Budgeting for a Home

Budgeting is a financial management discipline that is crucial if you are considering buying a home for the first time or are already a home owner.

Budgeting helps you keep track of your spending. It allows you to put aside money for a down payment or to cover the many costs of owning and operating a home, such as mortgage payments, property taxes, utilities, insurance and maintenance.

The average house price in Canada in the first three months of this year was $238,230, up from $226,230 in 2004. Thanks to mortgage insurance, Canadians can buy a home with as little as a five per cent down payment.

Mortgage insurance helps protect lenders and mortgage investors from financial losses in case a loan is not repaid. This insurance benefits lenders and investors, but it also helps homebuyers. Because lenders are protected by mortgage insurance, they are able to offer low down payment loans to homebuyers at competitive rates.

Sticking to a budget will actually improve your chances of getting a mortgage. By establishing a regular savings pattern you make your loan application stronger and increase the chances of having it approved by the lender.

The money you have saved and put in your Registered Retirement Savings Plan (RRSP) can be used to help you with your home purchase. First-time buyers can withdraw up to $20,000 from their RRSP to buy or build a home. The amount withdrawn is treated as a loan and must be repaid within 15 years starting in the third year after the withdrawal.

Budgeting is also an important part of successful home ownership, which allows you to get the most enjoyment out of owning a home.

New homeowners have many new types of bills they probably didn?t have when they were renting. They may be paying utilities such as heating and electricity and may be faced with unexpected bills to repair a roof, hot water heater, furnace and air conditioner or other maintenance costs.

Budgeting can help you avoid the temptation of making major purchases on your credit card. If you know exactly how much you have to spend each month, you?ll be less likely to build up debt payments.

Here are a few tips for building a monthly budget.

• For one month, write down all your daily expenses, no matter how small. Take a small note pad with you and write everything down.

  
  

• Identify all of your large, regular monthly expenses such as rent, utilities, phone, insurance and figure out how much you have to set aside to pay them when they?re due.

  
  

• Calculate your monthly, after-tax income. Include everything ? take home wages, tips, bonuses, any investment income, alimony, child support and pension benefits.

  
  

• Compare your expenses and savings with your net income. Look for areas where you can cut expenses and increase your savings. Many people find they can cut down on entertainment, clothing, and dining out. Reducing the number of credit cards you have to a maximum of two or three and consolidating the payments is a good financial management measure.

Once you've created a budget and found ways to increase your savings, you can plan ahead to afford living in your home. The more you can save each month, the faster you can build the money you need to buy or maintain and improve your home.

And continue to save each month as an emergency fund over and above your monthly living expenses can provide you with extra peace of mind.

For more information, visit the website of Genworth Financial Canada, The HOMEOWNERSHIP Company at

www.genworth.ca.