Archive for the ‘Property’ Category

How Much Money Do I Need To Buy My First Home?

By: Kristina | Date posted: July 26, 2011 (7:30 am)

 

Good Morning Everyone. It’s time for the next post in our Investing Our Money in Our Twenties series.  Today’s post is all about buying a home; we will discuss how much money we need for our down payment, as well as the other expenses that come with being a first time home buyer.

 

Should I become a First Time Home Buyer?

Before we decide to become a first time home buyer we have to decide if homeownership is the right financial decision for us. There are advantages and disadvantages of buying a home. Some people put all of their money into their home as their primary asset with the hopes of living in the same home for a long time. This strategy allows the home value to appreciate over the long term.  The continuous increase in the value of real estate is definitely an advantage of buying our first home.  However, having all of our money in one non liquid asset is a major disadvantage of home ownership.

We also have to decide if it is the right time for us to buy a home, and this is definitely a personal financial decision. It may be the right time for you to buy a home, but it may not be the right time for me and vice versa.  Some people buy their first home at 25 years old, and some other people buy their first home at 35 years old.  It really depends on our personal financial situation. Buying their first home is not even a financial goal for some people.

 

How Much Do I Need For My Down Payment?

A down payment is the amount of savings that we give to the bank in order to determine our mortgage payments and get our mortgage approved.  Our total mortgage value is the purchase price of our first home minus our down payment amount.

According to RBC buying our first home is a personal decision, because homeownership is definitely not for everyone.  If we decide to become a first time homeowner we should consider the future impact of buying a home as well as the financial implications.  If we choose to buy our first home at a young age we have to consider that it may become too small for us in the future.  As we get married and start a family we may outgrow our starter home or condo.  The actual price of the home is not the only expense when becoming a homeowner. We should factor in the cost of property taxes, repairs, utilities and moving along with 1.5% of the total purchase price for closing costs.

Very few (if any) Financial Institutions are currently offering Mortgages to their clients with $0 down payment.  Many financial institutions require a minimum down payment of at least 5% of the total purchase price. The lower the down payment, the higher our mortgage payments will be, and therefore the greater risk we are to our bank for default.  This is why our Financial Institution requires us to purchase additional insurance with CMHC  (Canada Housing and Mortgage Corporation).  The CMHC insurance premiums are added onto our mortgage payment and protect our financial institution in case we (as clients) default on our Mortgage.  CMHC insurance is required on all Mortgages with less than 25% down payment of the total purchase price.

 

The First Time Home Buyers Plan for My Down Payment

If you are like many Canadians then you have been continuously saving in your RRSP account and nowhere else.  Usually you cannot withdraw money from your RRSP account without paying a penalty; however, there is an exception for First Time Home Buyers.

The Canadian Government allows RRSP savers to withdraw up to $25,000 from our RRSP to use towards the purchase of our first home.  This is an interest free loan that we lend to ourselves and have to repay within 15 years. Of course the down payment for our first home can come from any form of personal savings or gifts.

 

Here are Previous Posts in the Investing Our Money in Our Twenties series:

Traditional Savings Accounts Are Boring!

You are only 20. So take some risk!

You Won’t Get Rich Overnight

 

Photo by hillsborough

Building Your Dream Home Without Breaking the Bank

By: Mike | Date posted: May 16, 2011 (1:37 pm)

Once you decide to build a home, it can be excited to explore the different features and house plans you can follow, however, it’s important to follow a strict budget, when designing a home, to avoid overrun expenses. There will already be the possibility for delays and other unforeseen expenses, therefore it’s important to streamline plans to allow wriggle room for the unexpected.

Here are key elements and expenses you should consider carefully to avoid the pitfalls of being a homebuilder.

Estimating the final cost of a home can be a tricky aspect to nailing down a realistic budget for the construction project. There are many variables that will encourage overspending, if you don’t keep a certain limit in mind. Discuss the elements and features you would like in your home, and discuss costs of the project and the possibility of unexpected surprises. This will give you a basic idea of your budget for your home. Ask the contractor to explain the areas where you could save with cheaper options, such as fixtures, and areas where you may want to spend more, such as roofing.

Certain outside variables, such as location, size, and difficulty of projects will change depending on many factors. For instance, prices for lumber will depend on demand, type, imports, restrictions, and the amount needed. The cost of labor is another area where pricing will depend on outside factors, such as climate, size of the project, unemployment rates in building trades. If there was a natural disaster recently in your area, consider holding off on the project, since contractors may be hard to come by and may have raise rates due to demand.

