Before you start thinking about the kind of home you want and where you want to live, it's a good idea to take a financial inventory. This stage of the process — saving, budgeting, planning — is not as exciting as choosing a neighbourhood and looking at homes. But it will put you in the best position when it comes time to talk mortgages.
Preparing to buy a home
For most of us, the first step in the home-buying process is to ramp up savings — the more you can put towards a down payment, the less interest you'll pay and the more you may save on mortgage insurance.
Paying down debt and building a good credit history are also part of this process. The better your credit history, the more leverage you'll have when negotiating a mortgage.
Now, how much home can I afford?
The size of the mortgage you can qualify for is based on some traditional debt-to-income principles:
The first l lending principle states that monthly housing costs plus all other debt (loans, credit cards) should not exceed 40% of your family's gross monthly income. (GDSR is not considered).
Once you've set your savings plan, speaking with a financial advisor to learn what size of mortgage you quality for is the next step. A Scotiabank Sales Officer can explain to you the different rate and term options available and provide peace of mind that you are getting the right mortgage for your needs.
Doing renovations the right way
Many homeowners have turned to renovation as a cost-effective alternative to a new home. In addition to sprucing up your home and making it more attractive to inhabit, the right renovations can increase its resale value.
Experts agree that the top 3 renovation projects that will increase the value of your home are interior painting and décor, kitchens and bathrooms.
Paying for the renovations
If you are making modest renovations on your own, paying for the materials with your credit card may make sense — provided you pay your balance monthly.
For more extensive work, resist the temptation to draw cash advances on your cards. A personal line of credit is a much more cost-effective way to get the cash you need. Drawing on a personal line of credit also provides you with a flexible, convenient way to access funds when you need them.
For major renovations, you may want to tap into the existing value of your home. See below, Using your home equity for other goals, for more information.
Refinancing your mortgage
Refinancing is an opportunity to review your options and see how your mortgage can be adapted to suit your needs better. Your mortgage is a large financial commitment, so you owe it to yourself to ensure that your mortgage is the right one for you. A mortgage specialist can help you determine how to lower your borrowing costs, provide advice on how to pay off your mortgage sooner, or help you free up funds for other important life goals.
Using your home equity for other goals
Your home equity is the current value of your home less what you still owe on it. For example, if your home is valued at $250,000 and your outstanding mortgage is $120,000, your equity is $130,000.
The equity you have built in your home can be a valuable source of financing. You can borrow against it to pay for your child's tuition, purchase an investment portfolio or pay for large-scale home renovations.
Your financial advisor and mortgage specialist can help you decide whether it makes financial sense to tap into your home's equity. A great way to use the equity in your home is by securing a ScotiaLine personal line of credit. This will give you the benefit of reduced rates, and the flexibility of setting a repayment schedule that suites your needs.