know that a refrigerator is one the biggest energy users in the house?  So, if you have an old appliance that needs repair, don’t just look at the cost of fixing it, also think about how much energy it uses. Today’s newer appliances are far more energy efficient than their predecessors, so buying used appliances or repairing an old unit may not be the bargain that you think it is!

Tom Flatt, Coldwell Banker J. Kazi Realty, Brokerage: Easing the Cost of Home Ownership

Tom Flatt, Coldwell Banker J. Kazi Realty, Brokerage: Easing the Cost of Home Ownership: Easing the Cost of Home Ownership Even with today’s very affordable mortgage rates, the real estate market can still present a challenge to...

Easing the Cost of Home Ownership

Easing the Cost of Home Ownership

Even with today’s very affordable mortgage rates, the real estate market can still present a challenge to many people wanting to step onto the property ladder.  First-time buyers in particular are finding they have to make adjustments as they plan for their dream of home ownership.  Some young people are staying at home longer in order to save for a down payment.  Other would-be homebuyers are scaling down their expectations, while still others are choosing a home with a rental unit to help with mortgage payments.

There are some other creative alternatives available to help First Time Buyers start to build some equity in the real estate market that entail multiple ownership of the same property.  One option that may be of interest to family groups or close friends is the joint purchase of a multiple-unit dwelling, such as a duplex.  Such a property might be jointly purchased by two groups of buyers, with each family occupying one of the property’s units. 

The duplex approach can work well in situations where young people plan to marry, leaving their parents as “empty nesters”.  In this scenario, the family home is sold, with the parents buying one unit of a new duplex outright, and then banking their surplus funds, perhaps for retirement.  The younger generation then assumes the more manageable mortgage payments on the remaining half of the property.  In this way, they can start to build equity immediately, without having to come up with a large down payment, or taking on a big mortgage.

In less formal arrangements, two couples may elect to jointly buy one single-family residence and share all the living space. This can sometimes be a stressful situation, and the best chance for success is usually when there is a family relationship between the two couples, such two siblings with their spouses, where there is already some history of living together in a shared space.

Whatever method you choose to ease the cost of homeownership, the most important thing to remember is to get all the details worked out before you buy.  Everyone involved in the purchase should agree on all sub-lease and re-sale provisions “up front”, and in writing.  For example, can one party move out and sublet their living space to someone else? Also, what happens when someone wants to sell? Does one party have the right to buy out the other’s interest?  If so, how will a fair price be determined?  And how long will the other party have to come up with the funds?  Or, is the property simply put on the market with all parties sharing the proceeds? 

In addition to the terms of ownership, the ongoing care of the property should also be considered.  Who will be responsible for the ongoing maintenance of the property?  What services such as landscaping or snow removal will be contracted out to service providers, and how will this cost be shared? How will the cost of major repairs be handled?  

As you can see there are a lot of variables to consider.  Such important issues should not be left to chance.  Don’t expect that they’ll be sorted out easily when the time comes. The best course of action is to get a lawyer involved and draw up an agreement that clearly sets out the rights and obligations of all co-owners.

Remember, when you’re thinking of creative ways to ease the cost of owning a home, talk it over first with the expert.  Tell your real estate salesperson all about your plans, so they can ensure that you are shown homes that conform to the appropriate zoning and municipal by-laws.  Best of all, your Realtor® may be able to suggest options that you’d never considered, and help you make your home ownership dream a reality.