Setting Yourself up for mortgage success
I had an interesting conversation with clients about my last article Are you mortgage ready? We chatted about living within our means as opposed to living paycheque to paycheque.
We were signing final paperwork and going over a recap of their mortgage application n. They looked at the list of their debts and basically said, “How did we get here?”
Both the husband and wife work full-time, and have one child who is very athletic and competes at the national level in his sport.
These parents cover all of his travel costs to get him to competitions. They have a nice home and dependable vehicles; nothing fancy or high-end on either front. Â
The travel expenses for their son’s sport have added up over the years to the point they realized they had to make some difficult decisions. We talked about how extraordinary expenses like sports and the related travel can derail a sound financial plan.
Years ago, I worked with a couple who bought their first home based on the husband’s income only. They told me at our initial appointment they planned to have their home paid off in five years so that she could stay home when they decided to start a family.
I remember thinking that the odds of them sticking to this plan were very unlikely.
They made double-up payments every month, and made lump sum payments every year. Sure enough, when the mortgage came up for renewal, they had enough money in their savings account to pay it off in full. They are still in the same home and have raised two lovely daughters there.
I know another couple who bought their first home based on the husband’s entry-level salary. Over the years, he worked his way up to senior management.
They took the unusual step of continuing to live as if he were only making the salary from his early days. Everything else they banked. They had their house paid off within 10 years, and were able to retire early and now travel extensively.
Both of these are situations where the couples were very committed to their plans. House prices were considerably lower at the time. The cost of living was lower. So were their incomes.
The point is that they made lifestyle choices strategically and in both cases this dedication meant they are able to live debt-free at relatively young ages.
I am currently working with clients who shared an idea with me. They decided to start saving for a home, and found it challenging to tuck away as much as they thought they could. For a month they tracked every penny of their spending, and realized how much they were spending on treats like fancy coffees.
They implemented an Impulse Fund program. Every time they talked about heading to their local barista, they instead transferred the equivalent money to their down payment fund. This simple change meant an additional $300 in their account at the end of each month.
My last article talked about taking some time to figure out if you are ready to buy a home; not only pre-approved with down-payment in hand, but prepared for the ongoing expenses. Â
Are you ready to adjust your budget and current lifestyle to own a home?
The next step is to think about what type of home is going to best suit both your current and future lifestyles. For instance, will a slightly older or smaller home near great schools be a better long term fit than a condo downtown?
Will looking for a home with a suite mean you can get in to a slightly newer or larger home? Do you spend a lot of time away hiking/biking/camping so a smaller home might be a better option?
When you crunch the numbers and price ranges with your mortgage specialist, think about buying a home that is not at the top of your price range. Allow yourself a buffer so, if your income changes, you will still be able to make your mortgage payments.
Take some time to think about your wish list. Be very clear about your must have and nice to have features. Revisit your budget. Think about your lifestyle, and what type of home will work best. Do your research upfront.
Develop a plan and stick to it. Small changes can make a huge difference.
Being strategic about your home purchase will help set you up for long-term financial success.