If you're thinking about buying your first home in Hamilton, Waterdown, Burlington or the surrounding area, one of your first questions will probably be:
How much house can I afford?
Getting pre-approved for a mortgage is an important first step. But there's another question I encourage first-time home buyers to ask:
How much do you actually want to spend?
Those two numbers aren't always the same.
A lender will determine how much you're qualified to borrow based on factors such as your income, debts, down payment and current lending requirements. What that number doesn't necessarily tell you is how comfortable you'll be making that payment every month.
And that's where I think the conversation should really begin.
Start with your monthly budget
Rather than automatically shopping at the maximum amount you've been approved for, think about the lifestyle you'd like to have after you buy your home.
Do you have young children and daycare expenses? Are you planning to start or grow your family? Do you enjoy travelling? Are you saving for retirement? Do you have car payments? Would you still like to go out for dinner on a Friday night without worrying about your mortgage?
Buying a home should add to your life—not prevent you from enjoying everything else that's important to you.
That's why I encourage first-time buyers to work backwards from a comfortable monthly housing budget and then determine what purchase price fits within it.
Your mortgage isn't your only expense
When you're trying to determine how much home you can afford, it's important to consider the complete cost of homeownership.
In addition to your mortgage payment, you may have:
Property taxes
Home insurance
Utilities
Condo fees, if applicable
Routine maintenance
Repairs and unexpected expenses
The costs can also vary considerably from one property to another.
A newer townhouse in Waterdown, an older detached home in Hamilton and a condo in Burlington may have similar purchase prices but very different monthly expenses.
Understanding those differences is an important part of deciding which home is actually affordable for you.
Give yourself some breathing room
One thing I've learned from helping people buy homes is that life rarely stays exactly the same.
Maybe you're planning another child. One parent may want to take a longer parental leave. You could need another vehicle. Your commute could change. Or you may simply decide you'd like to save more money each month.
Your income could increase too, of course.
We can't anticipate everything, but there's a simple question worth asking before committing to a mortgage:
If something changed in our lives, would we still be comfortable with this payment?
Having some breathing room in your budget can make homeownership much less stressful.
Don't put every dollar into your down payment
Saving the down payment gets most of the attention when you're preparing to buy your first home, but don't forget about the money you'll need after your offer is accepted.
There can be legal fees, land transfer tax where applicable, closing adjustments, moving costs and other expenses associated with purchasing a home.
Then you get the keys.
You might want furniture. Maybe a few rooms need painting. Perhaps there's a repair you want to take care of right away.
Ideally, you don't want to move into your first home with nothing left in the bank.
Try different purchase prices with a mortgage calculator
This is one of the simplest exercises I recommend to first-time buyers.
Don't calculate the mortgage payment for just one purchase price.
If you're considering an $800,000 home, for example, also look at what your finances would look like at $750,000 and $700,000.
How much does the monthly payment change?
More importantly, what could you do with that difference every month?
Would it allow you to save more? Pay for daycare? Travel? Build an emergency fund? Make improvements to the house?
Sometimes looking at the numbers this way changes your perspective on how much you actually want to spend.
You can use our mortgage calculator to experiment with different purchase prices, down payments and mortgage amounts and get a better idea of what the numbers could look like.
Your first home doesn't have to be your forever home
This is something I remind first-time buyers of regularly.
Your first home doesn't have to check every box.
Maybe a townhouse makes more financial sense than a detached home. Perhaps looking in Hamilton rather than Burlington gives you the additional bedroom or backyard you're looking for. Or maybe Waterdown provides the location you want, but you compromise on the size or age of the home.
You might choose the great neighbourhood and dated kitchen rather than stretching your budget for the renovated house.
The key is figuring out what's truly important to you.
How much should you spend on your first home?
There isn't one number or percentage that's right for every family.
The amount a bank is willing to lend you is useful information—but I don't think it should automatically become your home-buying budget. Your budget should also reflect your lifestyle, your priorities and what you want the next several years of your life to look like.
Sometimes buying a little below your maximum budget gives you something that's difficult to put a price on: options.
If you're considering buying your first home in Hamilton, Waterdown, Burlington or the surrounding Halton and Hamilton areas, I'm always happy to have a conversation about what you're looking for, what different budgets can buy and where you may find the best fit.
You don't need to have everything figured out before you call. In fact, that's often the best time to start the conversation.