By Jasmin Brown, BDO Debt Solutions

BDO Debt Solutions

3 Reasons to Reduce Your Debt Before You Buy a Home

Oct 1, 2020 | 10:43 AM

Considering the recent rise in home sales in Saskatchewan over the past few months, you may be asking yourself: Is now the right time to buy my first home? Year-over-year home sales for July 2020 across our province went up by over 50 per cent, compared to July 2019. In both Prince Albert and North Battleford, home sales increased by over 60 per cent. Before you call a realtor or fill out a mortgage application, take the time to ask yourself about your debt. It might be better for your short and long-term financial health to reduce your debt before you jump into the housing market.

1. Your debt could reduce your buying power

One thing a prospective lender will consider during the mortgage application process is your level of debt. If you have a larger debt load, you may end up qualifying for a lower mortgage or paying a higher rate of interest.

And, if you’re renting right now, it’s important to understand that the monthly cost of owning a home will almost always be higher than the cost of renting. One rule of thumb is to add 40 per cent on top of your projected mortgage payment. For example, if you expect your monthly mortgage payment to be $1,000, add 40 per cent (or an additional $400) to cover insurance, property tax, utilities and maintenance costs. A debt load that might be manageable when you rent, could be a challenge if you buy.

2. Your debt can compromise your goals

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What are your short and long-term goals? Besides purchasing a home, you may want to buy a vehicle, further your education, have children or add to emergency savings. Finding the funds to achieve these goals can be more difficult if your debt obligations are taking up a large portion of your monthly income.

To ensure you are still able to contribute to at least some of your short- and long-term goals once you buy a home, create a projected homeowner budget. Try to determine all of your expected expenses using our budgeting worksheet. Will you need to make significant compromises in order to meet mortgage payments, afford housing expenses and keep up with your debt? Will you have any room in your budget for those goals that are important to you? Taking these things into consideration can help ensure that you don’t end up ‘house poor’ and overwhelmed by debt in the future.

3. Your debt may be sabotaging your affordability

Your ability to pay for basic essentials like rent, groceries, transportation and clothing is an indicator of affordability. If you are feeling financially stretched or coming up short before your next paycheque, your challenges may be because of too much debt.

How much money are you putting toward debt repayment each month? Are you making real progress towards paying off your debt or are you able to pay only the minimum amount? Is your debt increasing month over month? If you are struggling to make any real progress towards paying off your debt, consider speaking to a Licensed Insolvency Trustee (LIT). An LIT will review your situation, including your income, assets, debts and monthly budget and review available debt solutions.

Are you looking for ways to decrease your debt? Find helpful resources and information on debt solutions by visiting us on Twitter and Facebook.

BDO Debt Solutions

1-855-BDO-DEBT

Prince Albert and Area

North Battleford and area.