Many rookies homebuyers make mistakes.
And the majority of past buyers—when asked about their first house purchases in a TD survey from August 2012—said there were three things they would have done differently:
- More than half would have put together a more thorough budget that included all possible costs of home ownership (60%)
- The majority would have increased their down payments to 20% of the home’s value (60%)
- Many would have bought sooner (55%)
Before clients jump into the process, however, help them decide if the time is right. The survey finds the top reasons people decide to buy are because they’re sick of paying rent (48%), they get a full-time job (31%) or they want to start a family (31%).
And prior to considering a home, most new buyers will have bought cars (58%) and possibly attended colleges or universities (19%). A small minority (6%) will also have paid for weddings.
In fact, while Carney has spotlighted mortgage debt as Canada’s number one enemy, long-term car loans are also gaining in popularity. The use of major loans to purchase new vehicles is skyrocketing, reportsthe Globe and Mail, as Canadians look for ways to cut monthly car payments.
These loans often take more than six years to pay off, but are gaining ground due to lower incomes and higher mortgages.
So, how can you help clients meet all these financial demands, while helping them make larger down payments? Turns out, saving for a bigger down payment may not take as long as expected, says the survey.
While some customers save for 5% down payments, it’s smarter to aim higher; a down payment of 10%-to-20% takes 1-to-4 years to save up for (66%), and 25% or more takes at least three years (61%).
HOME BUYING TIPS
Smart home hunting starts with budgeting for any hidden costs of buying and owning. Almost a third of buyers don’t do that.
Advisors should also help their clients create realistic pictures of all future monthly expenses—including all bills and costs, rather than just home-related expenditures.
This will not only help them decide on the right mortgage term and repayment plan, but also ensure they can make ends meet once the purchase has gone through, says Farhaneh Haque, director of mortgage advice for TD Canada Trust.
More importantly, more than half of rookie buyers (55%) are worried about how rising interest rates will affect their mortgages. If your clients are on a tight budget today, Haque recommends you warn them about the possible dangers of a variable interest rate mortgage. They might want to lock in at a fixed rate if market volatility makes them nervous.