If you're like many Canadian families, the first home that you purchase isn't likely to be your "forever home." To meet the needs of changing life stages, you'll probably own more than one home throughout your lifetime.
When you decide that your current place isn't big enough, you'll go on the search for a place that's likely to suit your family for the years to come. That begs the question: is it better to buy a "forever" home or a "for now" home?
First-time homebuyers usually choose their home based largely on the limitations of what they can afford. But for buyers who are established in their career, and at or nearing their peak earnings years, if they've been a homeowner for many years, they may have built up some decent equity in their home. This may provide some options.
Could you stretch yourself financially and buy a "forever" home or spend less and buy a "for now" home? Let's look at the pros and cons of each.
"For Now" Home
- Perhaps the biggest advantage of buying a "for now" home is that you're less likely to stretch yourself financially to afford it. Your carrying costs – mortgage payments, utilities, repairs and maintenance expenses – tend to be lower. This makes it easier to save for other important financial goals like retirement and your children's education.
- If you've been a renter all of your life, and you've now decided that homeownership is right for your family, a "for now" home helps ease you into the expenses and responsibilities of being a homeowner.
- A smaller home is also typically easier to manage. Fewer rooms means less space to clean and furnish, saving you time and money.
A "For Now" Home isn't Without its Downsides
- If you buy a home that's only likely to suit your family for the next five years or so, your family may outgrow it sooner than anticipated, forcing you to move to something bigger.
- The closing costs of real estate – land transfer tax, real estate lawyer fees and home inspection fees – can reduce your financial gains.
- Moving more often is also a major inconvenience, especially if you have children. Moving during the school year may mean your kids have to switch schools or take the school bus to school when they used to be able to walk.
"Forever" Home
- By buying a "forever" home, the hope is that you'll move less frequently. And by moving less frequently, you'll save on closing and moving costs. You also won't have to deal with the inconvenience of moving every few years.
- You can renovate the home without worrying as much about resale value.
- You can move into a home and neighbourhood where you see yourself long term and put down roots. And without the disruption and budget impact of moving frequently, it may be easier to build up equity in your home and potentially pay down your mortgage sooner.
"Forever" Homes Have Downsides, Too
- You may stretch yourself too much financially, finding yourself “house rich and cash poor" with little money to save.
- It's hard to know what the future holds. You may think this is your forever home, but you may end up outgrowing it in the next few years. Decisions, such as renovations, that you may have made with a long-term view might turn out to no longer be strategic.
- Buying a “forever" home can leave you feeling tied down. You may forgo a job promotion in another city or province due to your home.
In the end, buying a home you can afford is key, because you never really know how long you'll stay in your home.
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