This post discusses the mental and financial challenges that prospective first-time home buyers face, and explores some strategies to confront those obstacles head on
Let’s start off by saying that home-ownership isn’t for everyone! Some prefer to be life-long renters – not because of financial constraints, but due to lifestyle preferences. For those that long to be proud homeowners however, you need to know that owning a home doesn’t come simply by “longing” for it. You need to be ready to face what lies ahead.
The Financial Battle
Moving from renter to homeowner can be a huge financial undertaking. Making that transition often takes months, if not years, for some prospective homebuyers to line up their finances. While the final act of finding a home, and making an offer might seem relatively simple, there’s a lot of “financial engineering” that goes on prior to, during and after the Big Move has been completed.
Here are some of the financial challenges that first-time homeowners should be aware of:
It’s not everyone that can scrape together a couple of thousand dollars at the drop of a hat. If you want to own that dream house that you’ve spent weeks (and sometimes even many months!) looking for, then you’ve got to make sure you have the appropriate amount of finances available to make an offer and put a down payment towards it.
Tip#1: To be ready for that day, you need to start early and save frequently
Tip#2: To win this battle, put aside just a little bit of your pay cheque each pay-period towards your “Down payment fund”
Unless you have a huge inheritance coming up, chances are that you’ll need to take out a mortgage for that first home purchase. To do that, you need to keep your eye on your credit history and your credit score. Mortgage lenders like to see a credit history of at least three to five years, and a credit score above 600. Anything above 750 is considered excellent.
Tip#3: Apply for a credit card well before (3 to 5 years) you start going house-hunting
Tip#4: Pay your balance on time – and in FULL – if you can
Tip#5: Make sure you check your credit score periodically, just to ensure that everything is in order leading up to your mortgage application date
Where many first-time homebuyers go wrong, is ploughing ahead with a home purchase without assessing how much home they can afford. It’s not just the down payment that you need to worry about, but also other one-time and ongoing costs:
Tip#6: A start would be to use a good online mortgage calculator and find out how much your house will cost you in total, as well as the periodic mortgage payments you’ll need to afford
Top#7: Make sure that your home affordability calculations consider brokerage fees, legal costs, renovations (if needed) and the cost of moving. Also factor in insurance and maintenance into the mix
The Mental Challenges
For some, buying their first home isn’t at all a financial challenge – because they’ve saved enough to afford one. It’s more of a mental battle. Are you really ready to take on such a huge responsibility – moving from care-free renter to homeowner?
Here are some of the major mental hurdles you’ll need to overcome to become a successful first-time home owner:
It takes a fundamental mindset change when transitioning from a renter to a home owner. Everything you know about living in that rented condo (or basement apartment) changes once you take over the keys to your own home:
Tip#1: Make sure you understand that you are now responsible for everything that goes on in your home – from backed up sewers to an overgrown front lawn. You can’t depend on the “landlord” to fight your battles anymore. It’s all YOU!
Tip#2: Home-ownership comes with lifestyle changes. Most rented units come with an “all inclusive” clause attached to it. You therefore knew exactly how much you’ll spend every month to live in your rented home. As an owner, you’ll need to rethink monthly expenses. While you did laundry three times a week in your rented home, you’ll now need to alter your lifestyle to do so less frequently – and perhaps during off-peak hours to benefit from lower rates.
Turning off unwanted lights, and lowering the heat/AC when not required will also have to become second nature.
As a renter, you probably never really interacted with the community or your neighbours very much. But because homeowners share a vested financial responsibility for their properties and the environment around their homes, they take a much more active interest in what happens in and around their communities:
Tip#3: You should get to know your neighbours, and others living in and around your new home, at the earliest. In fact, it makes great sense to meet some of them even before you make an offer on the property.
Building Home Equity
One of the biggest mental challenges of home-ownership is getting used to thinking of your new home as a piece of property that’s temporarily in your possession. Sounds counterintuitive, doesn’t it? Let me explain.
Back in the days when you rented, you really didn’t give a second thought about what trees you planted in your front garden, or what colour you painted that wall. That all changes once you own the property. Unlike a rented unit, you now need to think about that day when you could eventually sell the unit. Therefore, every decision you make from now on, must be viewed with a lens of building value into your home:
Tip#4: Before you move forward with any major renovation, make sure you consult with professionals to see if the proposed updates will add to your home’s value.
Taking the Plunge
Least some of the information provided in this post seems to discourage you from first-time homeownership, let’s be absolutely clear: It is NOT meant to be! If done right, home ownership can be a huge accomplishment, and can be a source of long-term financial stability.
If some of the tips offered here sound hard-hitting, that’s exactly what the intention is. As you research buying that first home, you’ll come across a lot of online content that will encourage you to contact a certain realtor, work with a particular mortgage lender, or move into a certain neighbourhood – without giving it a second thought.
Having read such material, you may be left with the impression that owning that first home is as simple as making an offer for a home. Our motivation however is slightly different: It is to make sure that you take the plunge with your eyes wide open. The last thing we want you to have is first-time homebuyer’s remorse!
This information is just our view and should be not be considered advice of any sorts.
From our experience and other professionals we partner and engage with, we work to find useful tips and information that would be important to share.
If you are someone that is looking for professional advice tailored to your circumstance, please contact a bank, financial advisor, or mortgage broker.