To avoid home-buyers’ regret, do your homework
With Canadians entering the housing market in greater numbers than ever before, it wouldn’t be surprising to find that many suffer buyers’ regrets.
But a recent survey commissioned by TD Canada Trust suggests the most common regrets for first-time home buyers have little to do with paying near record level prices, or purchasing the wrong house.
Instead, many say it was a mistake not to buy sooner so as to stop pouring money down the rental hole with nothing solid to show for it. The two biggest regrets — admitted by 60 per cent of the 1,002 respondents — have to do with finances; not putting down a bigger down payment, and not thinking hard enough about the associated costs of home ownership. That’s not surprising, says Farhaneh Haque, director of mortgage advice with TD Canada Trust. Even though buying a home is the biggest investment the vast majority of Canadians will ever make, many first time buyers still don’t do the necessary homework. “It’s not the sticker price that shocks first-time home buyers. It’s the costs associated with the sticker,” she explains.
“We see so many home buyers that after the fact feel they could have used information, that they could have had more preparation going into home ownership.”
For instance, 29 per cent of those surveyed said they didn’t budget for ongoing costs, such as maintenance and utilities. One in eight said they overlooked some of the one-time fees associated with buying, such as inspection and legal fees, title insurance, and land transfer taxes, depending on the home price. These are not minor omissions. Paying the mortgage is just the most obvious cost of ownership, and not necessarily the biggest in today’s world of super-low interest rates. The combined cost for municipal taxes, fire and theft insurance, utilities, plus regular upkeep, could actually pinch household monthly budgets more.
“If you are renting, you pay that one shelter costs and that’s all you have to think about. But as a home owner, there’s more,” says Haque, who tells clients to budget at least $500-$700 on average in additional monthly expenses. Her advice to prospective buyers is get advice, which is easily available to them. Most first-timers know of at least one, likely more, existing homeowners who have acquired wisdom through experience.
Financial institutions, real estate agencies and other market players regularly stage seminars with experts that can offer sage counsel. Most are short, informal gatherings lasting a few hours spent with agents, inspectors and financial experts. Michele Rowe, a sales representative with Keller Willams VIP Realty in Ottawa, tries to arrange one seminar every month, and she typically invites an inspector and a mortgage broker to the sessions to handle their particular specialties.
She tells attendees the first thing they should do is to get a buyer’s agent to steer them through the process. “Most first-time buyers don’t know where to start and don’t know the importance of using their buyer agent,” she says. “After they leave my seminars, they change their mind on that one because they know their interests are not represented by the listing agent, who represents the seller.” Buyer agents typically do no charge the buyer a fee.
The other key advice she gives them is that they need to get pre-approval for a mortgage, so buyers know how much they can spend on a home. “They need to know how much of house they can afford, based on their income, their GDS (gross debt service) and TDS (total debt) ratios, because they might think they can afford $300,000 when they can’t,” she explained. The ratios calculate monthly home costs, and other debt charges, as a percentage of household income to determine affordability. A ratio of 40 per cent on all commitments (TDS) is usually acceptable to mortgage lenders.
Home buyers who attend her seminars come away with a detailed kit of general information, but Rowe says it is key that buyers find an agent they can trust who can help them choose the right home in the right location and price based on their income, lifestyle and needs.
As the survey results show, many approach the task with unrealistic expectations.
For instance, the survey, which was conducted in the spring, found that 54 per cent of first-time buyers want a single, detached home, but Rowe says that is often impractical. That’s because although interest rates may be low, house prices have been rising steadily — the average resale home in Canada now costs close to $370,000.
In Ottawa, most first-time buyers Rowe sees can only qualify for a home of about $250,000. That price range will most likely mean a condo or town house, she said.
Which comes to another key finding in the TD Canada Trust survey — Canadians don’t start saving up for a home soon enough. Haque said it’s critical for Canadians thinking they will want to own a home one day to get informed about what is involved and how much money they will need. The bigger the down payment, the more flexible a household’s ongoing finances will be.
“A bigger down payment reduces monthly payments, but it also gives owner options for a mortgage that is more flexible,” she explains. “For instance, with more than 20 per cent down payment, an owner can obtain a mortgage with a 30 year amortization period, rather than 25 years, which further reduces monthly payment.”
The more prospective buyers know before taking possession of the house keys, she says, the less likely it is they’ll have regrets later.
Julian Beltrame OTTAWA — The Canadian Press