| |
Can I Afford to Buy a Bigger House?
|
| Your family is expanding but your home can’t seem to keep up. What was
once the ‘guest bedroom’ is now the domain of a little person who has
certainly overstayed the limit of any polite house guest. Your once
spacious living room is currently a multi-purpose Lego-land, homework
zone, video- game haven, and also the space where you need to find a quiet
spot to get some work done. Maybe it is the long bathroom queue every
morning that is getting you down- banging on the bathroom door and
hollering “hurry up” isn’t your idea of an enjoyable pre-coffee activity.
So you need an extra bathroom, and maybe a bedroom or two, in order to
house your growing brood. But can you afford to buy a bigger house to
accommodate your growing family’s needs? |
| |
| As with most issues of a financial nature, the answer to that question
is highly personal. If you own your current home you already have your
foot in the market, and you likely know the ropes of purchasing a house.
Researching market prices, lenders, mortgage terms and rates, and
determining how much you can ask for your current house and afford in a
new home is all part of this personal process . This is the hard stuff
that only you, and your financial advisor, can figure out. Once you know
how much money you are working with, you can begin to investigate how much
house you can realistically afford to purchase. |
| |
| Before you being house hunting, take the time to consider if moving is
really what makes the most sense for your family. In real estate, a well
known saying is that it is less expensive to build house than it is to buy
it – while this isn’t true in all markets, it is something to think about.
For a growing family, this could mean that a home renovation makes more
financial sense than moving – read our article The Renovate Debate to find
out more. |
| |
| If after weighing the options you decide that moving house makes more
sense than renovating, you still might be stuck trying to figure out how
you can afford what your family needs. At this point, as history has
taught us, proceed with caution. |
| |
| Take traditional home-buying advice with a grain of salt. While
earlier generations were encouraged to buy as much house as they could
possible afford, for today’s families that same advice just doesn’t make
sense. First, families of the past who relied on only one income had a bit
of wiggle room if the main breadwinner (usually dad) lost his job – mom
could find employment to make ends meet and keep up with mortgage
payments. Nowadays, many families’ finances are already based on two
incomes. If one partner looses their job, there is no one in reserve to
help. |
| |
| Second, the gap between what you can really afford and what a lender
is willing to give you can be quite large. Again, traditionally homebuyers
would not be able to secure a mortgage for more than they could really
afford – now we know this reality has changed. So we can agree stretching
too far to buy a bigger home is not wise – it can negatively affect the
rest of your financial goals and ultimately put your house, and sanity, in
jeopardy. If you want a bigger house but aren’t sure how you can afford it
there are a few things you can consider doing without risking your
financial wellbeing. |
| |
| A house with a separate rentable unit (such as a basement apartment),
or the potential to create such a space, is one thing you might consider
to help shoulder the burden of higher mortgage payments. While you must
plan for vacancies, problem tenants with bounced rent cheques, and
unexpected repairs, with the help of your real estate agent you should be
able to accurately predict how much your rental unit can bring in. While
being a landlord might not be something you had considered doing, you can
look at it as just another way to make money to finance the house of your
dreams. |
| |
| If you considered renovating your current home but decided against it
– either because your real estate market means it wouldn’t be a wise
investment or because you don’t have the space- don’t discount looking for
another property where renovating would make sense. This might mean
initially downsizing when you buy a smaller house, but if you can find a
good deal on enough land to expand, this could be the way to secure a
large house at a price you can afford. |
| |
| Another good suggestion is to listen to your real estate agent – and
then some. The repairs they suggest you complete before putting your home
on the market can really pay off. If you can put off buying a house and
instead invest in some worthwhile repairs, upgrades, and superficial
finishes that really make your home attractive, you could be reaping some
serious financial rewards. Every year Hanley Wood, LLC, produces Cost vs.
