Budgeting For A Home
By Genworth Financial Canada
Budgeting is a financial management discipline that is crucial if you are considering buying a
home for the first time or are already a home owner.
Budgeting helps you keep track of your spending. It allows you to put aside money for a down
payment or to cover the many costs of owning and operating a home, such as mortgage payments,
property taxes, utilities, insurance and maintenance.
The average house price in Canada in the first three months of this year was $238,230, up from
$226,230 in 2004. Thanks to mortgage insurance, there are various programs that enable
homeownership with little or no down payment at all.
Mortgage insurance helps protect lenders and mortgage investors from financial losses in case a
loan is not repaid. This insurance benefits lenders and investors, but it also helps homebuyers.
Because lenders are protected by mortgage insurance, they are able to offer low down payment
loans to homebuyers at competitive rates.
Sticking to a budget will actually improve your chances of getting a mortgage. By stablishing a
regular savings pattern you make your loan application stronger and increase the chances of
having it approved by the lender.
The money you have saved and put in your Registered Retirement Savings Plan (RRSP) can be
used to help you with your home purchase. First-time buyers can withdraw up to $20,000 from
their RRSP to buy or build a home. The amount withdrawn is treated as a loan and must be
repaid within 15 years starting in the third year after the withdrawal.
Budgeting is also an important part of successful home ownership, which allows you to get the
most enjoyment out of owning a home.
New homeowners have many new types of bills they probably didn’t have when they were
renting. They may be paying utilities such as heating and electricity and may be faced with
unexpected bills to repair a roof, hot water heater, furnace and air conditioner or other
maintenance costs.
Budgeting can help you avoid the temptation of making major purchases on your credit card. If
you know exactly how much you have to spend each month, you’ll be less likely to build up debt
payments.
Here are a few tips for building a monthly budget.
* For one month, write down all your daily expenses, no matter how small. Take a small note
pad with you and write everything down.
* Identify all of your large, regular monthly expenses such as rent, utilities, phone, insurance
and figure out how much you have to set aside to pay them when they’re due.
* Calculate your monthly, after-tax income. Include everything – take home wages, tips,
bonuses, any investment income, alimony, child support and pension benefits.
* Compare your expenses and savings with your net income. Look for areas where you can cut
expenses and increase your savings. Many people find they can cut down on entertainment,
clothing, and dining out. Reducing the number of credit cards you have to a maximum of
two or three and consolidating the payments is a good financial management measure.
Once you’ve created a budget and found ways to increase your savings, you can plan ahead to
afford living in your home. The more you can save each month, the faster you can build the
money you need to buy or maintain and improve your home.
And continue to save each month as an emergency fund over and above your monthly living
expenses can provide you with extra peace of mind.
This article was developed by and courtesy of Genworth Financial Canada.
Nick Dimulkas, AMP
BMO Mortgage Specialist
BMO Bank of Montreal
Phone: (416) 590-7933
Cell: (416) 258-0156
Fax: (416) 590-8940
Email: nick.dimulkas@bmo.com
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