I'm SO Over This, Let's Buy a House!
Written by Lesley-Anne Scorgie
Thursday, November 19th, 2020
Room spinning, number crunching, daydreaming and panic attacks all together.
"Another $5,000 will do it," the realtor said.
Damian had already started to move in mentally, visualizing how he'd set up his office in the nook by the front door. Fashionista Sophie was salivating at the thought of her own bathroom. They wanted that first home so badly, and they were tired of looking…but, not fatigued enough to offer more than it was really worth, especially in the middle of a pandemic.
On the brink of going back with one more bid to seal the deal, they decided to stand down from making a final offer and avoided a bidding war.
The property got sold to another couple later that night, well over the asking price.
It took a few days to release the emotional pressure and disappointment of not getting the first property, but it ended up being a good thing for Damian and Sophie. Read on.
If your blood pressure starts rising when you think of pandemic homebuying, you're not alone. Besides this being the single largest financial transaction of your life, there are some legit nuances when buying your first place amidst a global health crisis – mask-wearing while physically viewing properties, virtual meetings with mortgage brokers and uncertainty over the long-term valuation of properties. But, for hyper-organized Damian and Sophie, the fundamentals of preparing well and buying their property stayed the same.
Here's how this couple crafted a strategy to win the next buying battle, despite the pandemic.
Getting on the Same Financial Page Really Paid Off
Who has time to waste in their 30s, right? Money, house, kids, relationship goals – all of this was on the table right away for Damian and Sophie. As two fairly money-conscious people, buying a place rose to the top of their list of priorities. So, when things got serious, they formed a plan to pool their resources (after moving in together), coordinate their down payment savings efforts (using a well-crafted budget and pre-existing savings) and eventually purchase a property within the Greater Toronto Area.
Their goal was to build up a 20 per cent down payment, and according to Carl Pierce, Director, Retail Lending Product Management at Tangerine, this is definitely the ideal down payment if you want to avoid paying mortgage insurance, which can add many thousands of dollars to any real estate transaction in Canada.
Damian and Sophie got into the habit of saving, with portions of their paycheques going towards their RSPs and TFSAs. They purged and sold furniture, clothes, electronics and more to build up their down payment savings, too. When the pandemic hit, they saved even more.
Two factors supercharged Damian and Sophie's savings. First, when they moved in together, their individual costs were sliced almost in half, allowing them to save the difference (only one rent to pay, shared utilities and food expenses, etc.). And second, the pandemic lockdowns further reduced their spending on things like entertainment, restaurants and wellness.
Being House Poor is such a Bummer, and 100% Avoidable
When Damian and Sophie hit their down payment savings goal of $150,000 this summer, despite Sophie having her salary scaled back by 20% due to COVID-19 financial impacts on her employer, they hired a realtor, met with a mortgage specialist and started checking listings multiple times per day online. They used a "wish list" to guide their search, which included some of the following criteria:
1. Being House Poor is the Pits. The couple did their homework, crunched numbers, ran every possible budget scenario and used a mortgage affordability calculator to determine they'd be comfortable carrying a mortgage of up to $600,000. Conveniently, the costs of carrying this debt, plus maintenance fees and utilities, totalled what the couple used to pay for housing, prior to moving in together. Bye-bye home poverty! They also ran their ideal budget scenario by their mortgage specialist.
2. DIY – No Thanks! Who doesn't love HGTV fixer-upper shows, right? For Damian and Sophie, the thought of hammers, nails and 2x4s made them sweat. While they could have saved $50,000 on a home that required improvements, the sweat equity would have cost way more. It's so important to be realistic about what you're willing (and skilled enough) to take on.
3. Privacy, Please. With so many of us facing new work from home scenarios, now more than ever, couples need a place to park their respective computers and have some privacy to take calls. For Damian and Sophie, having two bedrooms, where one could work with a closed door while the other worked at the kitchen table, quickly became essential.
4. Location. Location. Location. Realtors will often advise that buying the modest place on the best block versus the nicest place on the block is a very important factor in protecting future resale value. With that in mind, Damian and Sophie narrowed their search to a well-located, high-demand neighbourhood, near transit and shopping, that had a track record of strong resale values.
Don't Let Your Emotions Carry You Away
A place that hit 90% of their wish list came up. In a 24-hour period, they organized themselves to see the property with their realtor, reviewed the relevant documentation, got a bank draft of $25,000 for the deposit, and made the offer. As an added touch, they left personal note about themselves, accompanied by a cute picture, and how much they loved the property, written out to the seller. They went back and forth on price, and then finalized the deal at $705,000.
"The smart money move that Damian and Sophie made was sticking to a price they felt was fair for the property," Pierce said. They didn't allow the pressure of the situation to influence the counteroffers. In plain speak, they weren't going to go over what they, and their realtor, felt the property was worth.
Closing Day Doesn't Need to be a Panic
Pierce offered a pro tip for their closing when speaking with Damian and Sophie. "The last day of closing can be smooth with pre-planning and a good real estate lawyer."
Between the purchase and closing, their lawyer will be bustling to complete title searches, and clear up any property-related legal questions. Much of this can be done well in advance, and virtually.
"Just like Damian and Sophie stayed in close touch with their mortgage specialist, they will benefit from doing the same with their lawyer. This is all in an effort to get the couple comfortable with the transaction, so that they can sign their closing documents in December with confidence."
No One Has a Crystal Ball on what's Going to Happen with Housing Prices
Sticking to a long-term view is almost always a smart decision.
"Root yourself in the initial reasons you want to purchase your first home. Is it to grow your family? Have freedom from living with your parents? Build up your assets?" Pierce says. "Over many decades of tracking home values in Canada, they've generally appreciated."
Damian and Sophie plan to stay in their new home for at least seven years, which should help buffer them against emotions accompanied by potential sharp swings in prices. Their plan is to get back to their retirement savings efforts, as their next financial goal. Having used the Home Buyers' Plan for their down payment (Canadians are allowed to borrow $35,000 each from their RSPs, so for a couple that totals $70,000), the couple is keen to rebuild their RSPs and start getting retirement ready.
And, of course, building up an emergency fund is also going to be key to help cover unforeseen costs and repairs that come with homeownership.
The good news is that Damian and Sophie can afford these next goals and still have a life, because they didn't overbuy. Good budgeting, and sticking to their wish list, ruled their purchase decision and now they can really have fun in this next phase of life.
If you're not quite as proactive as Damian and Sophie were, it's OK. All you need to do is build a strong down payment (it takes time, so stick with it) and use a budget to ensure you can afford all the costs of homeownership.