- How does buying a home compare to renting?
The best way to think of buying vs. renting is this: You’re either paying your own mortgage, or someone else’s. If you’re renting, you’re literally throwing away thousands of dollars each year on something that is temporarily yours to call home. On the other hand, if you’re making monthly payments on a mortgage, yes, somewhere around half of each payment is going to interest, but the other half is paying down the principal on YOUR home. For example, if you buy a home for $259,900, based on a 5 percent down payment with a 2.79 percent interest rate, a five year term and 25-year amortization period, your monthly mortgage payments would be $1,174. Of this $1,174, around $629 would go towards paying off your mortgage, while the other $545 would be your net interest cost. Therefore, if you are currently renting an apartment for $1,200, not only can you afford this home, but 53 percent of each one of your monthly payment would go towards paying down your mortgage rather than 100 percent of your rent costs paying off someone else’s.
While renting comes with the bonus of being generally free of most maintenance responsibilities and a long term commitment, it also comes with loss of opportunity to build equity and protection against rent increases. You may also be restricted when it comes to decorating, owning pets, playing instruments, or having visitors. Overall, when you rent you’re more or less at the mercy of the landlord.
On the contrary, owning a home has many benefits. First and foremost, when you make a mortgage payment you are building equity, and that's an investment. On the flip side, owning a home also introduces you to new financial responsibilities such as insurance, real estate taxes, and upkeep. That being said, the pros that come with owning your home far surpass the cons.
- How do I know if I’m ready to buy a home?
The best way to determine if you’re ready to buy a home is by asking yourself these important questions.
- Do you have steady employment that provides good, reliable income, or are steadily self employed with business income?
- Do you have a good record of paying your bills?
- Are you good at managing your money?
- Do you have few outstanding long term debts (i.e. student loans, credit cards, car payments, etc.)?
- Do you have access to a down payment (gifted, borrowed or your own)?
- Can you afford a monthly mortgage payment and additional living costs?
- Are you tired of paying someone else’s mortgage?
If you can answer “yes” to the majority of these, then chances are you’re good to go.
It’s crucial to have an idea of how much the move is going to cost you. To gain insight on how much you’ll need, use an online mortgage calculator to figure out the amount you’ll be able to comfortably afford based on income, debts and credit. Since the transaction will likely be your largest asset, it helps to speak with a qualified professional. Not only will this person help you get approved for a mortgage, but this way you’ll also know what price range you should be exploring in your house hunt. To find out what your budget is, contact Auxilium Mortgage.
- How do I begin the home buying process?
Once you have determined that you’re ready to buy a home and have figured out how much you can afford on monthly mortgage payments, the next questions to ask yourself are about the home itself. Ideally, it should be the right size, with a functional layout, and in a suitable location. But how do you determine all these factors when your head is already spinning with excitement and nerves?
A great way to define what you’re looking for in a home is to weed out your wants from your needs. By making two lists, one to include things you cannot live without, your non-negotiable requirements, and the other featuring things you would like your home to include, but could live without, you’ll have a much easier time when visiting potential homes. Separating your wants from your needs will also allow you to know where you can compromise and keep you on budget. To begin your search for potential homes wander through different neighbourhoods, search online listings, and skim your local newspaper’s real estate section.
It’s also important to look to the future when buying a home, regardless of if it’s your first, second or fifth time buying. Since your new home may not be your last, try to anticipate how long you’ll live in it and buy based on plans for that period of time. Do you plan on having kids? Will you be starting a home-based business or housing a relative? Do you want a dog? These are all things to consider.
The Auxilium Team offers a complimentary consultation to start your home buying process; contact us today at 250-590-6520 (toll-free 1-855-590-6520). You can also visit us at 307 Goldstream Avenue during regular business hours. We can arrange an appointment at our Fort Street office, or evenings or weekends, to work with you.
Auxilium Mortgage Corporation is based in Victoria, BC and works with clients locally and across Canada. The Auxilium team has over 100 years of combined financial experience and access to dozens of lenders to help you meet your goals.
This post reflects the best available information at the time of writing/last update. In order to ensure that you have the most up-to-date information, contact us to confirm the details for your specific situation.
Updated March 2018
This list originally appeared as part of 35 Questions to Ask When Buying a Home. See the entire updated list:
7 Questions to Ask About House Hunting When Buying a Home
6 Questions to Ask About Financing When Buying a Home
4 Questions to Ask About Your Credit When Buying a Home
3 Questions to Ask About Mortgage Payments When Buying a Home
5 Questions to Ask About Working With a Mortgage Broker
2 Questions to Ask About Insurance When Buying a Home
5 Questions to Ask About Closing Details When Buying a Home