Life has been changing for you. You’ve gotten a new job, or you’ve retired from your job. Maybe you’ve gotten married, or you’re separating. Perhaps you’ve got a new baby on the way and need more room, or your kids have moved out and now you want less house to look after. You have an idea in your mind of what you want, and now you’ve found it – the perfect listing! It has the space you want in the location you desire, and the price is in a range you can afford – it’s ticked all your boxes!
In a perfectly digital world, we should simply be able to “Add Home to Basket”, check out with our credit card information, and after signing a form or two, the home of your current dreams is yours! But we know that life just doesn’t work that way. There are more legal and financial transactions that need to be reviewed and addressed.
On the financial side of things, there’s many costs that need to be considered. First and foremost – the down payment. Down payments come with their own rules and regulations, depending on how much you’ve saved for your home purchase. For example, in Canada, 5% is the minimum down payment required for a home $500,000 or less. Anything over that price will require 10% down. (ex: a home that costs $650,000 will need 5% for the first $500,000, then 10% on the remaining $150,000). First-time home buyers can also apply for the “First-Time Home Buyer Incentive”, which can help ease the stress of that first home purchase if you qualify.
There’s also the Insurance to consider. Home insurance isn’t overly expensive, but it is still a cost that needs to be considered and factored into your spending plan or budget. Be sure to read over your home policy very carefully so you are able to understand what is covered and what isn’t. Don’t be afraid to shop around or ask your financial advisor about the insurance they might offer.
If you’re moving to a larger home, there is new furniture costs to factor in, as well as renovation costs (even new builds need a personal touch!) and maintenance costs to consider. Owning your home means you’ll have to replace your own broken appliances and fix anything in your home on your own dime.
New homes can be an expensive investment, so be sure you’ve done your homework and had the home thoroughly inspected and don’t put off any repairs that may need to be done! In new builds, you only have a certain amount of time for the builder to cover any costs of home repairs, and in older homes, small problems can become very large problems very quickly!
If this is not your first home purchase, you may need to discuss bridge financing with your financial advisor or mortgage professional. Typically, the sale of the old home will be considered the “down payment” for the new home, but the timing needs to be right for everything to transition smoothly. Make sure you have spoken with your mortgage broker, and you follow their advice during this transition.
When the details are drawn up, you’ll need to discuss your mortgage options as well. What kind of interest rate will you get? Will you have a fixed rate that never changes during your mortgage term? Or will you go with a variable rate that change with the Prime Lending Rate? Will you include your property taxes into the mortgage payment? Or will you pay in a lump sum or set up a payment plan with your city? How will you pay the mortgage? Weekly? Bi-weekly? Monthly? Accelerated? Can you make lump sum payments, and if you can, how many can you do a year?
There is so much to cover in these meetings with your broker or financial professional. Be sure to keep notes and email chains during the process to refer back to.
Some people factor their homes into their retirement plans. Homes should typically appreciate in value over their lifespans, and you should be able to get back your purchase price and then some.
However, especially in today’s economic minefield, homes may not be the best bet for retirement investment anymore. With prices higher than they’ve ever been, coupled with higher interest rates, you may find it hard to sell your home when the time comes, and it may be even harder to get the price you want.
If you want to eliminate your mortgage when you retire, downsizing may be the route to go. Selling your home for a smaller home that costs less will ensure you can enjoy your savings without sinking them all into your home.
The CMHC offers great advice to answer your questions, or to give you more information to take to your mortgage broker.
To summarize, whether you’re buying your first home or your fifth home, there is a lot of planning and work involved. Ensure your questions are answered and your financial bases are covered by talking with your financial advisor. Our team has extended members who work closely with our clients to help the get the next home of their dreams, and we are always happy to help!
The Biddle Johnston Wealth Management Team