Check government regulations for construction projects to make sure there are no new mandates that could create a delay, if the house does not pass inspection. Some communities have design review committees, who inspect floor plans and design to make sure the construction plans fit with the neighborhood aesthetic.

Although it may seem impossible, since there are many outside factors, it’s important to have a budget set for the project before you create plans, especially if you are financing the project with a construction loan. When choosing a contractor, have a basic plan in mind and compare bids of several different people. However, you must have a pretty good idea of what you want and need, or your bid will go through many revisions before the end, which would make it harder to pick the best deal.

In the end, make sure you have a stable budget and a contractor willing to work with your restrictions. Setting aside a percentage for overruns will also give you peace of mind, and if the unexpected happens, you will at least be prepared.

This article was contributed by freelance writer Lindsay Taylor.

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The Pros and Cons of Buying a Home

By: Kristina | Date posted: April 12, 2011 (7:00 am)

Good Morning Green Panda Friends!  The second post in our Leasing vs. Buying series discusses the Pros and Cons of Buying a Home versus the Pros and Cons of Leasing an Apartment.  We may want to buy our first home because we want our own space, or we may want to buy our first home because we feel that buying real estate is a good investment.  Some of the richest people in the world invest in real estate, but when we consider the fluctuations in mortgage rates is buying a home a really good investment?

Mortgage Rate Trends and Paying Off Our Mortgage Quicker

When mortgage interest rates are low, buying a home is a good investment because we get more for our money.  When interest rates dropped significantly in 2008 and 2009 I had a lot of clients who were upgrading their homes.  They would apply for a bigger mortgage loan and with the low mortgage rate trend their payments would be the same (and in some cases lower) than they were before. 

When interest rates are low we can pay off our mortgage quicker because more of our mortgage payment is allocated to the capital.  When interest rates are high the majority of our mortgage payment is being allocated to interest, and we aren’t paying off our capital mortgage loan.

For the purposes of this example we used the RBC Mortgage Payment Calculator to show the benefits of a lower mortgage rate on a $225,000 Mortgage Loan.  The Mortgage Loan has a 15 year fixed rate and a 30 year amortization.

At a fixed rate of 4.25% our monthly mortgage payment will be $1101.98.

At a fixed rate of 3.75% our monthly mortgage payment will be $1038.32

Choosing biweekly mortgage payments instead of monthly mortgage payments will significantly help pay off our mortgage quicker and save on interest costs.  Whenever we save on interest costs buying a home is a good investment. 

When is Buying a Home a Good Investment?

When mortgage rates are low it is a “Buyers Market”.  People want to buy homes when the cost is lower because they are getting a good deal.  If mortgage rates are low property values could also be low; this makes buying a home an even better investment for homebuyers.  The number one rule of investing is buy low and sell high. 

When mortgage rate trends are increasing, property values are also high and it is a “Sellers Market”.  During a Seller’s Market is not an ideal time to buy a home because the seller has the advantage since property values are high. When property values are high buyers could end up overpaying for their home.  However, some people say that buying real estate is always a good investment.

Mortgage Rate Fluctuations Depend on Prime Rate

Fluctuations in mortgage rate trends can make buying a home a risky investment.  However, fluctuations in mortgage rates can also make having a home a risky investment.  Over the past few years we have experienced our share of fluctuations in mortgage rates.  Financial institutions base their mortgage rates on Prime Rate.  The current US Prime Rate is 3.25%, and the current Canadian Prime Rate is 3.0%.  As the Federal Banks increase and decrease Prime Rate, Financial Institutions will also adjust their mortgage rates accordingly.

Here is a Brief History of Prime Rate and Historical Mortgage Rates:

Year                            Prime Rate                             15 Year Mortgage Rate (as per HSH)

Dec 1995                    8.5%                                        7.05%

May 2000                    9.5%                                        8.40%

Feb 2005                     5.5%                                        5.26%

Apr 2011                     3.25%                                      4.125%

There are pros and cons to both leasing an apartment as well as buying a home.  When we finally take the big first step and decide that buying a home is a good investment, we will then have to pick the right house for us.  Happy House Hunting Everyone!

Photo by Lavocado

The Pros and Cons of Leasing an Apartment

By: Kristina | Date posted: April 11, 2011 (7:00 am)

If we are in the Starter Financial Life Stage then we are probably moving out of our parent’s house.  When we are moving out we have to consider the many pros and cons of leasing an Apartment. Leasing our first apartment can be very over whelming and we should be prepared and know the rights that tenants have.  We should have a basic knowledge of Lease Agreement Forms as well as the Lease Laws available for tenants.

