I recently came across a good article in a local Dallas website. The article covered five key questions that first time home buyers should ask themselves before they sign on the dotted line.As a Realtor who specializes in helping first time home buyers in the DFW Metro Area enter the rewarding, exciting and (often) profitable world of home ownership, I wanted to highlight these five key questions here for my readers:
1. Can you afford the down payment? These days, you don’t need to put down huge sums of money in order to qualify for a mortgage. In fact, you can put down as little as 5%, and you can also use RRSP savings as a down payment on your first home (though, of course, you must pay the savings back over a 15 year period). I always recommend that my clients make as much of a down payment as possible, and use other financial vehicles, such as a line of credit, if they need cash-on-hand. This is because mortgage interest is different than other kinds of interest, and an extra $10,000 on a mortgage will end up costing much more than $10,000 for a line of credit, or other kind of loan.
2. Am I aware of the costs of home ownership? The thought of owning your first home is exciting and fun but you don’t want to get carried away and overlook the basic financial fact that it costs more to own than to rent. There are property taxes to think of, maintenance costs, and other expenses that you may not be aware of. Though it’s not as fun and exciting as house hunting, you really should sit down and figure out exactly how much you can afford to spend over and above your mortgage payments on monthly household expenses.
3. Do I have a long term plan? While it’s relatively easy to sell a house these days and move across the street or across the country it’s not as flexible as renting. With renting, you basically give your notice and, provided there are no other considerations, you can pick up and walk out the door. Selling takes longer, and that means that your home should be part of your long-term plan. It doesn’t have to be a 20 years plan. Even 10 years, these days, is a long time. But you should generally assume that you re going to be staying put for the next 5 years, and focus on potential homes that are going to work for you for that time so you won’t be stuck with having to move.
4. Are you depending too much on rental income? Some first time home buyers factor rental income into their overall ability to pay their mortgage and this can be unwise. While it’s certainly possible to rent out the basement and use that income to offset some of the mortgage, it’s a mistake to absolutely need that income in order to make your payments. It’s possible that your rental space will be unoccupied for months at a time. If that happens, you don’t want to be staring a choice between a foreclosure or selling.
5. Are you sure you want to own? This is an interesting question; if only because it’s one that first time home buyers often overlook. It’s also an odd question to hear echoed by a Realtor like me, since you might assume that I want everyone (and their dog and their fish) to buy a home. That’s not true. My goal is to help my clients do what’s best for them and occasionally, that means helping them realize that home ownership isn’t the right decision for them at the present time. Admittedly, most people are ready for home ownership; especially since renting is expensive and home ownership can be a smart, safe investment. But for the few people who aren t sure, it’s really important that they think through the question posed above. And if they come to the conclusion that they should be renting instead of buying at least for now then that s exactly what they should do. There s absolutely nothing wrong with renting when it makes financial sense to do so.
Remember: Do What s Best for You
The last bit of advice I’ll offer is an extension of the final point above. Home buying especially first time home buying is a really exciting time in most peoples lives. I love seeing the look on my clients faces when they complete the transaction and, at long last, enter the world of home ownership.
However, that happy ending only happens when first time home buyers do what s best for them not their Realtor, their mortgage broker, or any other professional on their home buying team.