Wednesday, June 13, 2018
The Ultimate Homebuyer’s Guide
The weather has hit that summer feel and that means 2 things: Construction Season and Home Buying Season. While there is nothing we can do about construction, we can be ready for buying a home. Whether you are a first-time homebuyer or a seasoned veteran, buying a home needs to be done with care and consideration. Sadly, when mistakes are made during this decision process it could cost you thousands. Today I am going to show you my Ultimate Home Buyer’s Guide containing 10 things to consider when taking the plunge. Checking off all these boxes will get you in gear for the biggest purchase of your life.
Decide if owning a home is for you
This one seems easy, but it may not be as simple as thinking renting is for suckers. Buying a home is like having a kid. It requires constant attention and upkeep. Think of all the things your whine about to your landlord. Broken toilet, that’s on you. Cutting the grass and shoveling the snow, that’s on you. Run down air conditioner, that’s on you too. Owning a home isn’t for everyone. I know I am too busy for the upkeep of a home which is why condo life would be more ideal for me. There is nothing wrong with renting and don’t let anyone tell you otherwise. Despite this, owning a home is a great accomplishment and it is still the Canadian dream. All I am saying is you really need to think long and hard about that decision. Reading this post is a great first step!
Make a budget
I know I sound like a broken record, but having a budget is crucial to the success of your household, especially when it comes to homeownership. You must know the inflows and outflows on a monthly basis. The reason this becomes so important when owning a home is that now there will be additional costs, both regular and random. You need to be prepared for taxes, insurance, maintenance, utilities and many more expenses, of which I will discuss later in the post. Having a rock-solid budget will get you ready for the onslaught.
While having a budget is the base of all financial planning, including home ownership, it is not the only thing you need to have. An emergency fund is VITAL to your survival. Every person I encounter that has significant debt could have been saved if they had a sufficient emergency fund. I have said it before, an emergency fund is not your line of credit or credit card. The only emergencies they should handle are an empty fridge or gas tank. A true emergency fund is liquid cash, that is easily accessible in a time of need. Far too many homes have a line of credit attached to them for a broken water heater or new roof. While paying 20K out of pocket does suck, paying 35K over the next ten years sucks even more. I recommend having 1 full year’s living expenses for an emergency fund, but you can start small. Also think about having a Tax-Free Savings Account, Retirement Savings Plan as well as an education fund if you have children. Remember the goal is to pay off the house as soon as possible so you don’t want to be dipping into your equity when something comes up.
Sadly, your credit score can make or break you when it comes to buying a home. It will determine what rate you get and even if you are eligible at all for a mortgage. Your credit score is comprised of several factors including previous history, availability of revolving credit, amounts owed, and inquiries made. This means that paying your bills on time is important. Also, keeping your debt levels low is important. When you attempt to buy a home, the lender will look to see if you can afford to service the mortgage along with everything else you currently owe. Therefore, I always recommend you be debt-free or as close to it as possible when you buy a home. Speaking to an advisor will help you know the ins and outs of your credit.
Often the biggest hurdle for first time home buyer’s is coming up with the down payment. This amount can seem impossible, especially when just getting by is a challenge. I think saving for a down payment is a great accomplishment. For starters it will help get you into your home. More importantly, it illustrates the sacrifice you will need to make throughout life to get ahead. They are several methods to come up with a down payment but most common are using a TFSA, the RRSP Home Buyer’s Plan, or being gifted the payment. I caution against borrowing for the down payment. Always make sure the terms are affordable and won’t come back to bite you in the butt.
Getting preapproved for a mortgage is a very important step. First off it allows you to know how much home you can afford, which narrows your search and prevents you from wasting time. Secondly, it may allow you to remove the condition of financing when making an offer on a home. That could be the difference in securing your dream home or being left out. Make sure when you get preapproved, however, that you don’t fall into the trap of being told what you afford. Skip back to point number two and the importance of a budget. Lenders will often tell you what they think you can afford. The truth is, only you know what is in your monthly budget. Make sure you are only bidding on homes within that range or else it can bite you in the rear later.
Talk to a realtor
When buying or selling a home, I believe having the services of a realtor is important. Think of the home buying/selling process as a high stakes negotiation. Your realtor is the person on the ground going to bat for you in this battle. I know I do not have the knowledge of the real estate market to make sound moves during this process. Realtors know the neighborhoods, the home values, and the people involved in the process. Not getting a realtor can save you a few thousand dollars, that much is true. Not getting a realtor can also cost you thousands. I have seen several people get burnt when they didn’t have the expertise of a realtor on their side. Like any industry, there are good and bad agents. I know several quality realtors who build their practice on integrity and a client-first approach. Feel free to reach out to me and I would be more than happy to refer you to them.
Understand closing costs
Along with having a realtor involved, there are many other closing costs that exist when buying a home. Many people fail to consider lawyers fees, title insurance, land transfer tax, and home inspection fees. Even more, people fail to consider utility hook-up costs, immediate home maintenance, and moving costs. All of these extra costs when buying a home usually range from 1.5 to 4% of the selling price. Going back to points 2, 3 and 5, you should factor the closing costs into your preparation when looking to buy.
If you own a home, you need insurance. Your ability to pay the mortgage is based on your ability to work. If you cannot work because you are sick, injured or even worse, dead, those payments need to be made. Part of your monthly budget concerning home ownership costs should go towards life insurance and paycheque protection. Upon obtaining a mortgage your lender will push their insurance products on you. Owning personally owned insurance is a better bet and is often cheaper. Take some time to speak with an insurance advisor, such as myself, to find out what options cover your mortgage and fit into your budget. Insurance does cost money yes, but not having it can cost you everything.
Understand the ongoing costs
It needs to be understood that a home needs to be maintained to grow in value. Periodic renovations also need to be done as the home ages. These upgrades can cost quite a bit so consistently saving money for them is vital to your home ownership plan. If you want a sellable asset you must make sure that you are paying down that mortgage and securing the value of the home along the way. Having a slush fund for home maintenance is crucial to your success. Take a bit of money every month and put it away towards this goal. During the lifetime of your home, you will have to replace the roof, water systems, heating and cooling systems and even landscape. Be prepared for these tasks by having money set aside for them. If you invest a bit of your money and time every year in this task you will be amazed at the value of your home when it comes time to sell.
I look at buying a home as a business decision. If you treat it as such you will make the best move possible. If you let your emotions dictate you will often get burnt. Having a solid team helping you make the move is a great first step to making your dream a reality. Take some time and review the steps in this list and you will be on the right path.
“I don’t believe in pressure. The pressure is not being prepared for what you want to do.” – Colin Kaepernick
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