You’ve made the decision – you are going to build a custom house in Warman. Congratulations ! Cherry Creek Homes is here to help !
One thing you don’t often hear from salespeople is “maybe you should build smaller?” We often ask that question because the last thing we want is for you to have a large, beautiful house that you can’t afford. Now don’t misunderstand … we will gladly take your money ! However, it is more important to us that you aren’t drowning in debt, stressed about how to pay your monthly bills. One of the things that bothers us the most is when clients tell us they are making a 5% down payment on their house. While a case can be made for this scenario, it should involve a low-cost condo or very small house with a solid plan for paying down the mortgage quickly. If a client wants a large house or is building their second or third house with only 5% down, we will encourage them to rethink the decision.
Our culture today believes that you can have it all up front and pay for it later. This kind of thinking has helped us to collectively become the most indebted generation ever in history. Whether you look at governments nationally, provincially, and locally or look at individual families, our debt levels are unprecedented. The problem with debt is that it limits your freedom – it is very much a “ball and chain” around your ankles.
So, try this math on for size. Building a home consists of two important numbers:
1) Down Payment. Aim for at least 10% down. At this level you will still pay thousands of dollars to CMHC for mortgage insurance. Even better is to skip CMHC and put down 20%. Create a savings plan to sock away that money. Beg from parents and grandparents. Do whatever you can legally do in order to have a higher deposit.
2) Monthly Payment. Add up your family’s monthly take-home pay and multiply by 25%. This is the maximum mortgage payment you should have. Anything more than this and you are asking for stress.
Monthly take home pay = $6,000
Maximum mortgage payment = $6,000 x 25% = $1,500
At 3% over 25 years, the maximum mortgage you can afford is $310,000
With a 10% down payment, your maximum house price is $345,000
I realize that it takes courage and self-control to not follow the crowd. The banks will encourage you to borrow much more money. But remember, the bank has a motive – they want to take as much of your money as they can. Break free and be courageous ! You are building a loving home, not a gigantic stress creator.