This may sound like a weird question, but it is a great question. For a first time home buyer that is currently renting, or living with a parent or family member, the cost of owning a home can be a big change. There are a few costs or budgets that you should keep in mind when you are considering buying a home. Lets look at this as if you are buying a home in Red Deer, AB for $300,000.
Mortgage – This is a pretty obvious one. A mortgage can be amortized up to 35 years to help keep the payments low. With any amortization over 25 years, the difference you are saving on your monthly payment comes off the amount of principle that you are paying every month. With our $300,000 home let say we did 5% down. When we add mortgage insurance (CMHC) and do a 5 year term at 4.5% and amortized over 35 year our mortgage on this would be $293,977.50. This would make our payments $1391.27 per month.
Property Tax – property taxes vary depending on where you are buying. Some places are higher than others. Your property taxes go towards Parks, Recreation facilities, Schools and Road maintenance . A good estimate for property taxes is about 0.80% of the purchase price. This would make our budget $2400 for the year or $200 per month.
Heat and Electricity – obviously these are going to vary from person to person, and season to season. In the Winter you will use your heat and electricity more than the summer. It also will depend on how the home is built. With the new ‘built Green’ homes, this is more energy friendly than the older homes. Older home with original windows, are going to cost more than a new home with newer windows. Some places may have 2 sometimes 3 furnaces to heat the home and garage. For our example we are going to use an average newer home. For your heating and electricity costs lets use an average of $300 per month.
Phone, Cable, Internet – This one is a preference. Some people just use a cell phone, some have a land line and a cell. Some have the complete package on their cable, some do not have cable at all. For our example we have basic cable, a land line and the internet. These together will run around $120 per month.
Home Insurance – Your Home insurance is a very important thing. You can get Insurance to cover Fire, Damage, Contents and liability. Your home, neighbourhood, and the coverage you prefer will all factor in on the cost of your insurance. Insurance typically starts at about $500 and increases from there. For our scenario we are insured for $1000 annually or $83.33 per month.
Water and Garbage/Recycling – This one is pretty self explanatory. The city or town will charge you for the water you use and for garbage removal. This usually runs around $45 per month
Home and Yard Maintenance – These again vary with the property. If you a moving into a new home your yard maintenance will be more than you’re in home maintenance. Chances are you are going to need Sod, fences, Decks ect. If you are in an older or finished home the yard should be completed but you may eventually need new shingles, Furnace, Hot water tank, or new flooring. Housing experts say you should be putting aside from 1% to 3% of the value of your home each year, or a minimum of $1000 for every $100,000 in value. We are going to use the minimum on our home which is $3000 per year or $250 per month.
There is other optional things to consider like Life insurance and Home security systems which are valuable additions to your home purchase.
This is a just rough estimate for a home. On our example of a $300,000 home in Red Deer, our monthly costs for all the above mentioned is $2390 per month. That can be a big difference if you are currently renting for $1200 a month with all your utilities and everything included.
Owning a home can be one of the greatest feelings. It can also be very stressful if you go into it unprepared.
Make sure you ask all the questions when looking at a home or getting a mortgage.
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Scott Bourke, AMP
Regional Mortgage Corporation