Four Essential Questions for the First Time Home Buyer
It seems as if parents from many cultures offer the same advice to their children as part of early financial education. “You should own a home” they say. “Property always appreciates in value and you need to build something”.
There’s an obsession with owning a home, but the truth is that it’s only a good idea if it delivers both financially and emotionally.
Besides, aren’t these the same parents that told you texting was an inferior method of communicating as compared to voicemail? (Personally, I only leave voicemails in funny voices.)When making critical decisions it’s paramount to think critically. There are many factors to take into account when making a decision regarding home ownership. Here are some questions you need to ask.
Why do I need to buy a home?
The first thing you should ask yourself when making any sizable investment has to do with the investment’s benefits. Your answer should be clear, well thought out and include all the needs that your home will provide for you and your family. The two most popular reasons for buying a residential home are for investment or to occupy.
A home is an asset. You’ll derive both monetary and non-monetary gains from it. It is important to consider your expectations, and the realities of owning both a home and a piece of real estate in Canada. Creating a list of why you need a home will help define what criteria you have for home selection and act as a benchmark for your decision.
Do I need a realtor?
There is an old adage in criminal law that a Lawyer who represents himself has a fool for a client. Even though you might have experience in a given field, complex challenges are best left to experts. Using a realtor is a way of hiring a specialist who can negotiate, solve problems, and take care of things that most of us don’t have the expertise for. A good realtor will usually provide more value than their commission cost. Trust is vital when choosing your expert so to find one, ask friends for referrals, check local listings in the area you are shopping and get to know your realtor.
How much will it actually cost me?
There are many costs associated with a home aside from the purchase price. Think them through when you’re deciding what you can afford. Canada’s economic state and the Toronto real estate market in mid 2015 might even dictate that you should keep renting. Simply put, if you have access to better investments (more return or less risk) than a home, you should rent the home and invest elsewhere. The average home price in Canada as of April 2015 was $448,862, which means a mortgage payment of about $1,500 after putting $90,000 down.
(Mortgage + land transfer taxes) – Benefits
To find out how much a mortgage will cost you, visit my mortgage calculator. On your purchase you will pay land transfer tax but also be rewarded for being a first time home buyer (FTHB) in Canada. See my article about the financial benefits for FTHBs here. Costs outside of your actual home purchase will add up as well, likely to thousands each year.
- Property tax and insurance
- Heating and cooling
- Maintenance and repairs
- Condo fees
What is the exit strategy?
To make the right buying decision, you’ve got to consider the endgame. The area, size, price, and modifications to a home will usually be dictated by what you want to use it for. Whether you decide to keep two homes, or are upgrading, knowing what your plans are will help save you money. Along with homeownership comes many responsibilities and carrying two homes can be a burden financially mentally. Think about how you want to use your home in the future.
Bonus: Who are Canada’s First time Home Buyers?
Owning a home is the best option for many people because it is a forced savings plan that has historically performed quite well as an investment. When people say, “they aren’t making any more land,” they are absolutely correct. Just as you would evaluate any large purchase, you should consider your motivations to buy a home, its pros and cons, market conditions and your goals to see if throwing down a large portion of your life’s savings is right for you.
How do I know what I’m talking about? I’m a mortgage agent. Learn more on my blog.