Buying a home, especially for a first-timer, can be an exciting and momentous opportunity to put down roots, grow, and build as an individual or as a family. It is a purchase unlike any other; it holds incredible potential for financial growth but can also hold potential for financial undoing if you don’t fully realize all the costs involved and are responsible for your purchase.
Think of yourself as your own Chief Investment Officer; and your home – a very personal Hedge Fund. You are in charge of this asset so you need to be responsible for its growth potential. We often meet first-time buyers who are a little invigorated by this responsibility, and some jump in feet-first without thinking all the costs through. In recent months mortgage rates have been favourable, this means more opportunity for first timers, but it’s important to remain eyes wide open when it comes to the costs associated with your purchase. Be smart, be prepared.
When purchasing a home there are several costs that you need to plan for:
- Your deposit, paid upon the acceptance of your offer on the home.
- Your down payment on the house, paid upon the closing.
- Your land transfer taxes. On the purchase of an $800,000 home in Toronto, your city & provincial land transfer total roughly $24,000.
These are the three most significant costs that cannot be taken from your mortgage loan. Some other closing costs include lawyer fees (roughly $1,500), moving costs (could range from $1,500-$3,000), potential storage costs, another month’s rent (if your closing date falls in the middle of the month). You need to have these dollars in your pocket before closing on your home. You may also have unexpected adjustments on closing. For example, what if the seller of the home had prepaid all of their property taxes for the year and you need to reimburse them.
All of these costs can add up quickly and your monthly costs begin shortly after (mortgage, home insurance, utilities, property taxes, maintenance costs etc.). Remember, your home is not new – it’s only new to you. Just as with any ‘gently used’ purchase, your item might need some replacement parts; some love and care. All the parts of your home have an eventual ‘best by’ date; from appliances to countertops, from paint touch-ups to bigger items such as roof re-shingling to furnace replacement. You’ve taken this very big step in making the investment, if you don’t maintain your home you are devaluing it.
Some clients have found ways to get some breathing room by finding international students, subletting your property on Airbnb while travelling, or exploring the option of a separate rental unit. Think of your home as a mini condo corporation and set aside maintenance fees. Home buyers often think of condo fees as an inconvenience, but they are really just a forced, collective, ‘rainy day fund’. Create your own ‘rainy day fund’ so that big maintenance costs that might pop up won’t rattle your pocket as much.
There are many ways in which you can protect your investment and have the confidence to make this significant purchase. It’s not about spending all your savings, it’s about being financially open to your own limitations and working with a representative who will encourage you to work within those limits. This is no longer your parents’ house, all the food in the cupboards is yours, this is your moment to step up and shine.