Scotia Investments

Financial Learning Centre

Scotia Investments Financial Learning Centre

Money Management Guide - When Purchasing A Home

If you're like many freshly minted couples, now you're thinking about buying a home of your own -- with plenty of storage space for the wedding gifts you actually kept. But how do you know if you can afford to be homeowners? Is it wise to buy a home before the ink dries on your marriage certificate? What are some of the common mistakes newlyweds make when buying their first home? Here are some things you can do to make sure your homeownership experience ends up "happily ever after."

Clean up your financial house.

Before you take on a mortgage, eliminate as many other financial commitments as you can. Pay off leftover wedding or honeymoon bills or credit card debt. Pay down or even pay off car loans. Take a close look at your student loan debt and any old debts either of you brought into the marriage.

Rule of thumb: A couple's total monthly debt -- including their new house payment -- should not be more than 35 percent of their gross income. Finally, get life and disability insurance for each of you. Life insurance, particularly, is cheap these days. If your employer doesn't offer it, or doesn't offer much, consider individual policies. If something tragic should happen to one of you, the insurance can help pay down -- or completely pay for -- your new home.

Resist the urge to splurge.

If you're looking forward to buying a home within a year, don't take out loans for that new "now-we're-a-couple" car, an expensive suite of furniture or trendy weekend toys such as motorcycles. Aside from the fact that you'll need extra money for your home down payment, mortgage lenders don't like seeing new debt.

Manage your moves.

If one of you is moving to a new job or changing careers, sit tight on the house purchase for three to six months. A stable employment history is important to mortgage lenders. If you move to a new city after you get married, consider renting for a year before you buy a house Save, save, save.

Even if you need to put contributions to your retirement plan on hold, this is the time to sock away cash. It's also smart to save up a hefty down payment. The more you pay upfront on your house, the smaller your fixed monthly payments will be. You may also be able to eliminate the cost of private mortgage insurance, or PMI, by putting down at least 20 percent of the house's cost.

Get pre-approved before house-love hits.

Have a serious sit-down with a mortgage lender, even if it's not the bank or broker they eventually use. Once you know they're qualified for a home loan and know how much you can afford to spend, you're free to focus on the more emotional side of the transaction -- finding the house you love.

Research mortgage deals.

Even if you've had your checking account at Stable Mega Bank since your college days, you don't necessarily want to get a mortgage there. Mortgages are very competitive financial products these days and you might not get a better deal at your current bank just because you're already a customer.

Discuss your timeline.

How long after your wedding should you wait before buying a house is a decision that only the two of you can make. Sharing a rented or previously purchased home for a while before you commit to a new house together is recommended. That way, you have time to decide whether you really can share a sewing room/computer room, how much closet space you need and whether a small kitchen is fine.

Think twice about becoming a landlord.

If one or both of you already owns a condo or home, don't assume you should live in one and rent out the other. Think about it.