How I Set My Budget and Bought a Home I Could Afford

Jordann Brown
by Jordann Brown November 28, 2016 / No Comments

In a hot housing market, it can be difficult to set a realistic budget that will both allow you to purchase a home you’ll be happy with, and avoid becoming house poor. With high home prices, astronomical mortgage pre-approvals, and mounting parental pressure, losing sight of how much you should spend on a home is a real danger.

It can happen to the best of us. In fact, it almost happened to me.

Even though I’ve been blogging about money for years and was house hunting in a decidedly less expensive housing market than Toronto (Halifax), I nearly got caught up in the excitement and spent too much on my home.

Fortunately, cooler heads prevailed. I managed to set a realistic budget and found a home I could comfortably afford. Here’s how I did it:

I set a monthly budget

As a homeowner, I didn’t want to be house poor. “House poor” is a term used to describe homeowners who spend the majority of their income on their mortgage, leaving them without enough income to pay down debt and save for their future.

To avoid being house poor, I set a hard rule. At the time, I was paying about $1,700 for my two-bedroom apartment, including all utilities. With my housing costs at $1,700, I was still able to save aggressively. I wanted to continue that, so I set a rule that I didn’t want to pay more than $1,700 in monthly housing costs when I purchased a home.

Setting a monthly amount wasn’t as simple as limiting my monthly mortgage payment to $1,700 per month. I also needed to factor in property tax, insurance, utility, and internet costs. To figure out how much I could afford to spend on my mortgage payment, I tinkered with RateHub.ca’s mortgage payment calculator. I ended up setting a budget of $1,100, which left me with $600 per month to pay for everything else that came along with homeownership.

Based on that monthly mortgage payment, I was able to set my maximum home purchase price at $300,000 with a $45,000 down payment.

It’s a lot of money to save and I didn’t have any parental help with my down payment. To save that much money on my own would take me several years, so I decided to lower my maximum home purchase price if possible. In my neighbourhood, I could purchase a starter home for $300,000. But I knew that if I was willing to be flexible, I could score an even better deal.

I created my list of must-haves

After I set my maximum home purchase price at $300,000 and laid out a plan to save $45,000, I began researching my ideal neighbourhoods. I scoured new home listings for deals and started attending to open houses as research.

My husband and I visited more than a dozen open houses in summer 2015, a whole year before we planned to buy a home. Attending open houses was a way to refine our idea of an ideal home, and decide what features were “wants” and what features were “must-haves.”

My original must-have list was quite long. Here are some of the items that were originally on my list:

  • Open concept
  • Three bedrooms
  • Fireplace
  • Backyard
  • Parking for two cars
  • Basement area for wine making
  • Office space
  • Hardwood floors
  • Forced air heating system
  • Updated wiring and plumbing
  • On a quiet, tree-lined street
  • South-facing backyard

On top of this long list of must haves, I also had a very particular neighbourhood in mind, which was one of the most popular in the city.

As my husband and I attended more and more open houses, we found that we could live without many of the items on our wish list. Even though there were homes in that neighbourhood that checked every box, they were out of our price range. Buying one of them would’ve meant buying a home we couldn’t afford, which would have left us house poor.

After a year of researching, saving, and attending open houses, we finally bought a home, and it did not come with all of my original must-haves. Here’s how the home we eventually bought stacked up against that list:

  • Open concept
  • Three bedrooms
  • Fireplace
  • Backyard
  • Parking for two cars
  • Basement area for brewing
  • Office space
  • Some hardwood floors
  • Forced air heating system
  • Updated wiring and plumbing
  • A quiet tree lined street
  • South facing backyard

There were two significant drawbacks to the home I eventually purchased. First, it was slightly outside of my ideal neighbourhood. The location of the home made it more affordable, but also less appealing.

Second, the house was owned by an older seller who hadn’t made some needed repairs to the home. These required repairs worked to my advantage because I was able to demand a lower selling price than other would-be homebuyers who weren’t prepared to deal with a poorly maintained home.

In the end, I purchased a home for $270,000—well below my maximum purchase price. Because it was so much less than my initially estimated amount I was able to put a smaller down payment on it, just $27,000 instead of the $45,000 I had originally anticipated. By remaining flexible with my must-have list and moving slightly outside of my ideal neighbourhood, I was able to stay under budget for my monthly mortgage payment, avoid being house poor, and still ended up with a home I love.

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Flickr: bambe1964