Four financial questions to ask yourself before buying a home

BY CLEVE DESOUZA

Buying a home is a huge decision, no matter what stage of life you find yourself in. If you are a first time homebuyer, you may be still learning about the intricacies of ownership and trying to budget for expenses that a landlord has typically covered in years past.

Or, maybe you are trading in a smaller home for one that is a little more spacious, but haven’t figured in increases in things like utility bills and higher property taxes.

Or, still yet, perhaps you are on the hunt for your forever home. You are a pro at owning a home, but the older you get, the harder it is to do things yourself. Maintenance becomes a bigger ticket item, and some homes require much more than others. Before you buy a home, here are five financial questions that you need to ask yourself.

Question #1 – How much can I comfortably afford?
Most people rely on mortgages when buying a home and one of the first questions that you should secure an answer to is how much of a mortgage you can really afford without stress.

Lenders and banks will often qualify people using a standard debt to income ratio, but that isn’t always the best indicator of payment comfort. It also doesn’t leave any leeway for the unexpected. Things like a job layoff, a large unexpected repair, or an increase in taxes or insurance could cause a mortgage to become suddenly unaffordable if you are already maxed out. While it may be tempting to stretch your buying power to the very tip-top of your pre-approval amount in order to secure your dream home, this usually isn’t a winning strategy.

Question #2 – Do I have the funds for repairs and maintenance?
Every home is unique, and every home comes with its own set of necessary repairs and maintenance expenses. Oftentimes, home shoppers only budget for immediate fixes and don’t take into account what will need to be spent over the years to keep their home functional, safe, and building equity.

Things like a worn out roof, ancient plumbing, or an air conditioner unit that is on it’s last leg may stand out, but what about the myriad of little things? Peeling trim paint on a home, for example, may not seem like a deal breaker at the time of purchase, but hiring someone to scrape and paint that trim every few years adds up over time. Because every house will have costs to maintain, be sure that you are prepared financially to handle upkeep.

Question #3 – What will the utility costs be?
Whether you are moving across the street or across the country, utility costs can greatly vary from house to house. Things like the size, layout, and quality of a home’s insulation can make a huge difference when it comes to heating and cooling a space.

Other factors that can greatly impact utility costs include the energy efficiency of appliances and systems, the types of bulbs present in light fixtures, and the seal quality of windows and doors. Some sources of power and heat are also more expensive than others. In certain areas of Canada, a fully electric home is usually going to carry a higher monthly bill than a home that utilizes natural gas or propane for heat.

Asking the current owner for a copy of their utility bills can help you understand realistic expense expectations. There are also sites that help you compare energy rates and options that could be helpful for determining a utility budget.

Anytime you move, there are costs outside of the home itself that usually need to be adjusted. Many people neglect to account for increases in these areas and then find out after the fact that their budget just doesn’t work.

If you commute to work each day or take the kids to day-care or school, is the prospective new home further away, requiring more gas and vehicle maintenance each month? What about the availability of amenities? If you are accustomed to working out in a gym that is on site and included in the monthly cost of your current residence, moving to a home without this will likely have the added cost of a gym membership. These are just a few examples of outside expense changes to plan for.

Asking yourself these four financial questions before buying a home can help prepare you for the true cost of owning that home. While no one can foresee or prepare for every expense, spending some time doing due diligence in these four areas will go a long way.