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ANALYSIS: Our youngest son and his wife just bought their first home, which is impressive since he’s 27 and she’s 25.
They saved up the down payment, did their research, had their heart broken when they lost the one they loved. But they recently sealed the deal on a lovely home, which will close on August 26.
As a parent I'm thrilled, but as a financial advisor I'm worried. Maybe, if I'm honest, as a mom I worry too. I know they haven't taken on more than they can handle. They’re good with numbers. They’ve been prudent, and even declined the full mortgage amount they qualified for. But what if there is a housing market bubble? What if one of them loses their job? What if their home is worth less than the mortgage down the road?
That’s a lot of 'what ifs,' but I also know you can't sit around worrying about something that might happen while you let life pass you by, and in this case, miss the market potentially marching higher.
My husband and I did the same thing back in the 80s when we bought our first home and interest rates were 18 percent. There were a lot of 'what ifs' then too. It didn't stop us.
The housing market in areas like Toronto and Vancouver continues to be stubbornly hot with little signs of slowing. The frenzy has been driven by low interest rates, an ongoing shortage of homes for sale, and a growing sense of panic that if you don't get in now you could be locked out of the market forever.
In others words, people are taking on more debt for less property due to the imbalance in supply and demand. Prices are rising so much faster than incomes in many parts of the country. More first time buyers are entering the market with just 5 percent down, leaving them vulnerable should rates start to go higher.
There are always going to be risks, and as you move forward the focus should shift toward mitigating those risks. If you are thinking of jumping into this market, save, save and save a little more. Shorten your amortization period, increase your payments amounts and frequency where you can. Stay put in the home for as long as you can. And just because you may qualify for more home than you ever thought you would, recognize that doesn't mean you should over buy.
This is just one more way of living below your means. I've lived by the mantra of ‘hold a little back for the rainy day.’ In others words, have an emergency fund. Unfortunately, it rains on all of us once in a while, but with a little prudence, you will be able to tread water and avoid drowning in mortgage debt.
5 tips for first time home buyers
You might be looking to buy your first home or simply re-locating - The RedPin.com suggests you "Spy before your buy". Buyers can make snap decisions in what is likely the largest purchase of their lives and while you may fall in love with the place at first sight you DON'T want buyers’ remorse.
1) Probe with a puppy - yup walk around the neighbourhood and chat up your potential new neighbours.
2) You think it is a quiet…spend some time there to understand the traffic patterns.
3) Look closely at how your neighbours keep their homes, for example dirt in the streets.
4) Go to the local coffee shop and chat up the locals, get a read of renters vs. owners
5) Visit the local police station and ask about the crime rate. Don't assume. Get the facts.As the Chief Financial Commentator for CTV News, Pattie Lovett-Reid gives viewers an informed opinion of the Canadian financial climate. Follow her on twitter @PattieCTV