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Selling the Family Home Vs What You Can Afford Now

The housing market has hit an all time high during the pandemic.   We approach the 14-month milestone of living in some form of lockdown restrictions. Many of us were sheltering in place are deciding to change our residence and endure the lockdown somewhere else.  Consider that prospective buyers working remotely have a much larger area to look for real estate and a home outside of the typically GTA. Especially when they are not having to factor in commute time in their next purchase. This has led to surges in real estate prices almost everywhere.

Perhaps somewhere with more space for the kids that also includes a home office. A symptom of the lockdown was the feeling many families experienced of living on top of one another.  This has especially true for individuals who are contemplating a divorce.  There is an adage that talks about familiarity breeding contempt. Many couples who spent 24 seven with their spouses and common law partners realized that there may be a limit to what is considered “quality time” together.  However, moving forward as a single person navigating the house market also brings its own unique set of challenges. Can I afford a property on my own? Or even out of the city when real estate prices are continuing to surge? Read on for the Top 5 Tips on selling the family home and thinking through what you can afford now.

Am I Aware of All the Hidden Costs Associated with the Home Sale?

Keep in mind there is already so many financial unknowns as you go through the divorce process.  How much more will you need to set aside for expenses associated with finalizing your divorce? Including accounting and legal fees, financial planning fees etc.?  What unknown expenses will you face as you move to your new home? If you were in a mortgage and are breaking the mortgage early… You will likely face mortgage penalties to do so. Other costs may include a 5 percent deposit on your new home before you receive the cash from the proceeds of the sale, and moving costs associated with relocating to your new home.

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Am Aware of What I Am Paying for Real Estate Fees?

  You need to know that the real estate fee to sell your home can range from 3 to 7 percent. This is normally represented between two agents as a fixed commission on the sale price.  For example, if the real estate fee between two agents works out to 5 percent and the agent splits the fee equally between the buyer and the seller… Then the buyer can expect to pay 25 thousand in real estate fees. Remember there is wiggle room with real estate fees.  Don’t be afraid to negotiate with your agent and have a bit more cash left over. It can make a difference in what you have left over to work with. You can make an even stronger case to negotiate with your real estate agent if you are selling your home and buying a new one with the same agent.

What Other Costs Will Quickly Start to Add Up?

Other fees normally associated with buying and selling include;

-Making a 5 percent deposit on the home you want to put an offer on.

-Paying for an appraisal ( around $300- 350 depending on size of property and legal fees, between $1000 and $2000.

Other typical costs that often give sellers sticker shock include: the land transfer tax Land Transfer Tax Calculator – Ottawa Real Estate Board (oreb.ca). Also, the cost of mortgage insurance CMHC Insurance | Mortgage Insurance | CMHC Mortgage Calculator | CMHC Insurance Rates (ratehub.ca) if you are not able to make a 20 percent down payment. Clearly this will make a dent in the funds you have left over to live in your new home. You will be shouldering these costs on your own.

How Much Debt Am I Going Into the Home With?

 Mortgage rates are at all-time lows. The good news is financing a home has never been more affordable. However, rates are not destined to stay low and as rates go up ask yourself: Can you afford to pay your debts and the mortgage when you will now be living on one income?  Also consider how much high interest debt are you paying for each month. (Such as credit cards that still have a balance on them.)  It is a good idea to look at ways to pay off high interest debts before applying for a mortgage so that you look more attractive to a lender and reduce your chances of being house poor.

How Much is My Emergency Fund?

 Are you financially prepared for the what if’s that can happen when you are living in your new home?  Consider what it will cost to buy new furnishings, perhaps a repair or renovation that will need to be done or all the hook up charges you will need to pay to get utilities set up.  The other major headwind is the uncertainty associated with finalizing your separation. 

Will the negotiation go smoothly, and if it doesn’t how much will you need to shell out to pay for legal costs?  Can your partner be counted on to pay to make the support payments each month? How secure is your financial circumstances? Do you have reliable employment income and 3 to six months of cash set aside to pay your bills in case funds do not come in as planned?  Building a fortress around your finances is essential so that you can have peace of mind and enjoy living in your new home for many years to come.

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