Top 10 Questions Buyers Ask: #6

25 05 2011

#6. What are my monthly costs going to be?

When you look at the price range and the type of property you’re buying in, your bottom line is ‘how much is this going to cost me on a monthly basis?’. First of all, you should get a mortgage preapproval prior to house hunting. Knowing the price range you’re in helps you in a couple of ways. By getting a mortgage preapprvoal, you know your budget in terms of what the banks are willing to give you to buy a house (aka. mortgage), on top of that, you’ll also get locked into the interest rates they quoted you at. So in the time that you’re house hunting (could be 2-3 months), the preapproval will honour the quote they gave you for an average of 120 days which means that if rates go up, you’ll still get the rate they preapproved you for. I use a mortgage calculators to figure out what my client’s monthly payments would be. Depending on the size of your downpayment, that would determine how big of a mortgage you’ll have. If your downpayment is less than 20% of purchase price, you will have to pay for CMHC mortgage insurance. This can range from 1-2.5% of the mortgage which will be added on top of your monthly mortgage payments or you can pay it upfront one time fee. Even though banks will give you a mortgage that is conservative to your debt-to-income ratio, you might have a lifestyle that you don’t want to give up because maybe you haven’t had mortgage payments before.

Secondly, depending on whether you’re getting a freehold or a condominium, it’ll determine whether you’ll have to pay maintenance or not. I personally think that condominium fees (maintenance fees) will add a lot to your monthly costs. Much more so than moving your mortgage up to a higher price range to buy freehold. Your monthly payments could mean that you can buy a higher priced freehold house (no maintenance fees) with similar monthly payments to a smaller condo with maintenance fees. You need to decide what lifestyle you want to live. What is available on the market for the price range and area you’re looking in? So if you’re looking for a condo in downtown Toronto, it could cost as much as a townhouse in Mississauga. If you want to be downtown, you still have options to get a high rise condominium (apartment), or even condominium townhouses. Generally, condo townhouses have much lower maintenance fees as opposed to a condo apartment. There are less amenities in a townhouse complex. They don’t have the pool, party room, theatre, bowling alley, guest suites, 24/7 concierge (‘i’ before ‘e’ except after c?), you get the idea. The maintenance fee pays for all those amenities. You need to consider what is important to you. Would you use all those amenities to get your money’s worth? A condo townhouse complex might have a pool, but that’s all you’ll get at most. However, you’ll find that there’s probably more square footage in your unit, perhaps a private terrace, a private garage, etc. Again, it depends on the lifestyle that you’re buying into and how much you can afford on a monthly budget type of way.

Thirdly, there is the fantastic government which want a piece of the pie (when do they not?) with Property Taxes! You can pay it annually but if you’re going to pay it monthly, you need to add this to your monthly payments. So during your house hunting, please note and calculate what your monthly payments would be like and see if you can afford it in according to your budget.

Lastly, your Utilities aren’t quite part of the house/mortgage costs, but it’s still an expense that you need to operate the property. Whether it be hydro, gas, water, or tv/internet, cellphone, car payments, insurance, student loan payments, etc., you want to get an estimate of what that would cost and how much you are obligated to before getting into the house of your dreams but leaves you living like a hermit and not have any toys that you want to have because you can’t afford all of it.

At the end of the day, you want to know if you can own a house/condo and maintain a lifestyle that you want to have.

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