Tag Archives: first time home buyer

How and When to Buy Your First Home

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Graduation comes in different stages. It might be high school, university, entering the work world, or for any age – the graduation to acting your wage.

Today we’ll talk about buying your first home and every single one of the four sections in here are chapters in the Money Tools book. It’s THE best $20 gift for yourself or anyone graduating to any stage in life. Mosaic has a bunch of signed copies now, or just go to yourmoneybook.com – it’s a tiny investment in yourself or paying it forward to help someone else avoid what many of us wish we had known.

There’s an old Rod Stewart song with the title: I wish that I knew what I know now – when I was younger. Oh boy, I wish I could make that happen. I bought my first house in the early ‘80s when rates were insane. To hang onto it, I had two years of using my Visa cash advance in order to pay my MasterCard. Owning a home is so worth it, because it builds equity in two ways: By the principal you pay on your mortgage and a historical five percent return each year.

But I wish I had held off for a few years in order to build up my savings. The younger you start saving, the bigger the amount when you retire.

Don’t listen to developers who advertise that buying a place is cheaper than renting. It’s totally false. You are now responsible for property taxes and at least a couple of hundred bucks a month for everything from paint to plumbing problems and repairs.

One of the biggest blessing you can get is from your parents or grandparents lending or gifting you the money for a down payment. Do NOT make it on a condo, but a duplex or single family home. Condos are the first to plummet in value if there’s a correction, and the last to regain their value. You’re also competing with everyone else in the condo complex who may want to sell. There’s a condo complex on the popular Whyte Avenue in Edmonton that currently has 13 units for sale. (I’ve posted the picture). If you’re selling, you need to always lower your price to be the bottom two or it’ll be years before it’ll sell.

If you as a parent or grandparent lend someone in your family the money for a down-payment you can do it in three common ways: Just as a gift, or have a lawyer put a lien against the property to assure you’ll be paid back, or have the amount of that gift or loan noted on your will to be paid back out of your estate to the beneficiary.

George Boelcke – Money Tools & Rules book – yourmoneybook.com

First Time Homeowner Advice

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Ah, to be a first time homebuyer. I remember back how excited I was to finally get to own my own home. Well, the bank owned it, but I got to live in it. That the payments will go on beyond most of our lifetimes wasn’t something that was going to dampen my enthusiasm.

But there are also a ton of traps and insights that are really worth knowing to save a ton of money and grief. Unfortunately, most people get their information from friends or family. They certainly mean well, but most aren’t any smarter on the subject than the buyer.

This past month, a family member joined the ranks of newly minted homebuyers. So I’m near the end of tons of e mails, feedback, phone calls, and suggestions. Most of it you can have for $20 in the It’s Your Money book if you drive over to Mosaic, but here are some of the bigger traps, tricks and savers. And most apply to anyone who is already a homeowner with a mortgage:

Shop around for your mortgage: Convenience and ignoring that advice comes with a high interest rate. My relative ended up at 3.09 for a 5-year term and $7,200 under where he started. I also applied at ING Direct on-line. It’s not an easy site and I was really surprised their rate wasn’t competitive. But that changes almost week to week and you do need three quotes.

Take a long-term fixed rate. Rates will go up, and when they do, an extra $200 or so a month will kill most anyone’s budget.

Do whatever you can to get to a 20% down payment. I know that’s asking a lot, but in this case, an extra $15,000 down payment is a saving of $3,400 CMHC mortgage insurance. With interest, that’s $6,700 over the term of the loan.

Set up a separate savings account with two or three months of living expenses. He managed to be able to set aside two months and it’ll let him sleep a lot better knowing he always has two months of savings set aside – just in case.

Borrow as little as possible from your RRSP – you can certainly borrow some of your down payment from yourself, but you do have to pay it back, which just gives you another debt and more payments, or it’ll be taxed each year. I got him down from $20,000 to $15,000. Less money now but big thanks down the road – I guarantee it.

Stay away from money from relatives. Better to borrow from your RRSP than family. If it’s a gift – that’s great, and a blessing. If it’s a loan, don’t do it. Family dinners will never taste the same and it’ll come with judgments and questions. My relative already had a slight taste of that, even before possession.

The week of closing you’ll need a lot of money. The biggest source of trouble is when buyers don’t realize the money they need at closing. Then it goes on a credit card and that balance will now be around for years since they’ve also now got the mortgage payments. You’ll need to budget:
-$800 for home insurance….my relative shopped the two best places and saved $200 and was smart enough to take a high $5,000 deductible.
-$1,000 or so for the lawyer – again, shop around – the lawyer the no-service bank recommended was $300 higher than others. It’s just paperwork, so cheap is great!
-About one months’ payment for interest adjustment to cover the first months’ interest
– Some money for the moving expenses
-And definitely some money for the first months’ repairs and purchases. Nobody moves into a new home without needing at least $1,000 of stuff right away.

My relative did it the right way: He waited and waited until he could afford it, AND he has some money set aside for the inevitable. His shopping around and being smart has saved him $19,400 so far. His house purchase will be a blessing. Thousands of people don’t do those things, and it quickly turns into a nightmare. Do it the right way – it’s worth it, and I can’t wait for Tuesday’s possession date.

Money & Dating Plus First Time Home Buyer Plans

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Spending and Dating

OK, since I’m single I have to keep up on these kinds of surveys. This one is from match.com and surveyed a ton of singles on their opinions on spending and dating. It turns out that men and women have very different expectations:

Men are three times more likely to consider the cost of a date.
On the other hand, 58% of women prefer a casual date, and not one that involves spending a lot of money.
While I’m guessing it’s not a big consideration for men, 53% of women do spend money before the date on things such as a new outfit, manicure, or stylist. I hope the date is worth that money! Or maybe it shouldn’t be called spending – maybe it should be called an investment…

For both sexes, 82% of respondents say their interest in the other person increases if they see an act of financial generosity. That could be many things ranging from a larger tip, or some kind of charitable giving.

On the downside, three-quarters of both sexes are turned off if they find out that their date has more than $5,000 of credit card debt.

First time home buyers:

With the requirement of a 5% down payment, and pretty high average home prices, it keeps getting harder and harder for someone to get into their first home.

I read some interesting stats the other day on using the RRSP Home Buyers’ Plan: Since inception in 1992, almost 2.5 million people have taken advantage of the program, with an average withdrawal from their RRSP of just under $11,000. In total, over $26 billion has been withdrawn from the program.

Over the past five years, the numbers and average withdrawal have both decreased. It may be a good idea to sort of borrow from yourself, but you have to remember that it’s money that is now NOT growing in your RRSP for retirement and you DO have to pay it back over the next 15 years. If you don’t, one-fifteenth of the total is added to your income that year, and you’ll be paying taxes on it. You also need to remember that this payback in on top of your new mortgage payment, utilities, property taxes, etc. Those are all likely to be a much larger part of your income now.

Who cares? Well, most of us do – or should. Almost 70% of Canadians own their own home – well, have a lender who lets them live in the home. And almost 40% of our entire wealth is tied up in the equity of our homes.

If the US government were a family:

Here is an interesting way of taking the staggering U.S. debt of over $14 trillion and breaking it down to figures we can understand:

This family would earn $58,000 a year, and spend $75,000, and have $327,000 in credit card debt. The proposing so-called “huge” spending cuts would cut expenses from $75,000 to $72,000 a year.