For a first time renter there are several pros of leasing an apartment.  As a Starter in the Financial Life Stage Cycle we may not have a lot of accumulated possessions.  Therefore, a pro of leasing an apartment is that we have the option to lease a furnished apartment. 

Having a fridge and stove included in our lease agreement can be a big help when we are leasing our first apartment.  Apartments can be leased semi furnished or fully furnished.  Fully furnished apartments are usually available for long stay Travellers and International Students.  As per our lease agreement a fully furnished apartment can include a fully furnished bedroom along with other furniture such as couches, chairs, tables, and small kitchen appliances such as a toaster and microwave.

A con of leasing a furnished apartment is that the furniture is not ours.  Other tenants and residents have slept in the bed and used the appliances.  However, this is also true with a semi furnished apartment.  Whenever we lease an apartment whether it is fully furnished, semi furnished, or not furnished at all, we must always keep in mind that someone else lived there before us. 

Another pro of leasing an apartment is that we only have one monthly bill to pay.  In some circumstances tenants are responsible for paying their own utility bills such as heat, hot water, and electricity.  However, in most circumstances tenants pay one monthly rent to their landlord which includes all utilities. 

Leasing an apartment is also beneficial to tenants because as per our lease agreement we have no responsibility or liability for the well being and upkeep of the apartment building.  We are responsible to keep our apartment clean and in good order, but we have no responsibility to repair any damages such as the plumping or appliance malfunctions.  As tenants we also do not have to shovel snow in the winter and cut grass in the summer.  

The con to leasing an apartment is that our landlord owns our apartment and we are just renting the space.  Landlords have access to our apartments any time they want.  The details will be stated in our lease agreement which stipulates the conditions under which our landlord can enter our apartment.  Most lease agreements state that the landlord must provide 24 hours notice to a tenant when they wish to enter an apartment.  However, emergency circumstances such as water damage may allow the landlord to enter a leased apartment whenever they feel it is necessary.

There are several pros and cons to leasing an apartment.  Leasing an apartment is definitely better for budget reasons because we only have one monthly bill to pay, and we don’t have to worry about any additional costs such as property taxes.  A con to leasing an apartment is the invasion of privacy that comes with living in close proximity to several neighbours.

Before we sign a lease agreement it is important to fully read and understand what we are signing.  It is also beneficial for tenants to understand the lease laws in their city before they sign a lease agreement. 

Photo by Eden Pictures

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14 Essential First Time Home Buyer Tips

By: Mike | Date posted: May 10, 2010 (5:00 am)

The past 3 weeks have been quite hectic for me. I am currently finishing up the sale of my house and I am also buying my next house (this is the third change already). While we were coordinating the 2 transactions, I remembered that all this seemed to be quite complex when I bought my first house. I remembered all the “little mistakes” we had made and what we learned from them. I’ve gathered a few first time home buyer tips to help you make the right purchase the very first time (I put my first house back on the market only 6 months after buying it!).

First Time Home Buyer Tips List:

#1 Know what you are looking for in a first home

Write down a list of what you really want, what is nice to have and what you don’t really mind having in your first home. This is how you will be able to set priorities and buy the right house to suit your needs. Think about the number of rooms, the neighbourhood, equipment such as a garage or a pool, etc.

#2 Know the amount of mortgage you can afford for your first home

Go see your banker and get a pre-approved mortgage. Then, go back home and see if the mortgage payment fits your budget. Pre-approved mortgage amounts are usually pretty aggressive and don’t leave you with much budget space. Be careful.

#3 Consider extra expenses incurred by your first home

If you are a first time home buyer, this also means that you will become a first time lawnmower buyer ;-) . There are several tools and equipment required to take care of your property. These costs add up quickly.

#4 Look at the market on the internet

By shopping around on many housing websites, you will be in a better position to know what you are looking for as your first home and the right price to pay for it.

#5 Compare properties with facts, not with emotions

While comparing properties on the internet, forget about your emotions and compare them with stats such as the lot size, the living space of the house, equipment and extras included, etc.

#6 Forget about the furniture and decor, you are only buying the house

This is a major mistake experienced by several first time home buyers. Forget about the nice leather couch or the amazing vase in the hall, they are not yours! Concentrate on the size of the rooms and their orientation. This is what you are buying!

