Avoid First-time Homebuyer Regret

Famous Italian actress Sophia Loren said, “Mistakes are part of the dues one pays for a full life.” It’s human nature to make mistakes and, while we often wish some were avoidable, they are necessary for personal growth. Unfortunately, the consequences of a mistake can vary from harmless to severe, whether it’s wearing off-coloured socks to work or getting a poorly placed tattoo. For first-time homebuyers, a budgeting mistake could cost thousands of dollars. A recent report from TD Canada Trust found that many first-time homebuyers regret (i) not saving for a larger down payment and (ii) not properly budgeting for all of the associated costs of homeownership, such as insurance, utilities, and land transfer fees.

A larger down payment reduces the overall size of your mortgage amount, which in turn will decrease your monthly payment amount. For example, when using a mortgage payment calculator, a $400,000 house with a 5-year fixed mortgage rate of 2.99 per cent amortized over 25 years requires a monthly mortgage payment of $1,846, when a 5 per cent down payment is used. However, by increasing the down payment to 10 per cent, the mortgage payment reduces by $211 per month.

The monthly mortgage obligation is obviously the largest ongoing cost of homeownership; however, it is not the only cost that should be factored into your monthly budget. Ongoing costs include property taxes, utilities, condo fees (if applicable), and upkeep. Upon closing, you are also expected to pay for a number of one-time costs, such as land transfer taxes, legal fees, title insurance, and taxes on CMHC insurance (if applicable). One-time closing costs average between 1.5 per cent and 4.0 per cent of the purchase price.

What are first-time homebuyers doing wrong?

“The TD Canada Trust First-time Home Buyer Report revealed that many first-time buyers are not properly calculating their costs, both the one-time costs as well as the on-going costs of homeownership. It is absolutely critical that first-time homebuyers understand how mortgage qualification and affordability work. The more prepared they are, the better they’ll start budgeting,” says Farhaneh Haque, the director of mortgage advice for TD Canada.

In terms of timing, first-time homebuyers should wait until they are both financially and emotionally ready to purchase a house. Farhaneh adds, “You should really understand your lifestyle and situation. Do you have stable employment? Do you have a transient lifestyle? Are you ready to buckle down and plant roots because the commitment is different from renting?”

Overall, the best way to avoid mistakes when purchasing a home is through research. Canadians should use as many resources as they can, whether it’s talking to family and friends, meeting with professional mortgage brokers, or using online mortgage education tools.