Are you and your new or soon-to-be spouse looking for your first home together? Here are the top 3 mistakes newlyweds make in their home purchases – and what you can do to avoid them:
1. Focusing only on the interest rate
Getting an easy mortgage at a low interest rate is often why married couples decide to buy a home. But the lowest interest rate doesn’t necessarily mean the best mortgage for your situation. Younger couples may need a more flexible mortgage -- one that allows them to pay more when they have more, and less when a spouse is on maternity leave or facing a job loss, for instance. The strategy should be to repay the mortgage as quickly as possible. That means paying more money towards the mortgage than you technically need to. But many newlyweds tend to lack an overall plan for paying off their mortgage.
2. Not talking about their finances
Picture it: A young couple goes out for a Sunday drive and spots a new housing development in a trendy area. They see the open house signs and decide to take a quick look, since they’re in the neighbourhood anyway. Presto! They’ve found their dream home. But the problem for many, couples is that they haven’t run the numbers ahead of time. They don’t even understand about each other’s credit situation.
3. Not factoring in other expenses
Most young couples know the amounts of their mortgage payments for the next 3 to 5 years. But when newlyweds are questioned about their taxes, home insurance policy premiums and how much they are setting aside for emergencies, details get scarce. Many couples’ budgets are more mortgage-heavy than they should be. But taxes and insurance can rise significantly each year, and that translates into a lack of cash flow.
The lesson here? Make sure you are saving properly for retirement and emergencies. Build protection for yourself and your family into your budget with adequate homeowner’s insurance and mortgage protection insurance. Then see how comfortably your mortgage, utilities and property taxes fit into what’s left over. If cash flow is too tight, if something happens like losing your job or having a new baby, a couple can be really constrained.
Four steps to home ownership
Financial advisor, Sara from Sun Life Financial helps put things into perspective and will create the ultimate first-time homebuyer’s preparation plan for you.
1. Figure out how much it will cost you
Before you start budgeting and planning based on that number, don’t underestimate the additional costs that buying a home entails. Remember that real estate and lawyer’s fees, not to mention taxes, can add up. Many individuals also forget that buying a new place generally means furnishing one, which isn’t cheap.
2. Make a budget and save, save, save
Work with your financial advisor to make a plan and begin saving right away; every cent counts. Figure out how much money you will need to save monthly to attain your goal on time, and create an automated transfer if possible, either monthly or bi-weekly, depending on your pay period.
3. Plan for emergencies
You’ve saved up enough for your down payment and now you’re ready to buy, but throwing every penny of your savings into a mortgage might not be the best idea.
“Property is a great investment, but the importance of diversification never gets old,” says Sara. She recommends ensuring you have some savings left to be withdrawn flexibly.
4. Surround yourself with trusted professionals and take the plunge
You’ve estimated costs, budgeted and even managed to save a little extra in your “just-in-case” account. Now you’re ready to find that perfect place. Work with your mortgage broker and financial advisor to make sure you haven’t missed anything and once you’ve found the perfect “home,” have a lawyer review everything before you sign on the dotted line. And as soon as you’ve taken on the responsibility for paying your mortgage, safeguard yourself and your family with mortgage protection insurance, which combines term life insurance and critical illness insurance to cushion the financial impact on your family of your death or a serious illness.
After you’ve completed the process, you’ll likely be a little dumbfounded to think that you just spent all of that money. But you should also feel insanely proud of yourself: You set a goal and, with a lot of hard work and dedication, you accomplished it!
Deanne Gage, May 08, 2017, 3 newlywed home-buying mistakes to avoid [Web page] . Retrieved from Canada Sun Life Corporate Website read the article
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