Spring is definitely in the air. While there are still some wet days and cool nights, it seems more and more days are sunny and warmer. Flowers are blooming all around, and at least parts of my lawn are already in serious need of being mowed. Cold and flu season should soon be coming to a close, as people are able to get out and get a bit more fresh air and vitamin D from the sun. Be careful though, springtime can be one of the worst times of year for people catching House Fever.
House Fever can be caught any time of year, of course, but this year there are several factors making more likely. There is the HST coming in July, which will affect new home purchases, as well as the closing costs on all home purchases. This could add thousands to the cost of a home purchase. There is also the current record-low interest rate. Just the expectation of a Bank of Canada rate hike this summer already has the mortgage rate creeping up, and of course this will make home buying more difficult. Now, you might be thinking, don’t these factors mean it’s a good time to buy? The answer is both yes and no.
If you are rushing to buy a home because of the factors above, then it is not a good time to buy; but if you are ready financially and understand what is affordable for you, then it might even be a great time to buy. With all this talk of mortgages and home buying in the news these days, I thought it would be a good time to discuss Dave Ramsey’s recommendations for buying a home. First, you should be debt-free with a fully-funded (3-6 months expenses) emergency fund. You should have a sizeable down payment of at least 10% – preferably 20%. This should be for an affordable home, and that’s probably a lot less than what the bank tells you. Remember, they will try to lend you the maximum amount they believe you will be able to make payments on, without regard for what amount of stress or anxiety that payment causes your finances month-to-month, or how it affects your savings goals. An affordable mortgage is one with payments of at or less than 25% or your take-home pay each month, on an amortization of 15 years or less.
Following these guidelines may mean waiting another year to buy a first home or move up from the one you live in now. But they will help to prevent the cash flow crunch I see so often when people buy houses that they can barely afford in the best of times, and during emergencies or economic downturns like we’ve experienced, they become a serious issue for the family’s finances.
If you have questions about the do’s and don’ts of house buying from a Dave Ramsey trained perspective, or have any questions about the Baby Steps or your personal financial situation, please contact me and I would be more than happy to explain them further. Or, if buying a home is a goal you have and you want to have your finances in order when you do, perhaps you could use the services of a Financial Coach – again please contact me and ask for your free consultation. Enjoy your Spring!