4 Crucial Things You Need to Know Before Buying a Home

September 08, 2020
Buying a home is at the top of the list when it comes to mastering the art of adulting. In addition to the practical benefits, freedom to renovate, the quiet, the backyard, etc., there is also the pure pride of owning your own home.
4 Crucial Things You Need to Know Before Buying a Home

While our grandparents purchased homes at incredibly low market prices, the present-day market and overall cost of living are at a whole new high. The high cost of housing has dramatically delayed first home purchases for many millennials. "Mortgage payments shouldn't exceed 25% of a homeowner's monthly income. Anything above that means they can't afford the home. This means buying a home won't be easy for millennials if the affordability gap widens... most of these mortgages will require that millennials take out private mortgage insurance (PMI), making monthly payments even higher." - Investopedia.

As experts are forecasting Canadian housing prices to rise by 4.6% in the third and fourth quarter of 2020, it is not only essential to learn how to buy smart, but also how to manipulate your finances and assets carefully. Consider the following advice if you are planning on buying your first home.

LOCATION, LOCATION, LOCATION

The location has always been an important factor in buying a house. However, with the substantial shift in those seeking an improved work-life balance, location is even more critical. In fact, "32% of Canadians no longer want to live in urban centers, opting for rural or suburban communities instead." - Remax.

The new generation of home buyers want it all, and why shouldn't they? Forbes highlights the new reality of "urbanesque" developments. These include fresh air and space to roam while remaining with walking distance of the amenities they've come to rely on, both practical and cultural.

Quick access to the city is a huge draw and a challenge, as properties near commuting stations often breed bidding wars and become highly dense areas. Don't despair; there are a few tricks for commuting to work without sacrificing your major must-haves. For example:

  • Shuttles | Train stations often have an express shuttle to and from nearby neighbourhoods. A five to ten-minute bus ride to the train can save you thousands on your home's cost and afford you more bang for your buck.
     
  • Alternate Routes | Check the road map, literally. You can find hidden gems off side roads that provide more square footage - inside and out - and quieter neighbourhoods. As a bonus, you can skip the gridlock of major streets and boulevards during rush hour, shaving off your commute time. "Make your daily commute more pleasant by taking a longer or more scenic route. It’s better if the traffic flows smoothly and you avoid lots of lights. For most of us, no form of driving is as stressful as trying to move quickly on crowded roads." - Reader's Digest.
     
  • Commute by Bus | Check the bus routes in the area. Trains are generally favoured over buses when it comes to daily commutes. However, purchasing a home near an ideal bus route for some cuts time in transit and offers a direct route to your workplace. As a bonus, most suburban bus lines offer coach-like buses, boasting air conditioning and comfortable seating. 

THE NEIGHBOURHOOD WALK SCORE

Never underestimate the neighbourhood's walk score. While any vehicle owner is happy to drive to the corner store or the nearby park, being able to walk there in just a few minutes is a luxury to consider when buying your first home. 

"The undeniable attraction of city life is having ‘it’ all right at your doorstep." - Forbes. This is evident by the ongoing builds of complexes just off the main metropolitan areas across. Large condominium and townhouse projects continue to dominate up and coming suburbs. These developments are built with millennials in mind, affording you modern layouts, proprietorship, quick commutes and hotel-like amenities all within the setting of the "quiet" suburban life. More often than not, these sought after complexes are in close range to outdoor shopping, boutiques and restaurants, or propel the addition of such commercial assets nearby.

Here's what to look for in a neighbourhood walk score when buying a home, whether you opt for a detached house or condo living, 

  • Parks & Trails | " Are parks, trails or public spaces within walking distance? Depending on your interests, having places close by that are easy to get to on foot can be a big plus when picking a neighbourhood." - Westcott Homes. Think about your children, your dogs or your bike; you'll want easy access to their favourite outdoor spots.
     
  • Amenities | Do you love taking part in community classes or lessons? Do you rely heavily on public pools, sports fields and ice rinks? Do you enjoy a good café, bustling bistro or local cuisine? Buying a house is a reasonably permanent commitment, so, "... just make sure the amenities most important to you are convenient." - How Stuff Works.
     
