Overview and Tips on Getting Pre-approved for a Mortgage
My goal is to help you realize your dream of owning a home! This is a decision that requires a lot of research and insight, and I am here to provide you with the right tools to succeed.
This is Part 4 of a 11 part series that I will share with you weekly. If you want to read the previous step, please click here.
4. Make a budget and build your deposit
A friend of mine recently asked me how she and her husband could possibly afford a home in this city? She explained that they both make good money, but with the cost of living, regular bills and family expenses piling up it was difficult to put money away each month, nevermind save up an entire deposit. I could understand her frustration as a $20,000 or $50,000 deposit can feel like it’s forever away when you are living paycheck to paycheck.
Thinking about this problem, I realised it was a bonus topic that I should cover in this series. In response to this question, today’s discussion is meant to help those who make good money, but still struggle to make ends meet and aren’t sure how to close the gap on putting away a down payment. Although this topic is more personal finance than strictly real estate focused, I can tell you that some of the tools we’ll discuss were instrumental for my Wife and I in saving up to buy our first home.
Budgeting 101
For many people, the problem isn’t earning money, it’s saving. If you're spending at or beyond your means it can feel like you're trying to fill a leaky swimming pool with a garden hose. No matter how much you turn on the tap, your hard earned money just drips away.
Effective budgeting is the best fix for this kind of problem. It is equivalent to patching your leaking pool before trying to fill it so you can keep that hard earned money for yourself. Good budgeting is developing a system to make sure you're paying yourself first each paycheck (i.e. saving). I say paying yourself first, because it’s all too easy to pay everyone else first. Common bills and expenses are relentless in each of our lives (rent, utilities, groceries, food, birthdays, trips, restaurants, etc.). However, the difference between effective savers and everyone else is setting a plan to budget and sticking to it.
There are a variety of methods, techniques and approaches to doing this. Some may be better than others, but what’s ultimately most important is finding an approach that works for you and putting it into consistent action. Today, I’ll share two methods that work. One for those who are more high tech, and a second for those who prefer a more low tech (no-tech) approach. Before you can set a budget, let’s talk about how to set realistic goals.
Audit your personal finances
Before you can set a budget, it’s important to figure out where your money is actually going. The easiest way to do this is to pull your recent bank statements and credit card statements and place each expense into a category. If you’re an excel nerd like I am you might want to aggregate and crunch these numbers in a Google or Excel spreadsheet. However, if this kind of work makes your eyes glaze over, then maybe seek help from your accountant or financial assistant at the bank. Alternatively, if you have a friend who’s into numbers and spreadsheets you could try and enlist their help instead. Once you have this worked out, it will tell you where your money is going, and what expenses you could cut back in order to carve out room to save up for a home.
As an example, let’s take the average household income previously discussed in part 2 of our series. As mentioned before, excluding retirees the average household income in Canada today is about $93,800 per year. Let’s assume our future home buyers are currently living paycheck to paycheck and they’ve decided to take stock of their expenses. In this case, they have regular recurring expenses, and last month was not out of the ordinary so the last 30 days will give them a good idea of where their money is going. The results of their audit gives us the following information:
When all is said and done, even though their $93,800 per year amounts to a decent $7817 per month this audit helps them to realise that they are only saving a measly $22 per month. This is just a typical month too, meaning that if an emergency pops up they may have to scramble for help or put it on a credit card or line of credit.
After evaluating their expenses, our buyers realise there’s some opportunity to cut back in a few areas. Although rent, food and utilities are fixed, they find that their restaurant, shopping and miscellaneous expenses can be cut in half. They also decide that their alcohol budget could be dropped by $100, and their mobile phone expense can be cut down by $150 by switching to a cheaper service provider. In total, this nets them an additional $2000 per month in savings that they didn’t know they had before. Naturally, everyone’s situation is different and your income and expenses may reflect a different outcome, but the principle holds the same. Once you know where your money is going, you can figure out where you can save and how much is realistic. We’ll cover that in the next step.
Stay tuned for part 5!
I am a Victoria based local realtor with eXp Kiteke. My commitment to honesty, integrity, loyalty and hard work have been important pillars for me because they drive a high standard of excellent service for my clients. Helping you realize your dream is my goal!
I service Vancouver Island, but my focus is on: Victoria, Sooke, Saanich, Malahat, Shawnigan Lake, Cobble Hill, Duncan, and the rest of the Cowichan Valley.
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