#7 Think long term for your first house

Another great first time home buyer tip would be to consider your future projects when buying your property. For example, if you planning for a family eventually, you are better off buying a property near a school and with enough bedrooms on the same floor.

#8 Don’t worry about “losing the house”, negotiate!

We become suckers when it comes to negotiating the “house of our dreams”. A piece of simple advice; the seller is just as afraid to lose his buyer as you are to lose the house! Don’t be afraid to negotiate, worst comes to worst, you will end-up with a “no” but you will still be able to buy the property.

#9 Consider resale potential upfront

When you buy a property, think about how hard or how easy it will be to resell it one day later for the same price. You may like it, it doesn’t mean that you will have to live in it for the rest of your life!

#10 Have your house inspected

I am not a big fan of house inspectors in the sense that you probably won’t find any major problems. However, the inspector will be able to tell you more about the property and how to maintain it to a higher level of standard.

#11 Consider other indirect costs before buying your first home

Lawyer, moving expenses, buying new furniture, equipment, painting, etc. All these things, and perhaps more, will cost you more  once you set foot in your house!

#12 Consider what can be improved and what can’t

There are tons of things that can be changed and improved in a house. Some others, can’t be changed. If you have a factory in your backyard or your neighbour is an industrial park, good luck with this one! However, you can move walls around to make a room bigger.

#13 Don’t buy your first house thinking you can renovate it all

While you must consider what can be improved in your house, let’s be realistic; you don’t have an unlimited budget and many expenses are just waiting for the minute when you put the key in your front door.

#14 Don’t buy all new stuff when you move

It is very tempting to “start a whole new life” when you buy your first house. However, consider this tip with great caution since buying everything new will surely make your new house awesome, but your credit card bill will be awesomely high as well ;-)

My Financial Fears

By: Mike | Date posted: April 20, 2010 (5:23 am)

We recently put our house up for sale and, believe it or not, we were lucky enough to find a buyer on the second visit, after only 2 weeks. The transaction is going pretty smooth so far and we will have to leave by mid June.

So, now is the time to look for another property. We made quite the substantial profit on our previous house so we are now shopping with $90,000 cash in pocket. While looking around, jumping from one house to another on the internet, there are several “financial fears” that came to mind. We are about to make a very important decision regarding our lifestyle. We need to decide whether to significantly increase the size of our house or if we will simply move to a similar house without changing our payments or financial situation much. This is the kind of situation that got me thinking about my financial fears:

Will I be able to maintain my income this high for the long haul?

As a financial planner, an important part of my income is variable. Last year, I made about 40% of my total income with my end of year bonus. It seems that I am heading for the same this year too. In fact, I am a little bit ahead in my results compared to last year. Therefore, if I push a little further, I should be able to maintain my income that way.

On the other hand, since my wife stays home, I am the only bread winner in the household. Between my job as a financial planner and my online company, I am able to generate a very nice income that supports my lifestyle. This is why I sometimes think about buying bigger since I feel that I can maintain my income level. However, if I have a bad year (i.e. less bonus), I am not sure how I would manage to pay for everything should I buy a bigger property.

Will my wife be able to continue to stay home?

Another point that came to mind is the fear of seeing my wife go back to work. We really enjoy our “traditional family” lifestyle right now and I don’t want to lose that. What if my calculations are wrong? I may be a financial planner and a supreme excel guru, yet anybody can make a mistake…

Will I be wrong at one point?

While I am still pretty young (28), I’ve spent the last 5 years leveraging every single penny I could. I really like the principle of making money with other people’s money. So far, it has always worked… I guess this is what concerns me the most. This is when you realize you can make a mistake that could be the biggest error of your life…

I’ve always borrowed a lot of money and always for the right reason; creating/buying assets. My “worst” asset would be my house as it is a source of expense too. However, I would never regret borrowing money to invest in the stock market or to start my online company. Those were among the best financial moves I have ever made. But even leverage has its limits and I could hit a wall if I don’t calculate my financial plan properly.

The funny thing is, every time that I think I am playing with fire, I end up with a nice shot… I guess I will have to determine which lifestyle I want:

#1 buy the house of my dreams, establish myself there for the next 10 years and spend the first 2-3 years in a more fragile financial position.

