The question of home affordability is a balance of what mortgage you can get and how much you are willing to invest. Of course, home affordability is a very personal topic, however, here are some questions you can answer to get a good understanding of the answer for you!
1. How much equity do you have?
To understand your full financial picture, it is important to evaluate how much equity you have in your home. This will tell you how much capital you can extract from a sale and how much the bank will take back.
2. How much do you have for a down payment?
If the purchase price is less than $500,000, the minimum down payment is 5%. If the purchase price is between $500,000 and $999,999, the minimum down payment is 5% of the first $500,000, and 10% of any amount over $500,000. If the purchase price is $1,000,000 or more, the minimum down payment is 20%.
3. Are you pre-approved for a mortgage?
It is important to understand what mortgage lenders will approve ahead of looking for a home. There are a number of online tools available to do a quick evaluation and get you pre-approved. When it comes time to make an offer, sellers will value a pre-approval over one that is not approved because it is likely a more solid offer.
4. What are your costs of transaction?
Touch-ups – This is 100% dependent on the condition of your home. You may decide to do minor repairs – paint a wall, weatherstripping, fix dings in walls (~$500) or major jobs (repairing a roof, resurfacing a floor, electrical or plumbing work. It is a good idea to get a quote from a reputable pro for this work. –
Photography & Measurements – Professional photos are highly encouraged and measurements are needed if you want to post on MLS. All in, these will cost anywhere from $150-350 depending on the size of your home.
Staging – To stage or not to stage? Staging can run from $1,500+ depending on the size of your home and how much you decide to stage. – To stage or not to stage? Staging can run from $1,500+ depending on the size of your home and how much you decide to stage.
Agents – If you decide to list with a selling agent, they will likely charge 3.5% on the first 100,000 and 1.5% on the remainder. There are other options to avoid some of these costs. If you sell to a represented buyer you will also be on the hook for the costs of their agent too (in Alberta they are typically the same cost as the selling agent). Of course, if you sell without an agent, or sell to a buyer without an agent there are significant savings there.
Lawyer – You will need a lawyer to finalize the deal as well as clear disbursements. This fee can be $1,500 +.
Moving – the costs of movers is extremely variable from Kijiji (~$500) to professional movers and organizers (~$2,500+ depending on volume).
5. What is the current value of your home?
It is important for you to determine the value of your home. This analysis is now possible with online tools and a good exercise for every homeowner to go through on a regular basis. Understand your neighborhood trends as well as look at the individual and comparable home sold prices.
6. What will it cost to break your existing mortgage?
This is an important penalty you should be aware of ahead of selling your home. Depending on the contract these fines can be quite hefty and might make a sale a non-starter.
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Arm yourself with the key information you need to make the decision on what you can afford. It’s a decision only you can make, but our fresh Alberta market and sold data will give you the confidence to know what is right for you.
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