Buy A House Then Cover Your Assets

It’s just not sensible as a Realtor to negotiate the purchase of  your new home home  without at least some idea of your income level, your debt level, and credit history. I’ll say it another way:  as a Realtor, as a consultant and long-term partner to my Buyer clients, we will be sitting down together to share some personal financial information.  The last thing we want is for you to find out you cannot afford your dream home, have no life and/or come to resent the house that is to become your home.  I can tell you that “house poor” is not a romantic notion and too much month at the end of the money  is not a financially healthy way for you to live. For keeping up with the Joneses is not an adventure  I would want you to take on. This is a move that is impacting your entire life and it means some short-term focus on your  long-term life and we want to get it right. It’s not a race to see how much money we can spend to find your dream home. There are plenty of ways to spend money and there are plenty of ways to find your dream home …within your budget.

I recently had a client purchase their dream home and call me for advice when it came down to final strokes of their fixed mortgage vs variable mortgage.* My response was the following 4 questions and rationale:

1. Do you have credit card debt that you’re financing at 19% that you can pay off and then look at your down payment?

   I’m no mathematician but I do know that the cost of borrowing your mortgage at 2.99%-4.0% is way cheaper than paying 19% (for nothing)  to the fat cats at the credit card companies. Here’s a handy credit card calculator if you want to do some math (Beware: this may blow you away). You can always put down extra ‘found’ money on your mortgage and chip away at the principle.

2. Are you considering a 10 year mortgage? 

   Thankfully, the answer was “No”. I don’t care what any of us know today and how low a 10 year mortgage rate may be. Life changes a lot in 10 years. For reasons I will let your Mortgage Broker explain in detail (portability, cancellation penalties, etc) I am not a fan. The choice is yours of course and you do what is best for your family and finances. There’s A LOT more to a mortgage than the rate and monthly payment you see come out of your bank account each month.

3. Do you both have up-to-date life  and health insurance plans?

   Yes, I asked a lovely, vivacious, 40-something mother of 2 young children if she and her husband were topped up on the life and  health insurance in  the event that one of them suddenly got so sick that they couldn’t work or worse yet, died. What kind of Realtor does that? She asked about a mortgage rate and I offered thoughts of a dead husband….. Followed by, “This is your dream home. And, it’s something you’ve both worked so hard for for a very long time.  I would hate to think that you took on a lower mortgage rate  knowing that God forbid if anything ever happened to either one of you, that you and the kids could stay in your dream home because it was still affordable (when the policy paid out). So, you’ll want to check your insurance policies and then decide which mortgage option will allow you to have money to  live your life today and know that you’re covered if anything happens tomorrow.”

4. With all things considered are we still well within the bounds of your “stretch budget”?

   In other words, you have monthly money coming in and money going out: presumably there’s money for RESP’s, RRSP’s, groceries, vacations, lessons, new shoes, and you’re not feeling a pinch and hitting that mark where you’re giving up on saving for tomorrow?  In a “stretch budget” scenario, sometimes people take money from say, savings or clothing budgets (this assumes you know how much you spend on such things), and put it towards their mortgage figuring they’ll afford more house and eventually make up the savings down the road or realize a gain when they eventually sell years down the road. Truth be told, we all “waste” a lot money each month.

Bonus Reality Cheque:  How much are you funding for lunches Monday-Friday vs taking your lunch? $50/wk x 48 weeks = $2400/yr. I’m thinking that’s a good chunk of mortgage payment, a mortgage top-up toward principle or… a vacation paid in full with no Visa interest payments. You get my point here though, right?

So, if you’re thinking about buying a new home and want to work with people who care enough to ask the tough questions,  understand your “stretch budget” and not just sell you 4 walls, know that we focus on learning your needs and means and then we’ll go out and negotiate the best possible deal for you.

* There are many mortgage options today I have a few preferred lenders that we’d be happy to share with you. They will find the best rate for you based on a host of variables.

**(52 weeks/yr – 3 weeks holidays – 1 week off for Christmas = 48 weeks of lunches & coffee at $10/day).