The Financial Reality Check: Can You Really Afford to Move?

Can You Afford to Move?

Are you contemplating a move to Brantford, Brant County, and dreaming of owning your first home or upgrading to a larger one? Moving to a new home is an exciting prospect, but before you embark on this journey, it's crucial to ask yourself a fundamental question: Can I afford to move? Making a well-informed financial assessment is essential to ensure a smooth transition and avoid any unexpected financial burdens. Whether you're a first-time buyer or a current homeowner, here are some key financial considerations to help you determine if you're ready to take the leap and explore the Brantford, Brant County real estate market.
 

Once upon a time, in the days before the pandemic's arrival

Canadians didn't need substantial wealth to purchase a home. However, with the current average Canadian home price reaching around $700,000, it seems that financial affluence has become a prerequisite. Nevertheless, the desire for homeownership persists, prompting people to contemplate questions like: Is it feasible to accumulate funds for a down payment? And if so, how can this be achieved? We delved into this matter.

Strategies for Accumulating a Down Payment

Consider this scenario: You wish to put down 20% (equivalent to $140,000) on a $700,000 home. How much should you set aside each month to achieve this goal within ten years? Let's outline our assumptions: (1) You're starting from scratch with $0. (2) Your money is invested in a portfolio consisting of 80% equity (stocks, ETFs, etc.) and 20% bonds. (3) You anticipate an 8% return on your investments. (Over the period of 1997 to 2021, the TSX yielded an annual return of 7.9%, while the S&P 500 returned nearly 9.4%.) Lastly, (4) home prices are projected to appreciate at a rate of 6% annually, consistent with the trend of the past 25 years. This implies that a $700K home today will cost $1.25 million in a decade.

Determining Your Monthly Savings Target

For a $1.25-million house ten years from now, a 20% down payment would amount to $250,000. This should be your ultimate objective if you seek a home within the median price range. Based on our assumptions, achieving this requires an investment of $1,900 each month. It's acknowledged that this sum may be unattainable for many, but we're simply engaging in numerical analysis here. (Moreover, the newly introduced First Home Savings Accounts can help alleviate some of the financial burden associated with saving.)

A crucial point to bear in mind regarding investment is that markets can either fall short or exceed your expectations. We've accounted for potential underperformance: if you secure an 8% return and consistently invest $1,900 monthly, you could actually meet your $250,000 down payment target in eight years. Congratulations! However, even if markets only yield 2%, you're still on track to achieve your goal within a decade.

Streamlining Down Payment Savings

Saving for a down payment becomes notably easier if you possess an initial sum of cash. With the same aforementioned assumptions, commencing with a lump-sum investment, let's say $20,000, would enable you to reach your $250,000 goal in ten years effortlessly with monthly contributions of $1,600. If you initiate the process with $30,000, contributions of $1,500 per month should suffice.

The Takeaway

So, if your primary focus is financial gains, is using your savings for a home down payment truly the most optimal course of action? This is a question you must contemplate personally, as it's a complex matter. Historically, homeownership has been viewed as a reliable means of accumulating wealth in Canada, and having a mortgage encourages savings by building equity, which is advantageous. Nonetheless, given the steep property prices, it's currently debatable whether renting might be more advantageous. Additionally, from an investment perspective, research by RBC indicates that stocks tend to outperform real estate investments in Canada, suggesting that leaving your funds in the market might yield better results. However, it's worth noting that a stock portfolio can't provide the experiences of creating memories or raising a family, aspects for which we can't offer guidance.

Getting Approved For a Mortgage

Assess Your Current Expenses

Begin by taking stock of your current housing expenses. This includes rent or mortgage payments, property taxes, homeowners or renters insurance, utility bills, and any other relevant expenses. Also, factor in your commuting costs if your workplace is located at a significant distance from your home. Understanding your current financial obligations will serve as a baseline for evaluating the affordability of a potential move.

Evaluate Existing Debt

Next, consider your existing debt, such as consumer loans, student loans, or any other outstanding obligations. Calculate your debt-to-income ratio, which compares your monthly debt payments to your monthly income. A high debt-to-income ratio can impact your ability to secure a mortgage for a new home. If necessary, work on reducing your debt before making a move to improve your financial standing.

