Parade of Homes featuring the best of new homes in Manitoba, Canada
Issue link: http://publications.winnipegfreepress.com/i/1454682
HOME BUYING 101 — Cont'd from page 53 SET A BUDGET You need to know where your money is going right now, before you add home expenses to the mix. Consider all your monthly bills and any existing debts, like car or student loans. Then, factor in the costs that come with buying a home. The big one is the down payment. For a home that's selling for less than $500,000, the minimum down payment is 5%. While that might not seem like a lot, consider that a down payment of less than 20% will have you on the hook for mortgage loan insurance. In some cases — if you're self- employed, for example, or if you have a poor credit rating — you might have to buy mortgage insurance even if you do have a 20% down payment. Saving such a large amount may be a challenge, but it's far from impossible. Cunningham suggests opening a special savings account, where you stash away what you can afford each month. "It might mean you have to cut out going for dinner once or twice a month and putting that money into your savings account instead," she says. Other upfront and closing costs include legal fees and set-up costs. These will vary depending on your situation, such as whether you need to hire movers or buy new appliances or furniture. There are also ongoing costs, such as monthly utility bills, general maintenance costs, insurance and property taxes. "You can choose not to buy furniture and sit on the old chair," says Cunningham. "But when you buy a new home and get your tax bill, that's a bill that has to be paid." FIGURE OUT WHAT YOU CAN AFFORD When you get a mortgage through a bank, you're required to pass a stress test — as in, how much stress your finances can withstand. The point of a stress test is to protect you from borrowing more money than you can afford. It works by using a higher-than-average interest rate to calculate your mortgage amount, giving you extra wiggle room in case interest rates rise. In Canada, the going stress-test rate is 5.25% or the rate offered by your lender plus 2% — whichever is higher. For example, you might qualify for a $300,000 mortgage with a five-year fixed interest rate of 2.25%. That is, until the bank uses the stress-test rate of 5.25% and your mortgage amount drops down to $240,000. The test may not be realistic based on your current circumstances, but it is a good gauge of what you can comfortably afford if the market shifts. If your lender — whether a credit union or other lender that isn't federally regulated — doesn't require a stress test, do it anyway, Cunningham advises. "You don't want to get in over your head," she says. 54 Parade of Homes SPRING 2022