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Is It Time to Buy? 3 Debt Questions that Will Help You Decide

Buying your first family home is exciting. You’ll have a place to call your own where your family can make memories. But home ownership is a huge responsibility that can become a financial burden if you’re not prepared. Here are the most important questions to ask and answer before you buy so you don’t end up needing debt help down the line.

  1. Do I need to pay down my personal debt before considering a mortgage?

If you’re like the majority of millennials, you’re carrying personal debt.

In partnership with The Globe and Mail, the Angus Reid Institute recently polled 478 millennials. They found that only 31 per cent of those aged 18 to 25 were debt free, while just 20 per cent of those aged 26 to 37 carried zero debt.

Those polled said that their typical debt load was $25,000 or under, with some carrying a much higher amount. This debt did not include mortgages; it was attributed to credit card balances, student loans and other loans.

Once you purchase a home, you will have less disposable income than you currently have. You may pay more for utilities and home insurance (vs renters’ insurance), and there will be maintenance and repair costs.

If you want to avoid needing debt help in the future, try to pay down those unpaid balances before buying a home. If you’re struggling with debt repayment, talking to a debt professional can help.

  1. Will I be able to make my monthly mortgage payments?

This is a big worry for first-time homeowners. A good way to relieve your anxiety is to start living on a homeowner’s budget before you’re a homeowner.

Use this housing expenses worksheet to determine your budget. Then set aside an amount each month equal to a monthly mortgage payment plus an additional 40 per cent to cover the additional costs of owning a home.

Can you live comfortably without the money you’ve set aside? If you can’t, you run the risk of using credit cards or other forms of credit to make ends meet after you buy your house, and that could lead to debt problems. In this situation, it’s best to wait until you’re truly ready to become a homeowner.

Also, keep in mind that your financial circumstances will change, especially if you have (or plan to have) children. How affordable will your house be when you’re paying for extracurricular activities or helping with post-secondary costs? Are you confident that your future income will be sufficient?

  1. Will mortgage debt prevent me from achieving other financial goals?

When we conducted our Affordability Index survey last year, the majority of homeowners (80 per cent) told us they’re struggling to save for retirement.

It’s important to consider whether or not you’ll be able to put money aside for retirement or create an emergency fund if you buy a house. If it’s going to be challenging or impossible, ask yourself: Am I willing to give up my long-term savings goals so I can buy a house?

And what about unexpected expenses, such as replacing appliances or repairing a roof? How will you handle those? Are you willing to dip into your retirement savings?

Talk to your partner about the many other considerations that go into buying a home. Open, honest and regular communication about finances and how you’ll deal with the unexpected is one of the key strategies for that will help you avoid additional debt.

Visit Color Me Frugal to read about other things to consider before buying a home.

The bottom line: even if you have your down payment in hand, you may not be financially prepared to own a home. If that’s the case, take some additional time to pay off your personal debt and build your long-term savings. So when you take the leap into homeownership, you can enjoy it.

Are you worried that buying a home will lead to debt problems? What are your concerns? Tell us your story on Twitter. #LeaveDebtBehind #FirstTimeBuyer #FamilyFinances

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