Estimate New Expenses

Project the potential new expenses associated with your move to Brantford, Brant County. This includes estimating your new mortgage payment, factoring in the interest rate, property taxes, homeowners' insurance, and CMHC fees if applicable. Consider any changes in utility costs, groceries, and other bills based on the area you intend to move to. If your new home necessitates a longer commute, account for the associated costs as well. A comprehensive assessment of new expenses will give you a clearer picture of your post-move financial situation.

Account for Closing and Moving Costs

Don't forget to factor in the costs of closing your current and settling into your new one here. These expenses may include lawyer fees, land transfer taxes, home inspection fees, and charges for movers. Additionally, consider the costs of new home accessories and any required deposits for utilities in your new location. Properly accounting for these expenses will prevent any financial surprises during the moving process.

Consider Repairs and Upgrades

If you currently own a home and plan to sell it before moving, evaluate the cost of any necessary repairs or upgrades you intend to make before listing your property. Enhancing your home's curb appeal and functionality can potentially increase its value and improve your chances of a successful sale.

Seek Pre-Approval

Before you start exploring the Brantford, Brant County real estate market, seek pre-approval from a qualified mortgage professional. Pre-approval will give you a clear understanding of how much you can afford and will strengthen your negotiating power with sellers. If you need assistance finding a reputable mortgage professional, give us a call at 226-400-6458; we'd be happy to provide recommendations.

Extra Expenses to Consider

Knowing if you can afford to move involves considering a range of financial factors beyond the ones already mentioned. Here are some additional key factors to help you determine if a move is financially feasible:

Emergency Fund

Before moving, ensure you have an adequate emergency fund in place. An emergency fund should cover at least three to six months' worth of living expenses. It acts as a safety net in case of unexpected events like job loss, medical emergencies, or major repairs needed in your new home.

Down Payment and Closing Costs

If you're purchasing a new home, you'll need to have a down payment ready. Generally, a down payment is a percentage of the home's purchase price that you pay upfront. Additionally, budget for closing costs, which typically include various fees associated with the home purchase, such as loan origination fees, appraisal fees, title insurance, and more.

Condominium Fees

If you're moving into a Condominium, be aware of the Condo fees. These fees cover shared community expenses, such as maintenance, amenities, and services. Factor these recurring fees into your budget.

Property Taxes and Insurance

Property taxes and homeowners' insurance are ongoing expenses associated with homeownership. Research the property tax rates in the area you plan to move to, and obtain homeowners' insurance quotes to include in your budget.

Mortgage Affordability

Use a mortgage affordability calculator to determine how much you can comfortably afford to borrow based on your income, debts, and other financial obligations. This will give you an idea of the price range you should consider when looking for a new home.

Long-Term Financial Goals

Consider how a move aligns with your long-term financial goals. Will the new home allow you to save for retirement, pay off debt, or achieve other financial objectives? Ensure that the move supports your broader financial plans.

Future Income Stability

Assess your job stability and career prospects before moving. A secure income stream is essential to cover ongoing expenses and mortgage payments. If you're considering changing jobs or careers, weigh the potential impacts on your financial situation.

School Districts and Education Costs

If you have children or plan to start a family, research the quality of schools in the new area and any potential costs associated with education, such as private school tuition.

Commute Costs

If you're moving to a new location with a different commuting distance, calculate the additional or reduced costs associated with transportation. A longer commute might mean higher fuel expenses or public transportation costs.

Maintenance and Repairs

Budget for ongoing home maintenance and potential repairs. Homes require regular upkeep, and unexpected repairs can arise, so having a fund for these expenses is essential.

Lifestyle Changes

Consider how your lifestyle might change after the move. Moving to a different neighborhood or city may involve different living costs, entertainment expenses, and recreational opportunities.
 

Moving to a new home is an exciting chapter in life, but it requires careful financial planning. By assessing your current expenses, evaluating existing debt, estimating new costs, accounting for closing and moving expenses, considering repairs and upgrades, and seeking pre-approval, you can confidently navigate the Brantford, Brant County real estate market and find a home that fits comfortably within your budget. Remember, being financially prepared is the key to a successful and enjoyable home-buying journey. Happy house hunting