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How to Buy a Home in Today's Market
Some buyers today have had their desire to buy dampened because they think they can't. In fact, today's market offers a unique opportunity to save by buying now. First of all, properties are available now below the average market price, with selections through all price ranges for starter homes, buy-up houses, executive properties and luxury estates. Today is a good time to start on the path to your dream home.
Also, lenders are offering attractive rates and innovative financing, such as buy-downs and various adjustable loans. That means your same income can qualify for more home today.
Buyers who act now not only can take advantage of today's market, they also can begin to benefit from the Big Four wealth builders of homeownership.
Four Wealth Builders
- Leverage
Leverage means using borrowed money (OPM - "Other People's Money") to control a property and receive its benefits. Here's how leverage works. Say you've acquired a $100,000 house with only a 10% down payment ($10,000). Suppose the property appreciates 10% in the first year and the house is worth $110,000. You've "earned" $10,000 on your investment of $10,000 - a profit of 100% in a year. (Financing costs would, of course, lower the net yield) That's leverage - a big return by using borrowed money.
If home prices rise only 3% a year in the next decade, the home your bought this year for $100,000 would be worth $134,392 in ten years. With $10,000 down, you'd realize a 344% profit. If prices rise 5% a year, you'd profit 629%; at 8% a year, you'd profit 1,159% due to your leveraged purchase.
- Tax Breaks
The capital gain you realize when you sell your home is tax free. This gain may be very substantial and could be used to move up to your dream home or provide a fine nest egg as you move towards your retirement years.
You may also be able to structure your affairs to make your mortgage tax deductible. If you have an investment portfolio equal to or larger than the mortgage you presently have or will have on your home, you may be able to structure or restructure your portfolio and mortgage such that your mortgage interest is tax deductible.
If you and your spouse have not owned a home in Canada which you occupied as your principal residence in the last five years and have RRSP's you could buy that first home or your dream home with a tax free down payment using Revenue Canada's Home Buyer's Plan (HBP).
If you and your spouse have not owned property in British Columbia you may qualify for a reduction in the property transfer tax.
- Savings
Mortgage principal payments go into your own pocket, not someone else's (like your landlords). You're saving and building equity as you pay for a home that's appreciating in value. (The amount of appreciation depends on inflation, the local economy and whatever home improvements you make.) But there are fewer appreciation windfalls in today's market. You must buy wisely. Not all properties in all locations will give you the top-dollar investment return you want. Using a mortgage professional and a real estate professional from the beginning will put you way ahead of other hopeful home buyers.
- Owner Pride
The fourth pillar of home owning involves, of course, many things besides keeping a roof over your head. You acquire, along with a structure, the responsibility for maintenance and repair. Most homeowners find the benefits of owning far outweigh the upkeep efforts - and many homeowners enjoy the work, after all you're working on your property. You also put down roots and become more involved in the community. In short, you own an investment that builds intangible riches while you lock in your housing costs and avoid unpredictable rent hikes.
How You Can Buy
Here are six ways buyers can take advantage of today's real estate market.
- Be Realistic
Set your sights realistically; don't expect to move directly into your dream home in the most expensive part of town. Get a toe in the homeownership door by buying a modest place, modestly priced - in a good location. Improve your home as you can afford to; and/or let your equity build to help you buy the dream house in the dream location later.
- Closing Cost Help
If you haven't been able to save for a down payment and closing costs, consider:
- Negotiating a gift, loan or shared-equity arrangement with parents or other people looking for a good investment.
- Selling something of value - with the realization that you'll be able to replace it later.
- Financing the closing costs, if your lender agrees, or getting help from the seller.
- Using a tax refund.
- Borrowing on your life insurance or securities.
- If your parents own their own home and are over the age of 62, they may consider doing a Reverse Mortgage programme which allows them to unlock a percentage of the capital they have accumulated in their home (without having to make any payments while they continue to own the home) to assist with your down payment. The Canadian Home Income Plan (CHIP) is a programme supported by the two major Canadian Banks and is available to homeowners in British Columbia, Ontario and Alberta.
