Friday, September 15, 2017
My 5 Point Home Buying Checklist
Today we conclude Mortgage Week here at Budget Boss. During the course of the week, we have discussed many topics including closing costs, mortgage loan insurance, saving for a down payment and even a little Mortgage 101. As the week closes I think it is important to discuss a personal checklist for each of us when buying a home. Being a homeowner is about more than just money. It is about mindset and mentality as well as the money to go along with it. You have to be ready for the commitment it takes and plan accordingly. I have always said that owning a home is a great part of a well-balanced investment portfolio. It usually grows in value consistently and is almost always a desired commodity. Despite this, owning a home only becomes of value if you indeed own the home. You can only truly own the home if you have paid off the home. Then and only then are you truly a homeowner. It is important to understand that owning your home faster is an admirable goal and to do that you have to be in the right mentality. In this post, I describe 5 things you need to do to be ready for becoming a homeowner. These 5 things will incorporate actual tasks and states of mind that will help you become a member of the homeowners club.
1) Save for the Down Payment…Among other things
You may think that saving for the down payment for your first home is the hardest thing you will ever have to save for. In the grand scheme of things, it gets a lot tougher after that. There will be many more savings goals that have to be accomplished and some of them will be very difficult. The discipline that it took you to save for months, even years for that down payment will have to continue. Another more time-consuming goal for you will be saving for a child’s education. I spoke last week about the price of tuition and how a college degree is becoming a necessary tool in today’s economy. That goal could cost upwards of $50,000. An even loftier goal is that of retirement. That goal will take decades, not years. The total number needed to retire will range in the hundreds of thousands if not millions when I am ready to retire. Winning the lottery overnight will solve that problem, but it is not realistic. Steady contributions that require sacrifice is the sure method to accomplish this. Once you have the down payment and the home, don’t stop there. Use that mentality to get all the other dreams you have.
2) Emergency Funds Become Extra Important
In yesterday’s post, I spoke about closing costs when buying your home and how it could run you a pretty penny. Since I have started my daily blog I have preached the importance of the emergency fund so that you aren’t going into debt when life throws you a curveball. This becomes especially important when you have a home. Things that used to be simple fixes like a new muffler or cell phone now become very expensive such as a new furnace or even a new roof. Now your emergencies cost thousands instead of hundreds. Add kids into the mix and it is a never-ending battle for you to stop the bleeding from your wallet. Having 3 months to one-year living expenses socked away will add a layer of comfort that will make the small things less worrisome. My emergency fund gives me confidence that if something goes wrong, I’m covered. Too many people think that their line of credit or home equity are to be used for things that come up. Doing so only delays the process of actually owning your home and by doing that you are just giving the bank more money.
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3) Get used to buying Insurance
Car insurance, creditor insurance, warranties, home insurance, life insurance, disability insurance, the list goes on and on and on. As the things you buy become more and more expensive it becomes crucial that you protect your investments with insurance. I have said many times before that the most valuable possession you will ever own is yourself and your ability to make money. The reason why this is so important is that everything you have hinges on your ability to pay for it. Your house is no different. Mortgage insurance is one of the worst forms of insurance, that’s a fact. Having your own coverage is a much better route to go. Many people would also suffer hardship if they were disabled or got ill. That is why personal disability and critical illness insurance become vital, either through work or on your own. Things like warranties on your microwave are afterthoughts yet protecting what matters most becomes a debate. When a house is purchased it becomes crucial to understand the importance of proper coverage and to not be wasting money on other forms of insurance that don’t add up to peace of mind. For a good portion of your life, your home will be your most valuable physical asset, make sure you protect that asset.
4) Be Realistic with your Expectations
Becoming house poor just to fulfill a dream of being a homeowner could make you a renter again real quick. When you go back 30 years, most people first homes were small and often fix-er-uppers. Fast forward to today and we have people buying massive properties with luxurious homes on them right out the gate. This can be very damaging especially if your income and monthly cash flow don’t match your expectations. When you are younger you often have debt, are not in tune with your money and don’t fully know the consequences of your actions with your money. This is a bad time to be saddling a huge mortgage payment on your lap. As mentioned in Wednesday’s post, you may owe more than your home is worth in the first few years of your mortgage, so be confident that you can make that payment. Make sure you crunch your own numbers and don’t let the bank tell you what you can afford.
5) Be Patient
It is often easy to get caught up in the excitement of buying a home. Everything can happen so quickly. The costs add up and it seems like that is par for the course. The goals you have moving forward will take longer to achieve. Raising children, paying off the home, getting to retirement all take a great deal of time. You must learn to exercise patience when planning for the future. It is impulsiveness and lack of forethought that has people running up debts later in life. You have to remember that financial freedom is a marathon and not a sprint. As I mentioned last week during student week, all the big goals in life will take a long time. Small bumps in the road like a bad market, work issues, housing maintenance, and even health issues are all par for the course. This is why having a rock-solid financial plan is key. You rely on the plan, and not on the outside influences. The world around you has changed, but you have prepared for that. Time is your greatest ally, so use it to your advantage.
Buying a home is a huge achievement. It is one of the noblest goals one can have and as I have mentioned before, a solid part of any financial plan. Having the right mindset is just as important as having the money to back it up. You have to work hard at maintaining a positive monthly cash flow and staying debt free. You have just acquired the largest debt you will ever have. Sadly it is all the other debts you acquire that can put that large debt in jeopardy. Remember a home is only yours, when it is paid off. In the meantime work hard at obtaining that goal and protecting what you have. The results will follow.
Thank you for tuning into Mortgage Week here at Budget Boss. I hope it was informative and insightful. If you wish to book a Mortgage Planning consultation please do not hesitate to contact me at joe@budgetboss.ca. Tune in at 2 PM for my recap of Mortgage Week live on Facebook with Six Five Interactive from Innovation Works London in beautiful Downtown London. Have a great weekend friends!
“Discipline is the bridge between goals and accomplishment.” – Jim Rohn
Email – joe@budgetboss.ca
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