Value, a good resource to consult regarding home upgrades. The 2009-10
report recommends improvements to your homes curb appeal as one of the
best returns on your investment. These improvements – a new front door,
replacing siding, or installing a wood deck top the list– were low cost
improvements which recovered a high value. Updating paint and floors
(especially if you have hardwood hidden underneath) are other solid
recommendations. Small things like these could help you sell your home for
a higher price, providing you with funds for a down payment on a bigger
home. |
| |
| So can you afford a bigger house for your growing family? If, after
crunching the numbers the response is ‘no’, then at least you have started
your research and will be well prepared when the time comes. If you can
afford a bigger house, and want to see how you can get the most for your
money, consider our tips and get creative. In no time at all your family
will be comfortably settled in your new home, with space for everyone….and
their Legos, school books, sports equipment, computers…. |
| |
| |
The Renovate Debate
|
| The debate over whether it is better to move to a bigger house or
renovate the one you have is a fairly recent one. For the pioneers of
early Canada, the choice was clear- renovate. Those early settlers built
their original dwellings (simple homes called ‘shanties’) with the
optimistic intention to continuously expand over the years as their
resources grew. In fact the first phase of most shanties would appear as
half of a traditional peaked roof home- a house cut right down the middle!
The next year, the first addition would be added: a mirror image of the
original structure, with the two parts together forming a ‘real’ house.
With more choices today, the decision to move or stay put is a more
complex one. If you like where you currently live, and have the space to
expand (either up or out), you might want to consider if renovating your
home is the best financial option for getting more space for your growing
family. |
| |
| A common saying in the world of real estate is that it is cheaper to
build square footage than it is to buy it– meaning that having the
convenience of moving right in to a finished home at the size you want is
something you will have to pay for. This is only partly true – as real
estate costs are rising, so is the cost of building materials, and you
must know your particular market. Depending on where you live, your
neighbourhood might be one with lots of starter homes, where moving is
actually cheaper than adding on. At an estimated cost of $150 to $200 per
square foot to renovate, carefully consider where you live and if it is
it’s an area where renovating makes sense. In many Canadian markets, you
can trade up and get a lot more house for not a lot more money. |
| |
| With this contradictory information in mind (building square footage
is more cost effective, except in places where it isn’t), your first step
is to arm yourself with as much information as possible. Decide what you
would ideally want done in order to make your house more workable for your
growing family – bigger kitchen, an extension for a family room, more
bedrooms? Now get estimates from at least three contractors for what it
will cost to get that work done. You will need these estimates when you
talk to your real estate agent to determine two important things: one, in
general is your real estate market one where buying a bigger house makes
more sense than renovating? And two, in your neighbourhood specifically,
will the renovations you are proposing price your house out of the market? |
| |
| Do some of your own background research. Take a look at other homes on
your street and in your neighbourhood; if your renovation is going to put
your house value much higher than those around you, be careful. It can be
difficult to make back your renovation investment if your home out-prices
those in the area – buyers will be looking for a house price that fits
with the area, and those with more to spend will likely look elsewhere.
Ideally you want your renovations to bring your house up to matching, not
surpassing, the value of other homes in the neighbourhood. In this case
keeping up with the Joneses is ideal. |
| |
| So you’ve talked to an agent and found that renovating would make
sense in your current real estate market, as well as determined that your
post-renovation house will compare favorably to others in the
neighbourhood. Now you should sit down and do a thorough cost comparison.
Add the balance of your remaining mortgage to that of the estimated
renovation costs- adding in permit cost and all extras that may not be
included by your contractor. Remember to take into account living costs if
you won’t be able to live in your house during construction. Now compare
this to the cost of a new home, plus moving costs, and commission. Clayton
Research, a Toronto firm specializing in real estate economics, knows the
hidden costs of moving often come as a nasty surprise to homeowners. They
estimate the cost of moving alone runs around $19,800 (this includes
mortgage and legal fees, taxes, professional movers, and smaller things
like carpet cleaning and painting your new home). Your moving figure will
likely be different, but keep in mind there are a lot of unexpected costs
associated with the sale and purchase of a new home. |
| |
| Once you have done this cost comparison, your answer should be
clearer. If it turns out that buying a new home is a better idea for your
family, and financially one that makes the most sense, we have a little
more work to do. Head over to our article on getting the most house for
your money (Can I Afford a Bigger House for my Growing Family?) to get
started. If, on the other hand, you have determined that renovating your
current home is going to be the best use of your resources, well….you have
a lot more work to do! |
|
|
| |
|
|
|
