Many prospective home buyers have no idea just how much they can afford. Many will go out and talk to a friendly lender or mortgage broker and then buy as much home as they’ve been told they can afford.
Others are far smarter about it, setting a budget beforehand that’s far below their limit. But in an era where houses in places like Toronto and Vancouver cost over $1 million, many have to stretch their budget.
There’s just one problem. Many of these sources don’t really explain the true cost of owning a home.
Most mortgage calculators will automatically include mortgage payments, which includes interest. Some will even include property taxes as well.
But those are just the beginning of home ownership costs. Utility costs are a big deal, especially to apartment dwellers who are moving into a house for the first time. It’s expensive to run a furnace in the winter and an air conditioner in the summer.
House insurance is another big cost. It can easily cost more than $100 a month for even a modest place.
And then there’s maintenance, which can really add up over time. Many experts believe setting aside 1% of the value of the house each year for these costs is reasonable, although I’ve seen estimates as high as 5% annually.
The bottom line? Make sure you factor in all the costs of owning before signing on the dotted line, or else you run the risk of being house poor.