- Pre-Qualify
"Pre-Qualify" yourself as a borrower by calculating what price home you can afford. Generally (depending on lender and type of financing) lenders consider your total basic monthly affordable housing cost - including mortgage, principal and interest payments, real estate taxes and insurance payment. Your affordability is based on 30% to 32% of your gross monthly income. Or, with additional long-term debts included, the ratio is up to 40%. Remember: Some lenders extend these limits, based on their assessment of your financial situation and the loan plan you select. As a pre-qualified buyer, you'll have an advantage over other buyers who aren't when sellers consider your purchase offer.
- Innovative Financing
Get acquainted with the various kinds of loans available: fixed rate, adjustable rate, government backed mortgage insurance (CMHC), assumptions, buydowns, blended loans, seller takebacks and more. (Terms and interest rates vary considerably - among loans and among lenders; these factors, along with your income and length-of-ownership expectations, must be weighed - and we're here to help you do that).
Canadian Mortgage and Housing Corporation (CMHC), for example, now makes available to home purchasers who meet certain qualifications access to mortgage insurance which allows them to obtain a mortgage and purchase a home with a down payment of as little as 5% of a property's value.
- Choose The Right Lender For You
Your mortgage options are numerous, thanks to recent innovations in mortgage plans. We can help you save money by structuring your mortgage to your best advantage. Look to us for:
- Loan programs explained plainly and simply
- Full financial assessment and explanation of your best options
- Loans processed quickly
- Dependability
- Consult A Professional
There are more details involved in buying a home than are outlined here. If these basics seem appealing, let us help you understand the homebuying process. Please call for more information.
Some Different Reasons to Own Your Own Home
You've probably seen lots of financial arguments about why you should own your own home rather than rent. This includes budgeting (no rent increases) and the tax savings you'll most likely have. Now I'm going to give you some reasons you probably haven't heard.
Freedom to pursue other goals in life once the major goal of home ownership is achieved Strange as it sounds, many of my first-time buyers have told me that once they bought the house, other things in their life started to fall into place. It's as if not owning took so much of their mental energy that other goals were not worked on until that big goal was reached. So buy a home and get on with your life!
A greater sense of belonging to the community
Once you own a home, you feel more attached to the city in which you live. You're more interested in what happens in town, to the roads, schools, and shopping areas. Some people even become involved in local politics, which you seldom see a renter do.
A commitment to something, a sense of stability
Home ownership is an anchor, something that cannot be pulled out from under you. You'll never get a notice that you have to move. You're kids will never have to change schools. It gives you freedom to plan years ahead.
You can change things, a feeling of being in control
It's your home. You can add to it, remodel it, change the landscaping, do whatever projects you want. You have a feeling of being in control of something in your life. At work we don't always have control of what happens, but your home is your castle that you have dominion over. You can see what you're building take shape before your eyes.
More control over the children than in an apartment complex
In a neighborhood, kids usually play in the yards or go to friend's houses a few doors away. My clients have told me that in an apartment complex they never knew where the kids were. They could be in any of hundreds of apartments, doing who knows what. In a home you get to know the neighbors and watch out for each other's kids.
Children do better in school and feel more secure
This one surprised me, but buyers have reported to me that their kids calmed down in school after they bought a house. I don't know why, but it seems to work that way. I remember a single mom watching her son play in the yard, making steps in the slope and building things. She didn't have to tell him to leave everything alone, like she did at the apartment complex. I guess kids feel the same need for control we adults do.
Time and money saved by not going to the Laundromat
A small point, but if you have kids, you know the value of this one. You gain a whole evening a week when you buy a house! The wash gets done in between other things, or while you're at work. What would you do with the extra evening you'll have? How about going out for dessert with your spouse with all those quarters?
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