Or

#2 buy a reasonable house, do some home renovations to adjust it to my taste, wait a few years, and buy the house of my dreams with my additional cash down…

Money Mavens’ Take: Would You Take A Realtor To Sell Your House

By: Mike | Date posted: April 19, 2010 (6:00 am)

Starting our very first group project with Money Mavens, we decided to discuss the pros and cons of taking a realtor to sell your property. This is definitely a topic that concerns me since I am currently selling my house.

With the growth of internet possibilities in the pas 10 years, selling your house by yourself has not only become an interesting avenue but also a way to save a lot of money. Depending on where you live and the current market, a realtor can ask for a 4%-5% commission on the price of your house. If Canadian investors think they are getting fooled by mutual funds asking for 2% MER’s, imagine how bad you are getting fooled by realtors ;-) .

So you already guessed that I am not using a realtor to sell my house. I’ve actually did both in the past and to be honest, I didn’t much difference when I took a realtor… besides the bill at the end of the transactions! However, there are still pros to use a realtor:

Pros of using a realtor to sell your house:

-         They get more exposure (they usually benefit from a bigger internet website to show your house).

-         Big realtors have a mass of buyers that could visit your house right away.

-         Several people use realtors to buy properties. If you are not listed with a real estate firm (i.e. you are not paying commission to realtors), you will never have those people come and visit your house.

When I think about the pros of using realtors, I’m able to find a few. However, in this (small) list, there is nothing I can’t overcome considering the huge commission I would have to pay to benefit from “the advantages of having realtors”.

Cons of using a realtor to sell your house:

-         They are expensive.

-         They add an additional party into a negotiation. Therefore, some stuff can be lost in translation.

-         They usually convince you to sell at a higher price to get the contract and then, drop your price 1 month before their contract ends just to sell your house.

-         They will end-up considering their commission vs your needs (that’s human nature anyway!).

-         The realtor doesn’t clean up your house before a visit. So you still have the biggest part to do.

Since about 85% of buyers will shop their next house on the internet, I think that the most important part is to be on the net. If you can find an important independent network (we have bytheowner.com for Canada), you can get as much exposure as someone who is with a realtor.

After some more thoughts, I wouldn’t say that realtors are useless. However, they are too expensive for my taste compared to selling by your own. In my personal case, it cost me $800 to put ads on the internet (ads are good until I sell my property). If I would have sold with an realtor, the cost would have been around $18,000… Do I have to say more?

What the Money Mavens Think About it?

Read the thoughts of the other members here:
Should You Use A Real Estate Agent To Sell Your House? @ Canadian Finance Blog
Real Estate Agents: Why You Rarely Get What You Pay For @ Len Penzo
Using A Real Estate Broker? @ Joe Taxpayer

Should I Use a Realtor To Sell My House? @ Fiscal Geek

5 Experts to help you Buy or Sell A House

By: Mike | Date posted: April 01, 2010 (5:36 am)


I recently mentioned that I was homestaging my property to put it up for sale. Since I am in a real estate mood, I’ve decided to continue on and post about which professionals can help you prepare for a real estate transaction.

Real Estate Agent

I’ll tell you upfront, I don’t appreciate real estate agents. I think we are paying them too much for what they offer.  Just about anyone can take picture of their property and put it on a website.

However, when you are looking to buy a property, they can be a invaluable. Once they understand your needs, they can pull out the listings and make the appointments for visits without you having doing anything. They can also help you analyze a few properties if you can’t make a decision. So in my opinion, using a real estate agent for a sale is a big no, but I would consider one to help me buy a property.

Notary / Lawyer

Notaries and lawyers are very important in real estate transactions as they prepare the legal documents to ensure a safe, honest, transparent transaction between both parties. Their advice can be very useful when you are considering making your offer.

Inspector

I would definitely use the services of an inspector if you are buying a property older than 5 years. He will go from the basement to the roof to make sure there are no defects in the property. Definitely a must when you want to avoid further pain in the future!

Appraiser

The appraiser is not much of a big help but I wanted to mention it because people are often confused between the inspector and the appraiser. The real estate appraiser will assign a current market value to your property but won’t examine it to make sure it’s in good condition (besides obvious thing like crack in the walls).

Financial Advisor / Banker

Your financial advisor or banker will be of a great help in terms of choosing the type of mortgage and how much you can borrow to buy your property. If he’s smart enough, he will be able to explain the different advantages of variable and a fixed rate mortgages as well as home equity lines of credit. He will challenge you about your original plan and offer you a “real” credit solution to your project.

These are probably the 5 experts that will help you out when buying or selling a property. Besides the real estate agent, I am using them all ;-)

Author: Mike.

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