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How to Create a Budget That Works: A Guide for First-Time Homebuyers

September 6, 2023 | Posted by: Matt Broom-Hall

Buying your first home is an exciting journey filled with new opportunities and challenges. While exploring different types of homes and imagining your life in them can be thrilling, it's crucial to ground those dreams in the reality of your financial situation. That's where budgeting comes in.

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Why Budgeting Matters for First-Time Homebuyers

If you're a first-time homebuyer in Canada, you already know the importance of having a solid credit score. Yet, an equally important aspect that can make or break your home buying experience is budgeting. Effective budgeting provides you with a roadmap to financial stability, helping you understand what you can afford, navigate common financial pitfalls, and achieve peace of mind.

Understanding Your Financial Picture

Before setting up a budget, take stock of your financial landscape. That means understanding:

• Your Income: Your monthly income from all sources.
• Fixed Expenses: Recurring monthly expenses like rent, utility bills, and groceries.
• Variable Expenses: Costs that fluctuate each month, such as dining out and entertainment.

Calculating What You Can Afford

In Canada, it's generally recommended that your monthly housing costs—including mortgage payments, property taxes, and heating expenses—should not exceed 32% of your gross monthly income. This is known as your Gross Debt Service (GDS) ratio.

To calculate this:
If your ratio is over 32%, you might need to reconsider your budget or the type of home you can afford.

Budgeting for Additional Homeownership Costs

Beyond the mortgage payments, there are additional costs to consider:

• Closing Costs: Usually around 1.5% to 4% of the home's purchase price.
• Home Insurance: Required for mortgage approval.
• Property Taxes: Vary by location.
• Maintenance and Repairs: Typically 1% to 3% of the home’s value annually.

Creating Your Budget: The Worksheet

To make the budgeting process easier, we've created a Budgeting Worksheet tailored for first-time homebuyers. This template helps you:

• Get a complete picture of your financial situation
• Calculate your GDS ratio to gauge what you can afford
• Identify areas where you can cut back or save
By filling out this worksheet, you'll have a clearer sense of what steps to take next in your home-buying journey.

Long-Term Financial Planning

Remember, budgeting isn’t a one-time activity but a continual process. After you buy your home, continue to keep track of your income and expenditures to ensure you're prepared for any financial curveballs.

Further Learning

For more resources, you can visit the Financial Consumer Agency of Canada, which provides various tools and tips to help Canadians make more informed financial decisions.

Final Thoughts

Budgeting can be a robust tool in your home-buying toolkit. By being aware of your financial situation, knowing what you can afford, and planning for the future, you’re well on your way to making an informed and financially responsible decision about your first home.

To further assist you on this journey, consider joining our FREE First-Time Home Buyer's Program. We provide ongoing coaching, essential resources, and personalized support to help you navigate the complexities of buying your first home.

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