Strategies For First Time Home Buyers
For many first time home buyers, your new home affords you a sense of pride and accomplishment. It offers your family a feeling of security and a degree of financial stability. A new home gives you the freedom to define your style and allows you to create the way your living space should look like. One of the best perks is that you don't have to deal with the unpredictability of landlords.
Needless to say, a new home is an excellent investment. Unlike the uncertainty of the volatile stock market, property values generally don't bounce up and down like a yoyo. Also, when the value of your home increases and, unlike the stock market, you don't have to pay back the government for capital gains. Sure, home prices may drop for awhile during a recession but they always edge back upwards.
Additionally, as you pay down your mortgage, you are building up equity in your home and that's money in your pocket. A first time home buyer can also borrow against the equity that you build up in your home which gives you a lot more financial latitude. You can use this money to invest in your children's future, or even invest in that dream summer cottage in the mountains or on a lake.
Questions For First-Time Homeowners
It's a good idea to take stock of your circumstances before you jump into the realty market. You want to consider not just your current circumstances but your future as well.
How Stable is Your Career?
One good question to consider is whether you feel the careers of both you and your partner will be stable enough so that at least one of you will be able to make the mortgage payments should your financial situation change. Another question to ask yourself is whether you think you will be in the home for awhile or will you have to re-locate in the near future as moving costs are an expensive proposition.
What Can You Afford?
You will also have to ask yourself what you can afford as home prices can vary considerably. It all depends on the square footage of the home, and the neighbourhood where it's located. A new home owner will also have to consider how big a home they will want or need in the future.
Is That Neighbourhood a Good Fit For You?
Also, you will also want to consider the neighbourhood itself. A few questions to investigate are to ask what services and facilities are in the area. This includes schools, shopping centres, grocery stores, daycare facilities - just to name a few.
You might want to find out how safe the neighbourhood is because crime rates vary in Calgary and other metropolitan centres. Since you have to travel to work each day, you might want to look at how much it will cost you to commute to work. Public transport, although not ideal, can save you a lot of money and avoid a lot of frustrations encountered in the daily commute.
What’s on Your Home-Buying Wishlist?
You might want to factor privacy in your needs. The size of the yard, fences, foliage, and proximity to major traffic arteries can also influence your decision in being a first time home buyer.
Strategies For First-Time Homeowners
Home ownership is the cornerstone of financial independence and security. It may seem a daunting prospect to younger people or first-time buyers, but it is achievable!
Like many would-be homeowners, you may be wondering how you can possibly afford to buy your first home. Even if you think you couldn’t afford a home, these saving tips and financing strategies can take you there sooner than you think and turn you from a renter into an owner.
Develop A Culture Of Saving
The first priority for you should be to develop a culture of saving, this is not only helps you in budgeting and planning for the future, but also to satisfy banks and other lending institutions that you have a clear commitment to save.
Start An Automatic Saving Plan
Saving for a down payment can be a financial challenge but it’s a step forward to owning your dream home. Make saving automatic by setting up an automatic savings plan at your bank to regularly move a specific amount of money directly from your chequing account to a savings account. You’ll be surprised at how much you can save and how quickly the “pay yourself first” approach adds up.
Borrow From Yourself
The federal government’s Home Buyer’s Plan (HBP) lets you borrow from your Registered Retirement Savings Plan (RRSP) to help purchase your first home. You and your partner can each withdraw up to $20,000, provided it’s not locked-in and the money has been in the RRSP for at least 90 days. You have to repay the loan in instalments over the next 15 years to avoid a tax hit.
Take A Holiday From Tax
If you open a new Tax-Free Savings Account (TFSA), you won’t pay any tax on earnings, which will help you compound your savings. You can contribute up to $5,000 a year to a TFSA, and save for anything you like, tax-free.
Review Your Mortgage Options
Once you make the decision to purchase a property, the next choice is the type of loan to suit your budget. The two most common types of loans are the variable interest rate loan and the fixed interest rate loan.
You can now choose to pay back your mortgage over 25 or 30 years, instead of the traditional 20-year amortization period. This means you will pay more interest over the long term, but you can reduce monthly payments to get into your starter home. You can always change this later, once your income rises and you can pay your mortgage down faster.
Get Into A Starter House
Try to be as flexible as possible when choosing your first home. Unless you are status conscious, your first house should not necessarily be your dream home. Your could settle for a starter house, which you can afford with a small down payment and an easy mortgage instalments. There are plenty of lower-priced houses out there in need of repair, with some "Do-It-Yourself" project, you can add more value to the house. Just be careful not to buy a place where the cost of repairs will eat up any profits you might make when you sell.
In just a few years you would have built enough equity in your starter house which makes it easier for you to move to your dream home.
Are You Helping An Adult Child Buy Their First Home?
There are different ways that you can help your child enter the world of home ownership. You can decide to make a loan to your child, co-sign for a bank loan or give him the house or the money for a down payment.
Before you go ahead and take action on any of these methods you should first thoroughly understand them and how they will affect your financial plan and taxes.
Providing A Loan
This is one of the best ways to offer help to your child. Putting together enough money to own a home can definitely be challenging for young people today. If you have extra money that you can spare you may want to consider holding the mortgage for your child and charging a lower rate of interest than the bank. You could also decide to offer an interest-free loan. Your child, however, may have to pay a surcharge for the insurance with Canada Mortgage and Housing Corporation if he has to borrow money for the down payment.
Co Signing On The Mortgage
In this case, you will be adding your signature to the mortgage as a co-signer for your child. If anything should happen and your child cannot make the mortgage payment, you will be held liable for it. Before committing to a co-signing arrangement, you should talk to your lawyer about your legal rights first.
You may decide to give your child the money for a down payment or you may want to take it a step further and purchase an entire home for him. There are a variety of tax implications that go along with gifting and you should definitely find out more about them first before handing over any money. You should talk to your accountant and a lawyer.
You should also think carefully about gifting a home to your child if an upcoming marriage is pending. The house that you purchase may end up as a matrimonial home and should the marriage end, both partners could end up with equal equity in the house. If it is deemed as a matrimonial property, it won't matter that you initially gifted it only to your child.
Buying your first home is an exciting process. After all, your home could be the largest asset you’ll ever own. Being able to finance most of its cost will take a load off your back in the future.
Contact a Real Estate Agent to Find Out More About Home Buying
Although buying a house sounds like a lot of work, it's well worth the reward when your home meets as many of your specifications as possible. It's a great investment compared to many others out there. Finally, you also have a place that is yours and yours alone - what could be better?