  • Resale Value | Did you know that your home's walk score can significantly affect your resale value? This is especially true as post-Covid thinking has us prioritizing the quality of our home life. "In U.S. cities, homes within walking distance of schools, shopping, parks and other urban amenities sell for an average of 23.5%, or $77,668, more than comparable properties that are car-dependent." - Walk Score

COMMON MISTAKES AND REGRETS

CNBC reports that 63% of millennial homeowners share the following regrets. Draw from their misfortune and avoid these common mistakes the first time around: 

  • Underestimating Expenses | "Underestimating the hidden costs associated with buying and owning a home, including the ongoing responsibilities of maintaining it, is the No. 1 millennial homeowner frustration." The mortgage is only one piece of the puzzle when it comes to the expense of buying a home. There are closing costs, oil in addition to electricity (if your home heats with oil), insurance, condo fees (if you buy a condo), water tax, school tax, etc. Carefully consider all the costs and investigate a little before you sign on the dotted line.
     
  • Housing Shortage | "...many millennial homeowners end up paying more than they wanted to or had budgeted for because there aren't many homes available at the prices young people can comfortably pay." Consider a reasonable price for your income and stick to it. You may even want to make a shortlist of things you are willing to sacrifice to remain on budget and avoid becoming house poor.
     
  • Settling | "About 10 percent of those polled by Bankrate say their biggest regret stems from where they bought their home. "They are settling for homes in less than ideal neighbourhoods". It may feel unnatural to put off buying a home when your ducks are in a row; however, you will never regret putting it off for a little while in exchange for a genuinely perfect - for you - neighbourhood.
     
  • Size | "Another 18 percent of millennials are unhappy about the size of their home, saying they regret buying a place that ended up being too small." Will you need a guest room, a basement play area, a craft or sewing room, or a gym? Will your little children eventually need their own rooms or separate bathrooms? Imagine living in your home well into the future and plan ahead for whatever that looks like.

THE FINANCIAL CHALLENGES

“While research suggests Millennials are even more interested in buying homes than their parents, they are slower to buy due to a set of financial challenges, which include student loans and credit card debt, as well as an inability to save up for a down payment,” she says. “Wages have been pretty stagnant, on average, over the last 15 years, all while the cost of living, education and housing has skyrocketed.” - Forbes.

With that said, you may want to consider these tips when preparing to buy a house:

  • Saving | Saving, especially substantial amounts, is no small feat. Starting small is always a safe bet. Wealthsimple suggests, "eliminating small purchases that have become habitual but likely provide relatively little value to your life. Cut down on things like eating out, premium coffees, shopping for things you don't immediately need."  Once you've mastered that and are encouraged to take the next step, consider downsizing to a smaller apartment or looking for a roommate to save even more for your first home.
     
  • Bad Credit | Are you suffering from bad credit? Lifelock maps out six steps for buying a house with bad credit. They also encourage accepting the fact that "you'll likely face two requirements: 1) You'll have to accept a higher interest rate. 2) You might have to come up with a larger down payment."  Have you struggled with bankruptcy? Build your credit quickly with these 10 proven steps. Facing reality and preparing for it will not only help you succeed in acquiring your home but also bring your personal finances back into good standing. 
     
  • Down Payment | The amounts required for a down payment vary according to your broker. 20% is the gold standard amount for a down payment on a home. This significant amount provides your broker with a certain level of confidence and dramatically reduces your monthly payments. A great way to save for your down payment is to set up a monthly direct deposit to your savings account. Small increments add up quickly over time. For example, "you'll have saved $5,200, plus interest earned, at the end of 12 months if you're paid every two weeks and save $200 from every paycheck." - The Balance. You can reference Canada's guidelines for down-payments on their website.
     
  • Other Expenses | "One of the biggest shocks of buying a home is finding out that you need way more cash to close on a house than just a down payment. It’s hard enough to save for the down payment on your home, only to find out that you need more—often a lot more—in order to complete the transaction." - Money Under 30. Regardless of the rate you settle on or the amount for down payment needed, you need to consider and itemize the initial costs. You will need to keep in mind that closing costs can come to two or three percent of your loan amount. While city and school taxes may eventually be built into your monthly payments, you may need to provide your broker with a substantial initial amount until you have accrued enough to cover these charges when they are due.


While you may feel overwhelmed with all there is to consider before buying your first home, you will only benefit from being cautious when it comes to what house you buy, where you buy it and how much you pay for it. Remember that this is your life you are investing in, not just a physical house. Doesn't that deserve a little due diligence?

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