Kitchen Table Real Estate:
Are you ready?
Hello All. I have a question for you first time home buyers: Are you ready to buy a house?
I don't mean ready like being prepared or pre-approved or having the down payment saved or finding the right Realtor to work with you. I mean, do you feel ready to commit to buying a home. It is important to buy a home for the right reasons and not just because you feel pressured to buy by family or friends. If you're not ready to settle down, maybe the best move for you is to wait and rent instead.
A rule of thumb is that if you plan to buy a house, you should keep it for at least five years. Otherwise, you can have significant financial consequences. If you purchased a $250,000 home and sell it the second year you bought it, it can cost you somewhere from $15,000 to $35,000. You can end up owing the bank more money than the original amount of the mortgage. Just the insurance for the CMHC added on to the price of your purchase was $10,000. If you took a five year mortgage, the penalty could be as much as $7,000 depending on which bank you are with. And unfortunately, most of the time, people find out this fact only after they have sold their house. If you add the fee of your Realtor, and that is something I would not want to take out of the equation because I don't want any surprises selling my house, then you are already around $30,000. Did you do any renovation when you bought your home? Most people do.
After two years, you still owe the bank about $245,000 on your mortgage. Even though you have paid them $29,500 so far, (That is $15,100 in interest and $14,500 on your capital). That means even if your house has increased in value by four per cent each year and is now worth almost $21,000 more, you would still have $9,000 less in your pocket.
Are you surprised by those numbers? Buying a home is a big decision. Although this article may look like I am against homeownership, I am not. I am a big believer in buying a home, and I encourage you to buy a home if that's what you want. It is just better to know the facts before getting into the most significant financial investment you will probably make. Call your Realtor, your financial adviser, and seek advice, be prepared, do your homework and decide wisely. May you be a happy homeowner.