By Todd Lewys
On the surface, times are as good as they’ve ever been for first-time home buyers.
Interest rates remain at all-time lows, Manitoba’s economy continues to be strong, and employment numbers are stable, meaning that most everyone has a job and disposable income. To top things off, the local MLS market is a buyers market.
With 3,406 listings available at the end of January, first-time buyers have more inventory to choose from than in years past – and few, if any bidding wars to endure.
While it might seem that everything is working in favour of first-time buyers, that’s not necessarily the case, said long-time mortgage broker Ed Leblanc.
“There’s no question that market conditions are favourable for first-time home buyers – both Canadian residents and those who are new to Canada and are looking for a home,” he said. “The problem is that it’s just so easy to get credit these days. That being the case, it’s very easy to bite off more than you can chew when you buy your first home.”
By that, he means that first-time buyers – euphoric after being approved for, say a $200,000 mortgage, often will spend to the outer edges of that limit.
“That’s a mistake,” said LeBlanc.
“Let’s look at a couple of numbers, starting with the $200,000 mortgage. My advice is to not spend more than you can afford. That might mean buying a condominium for $140,000. While that might not seem like much, the reality is that between down payment and closing costs, you’ll need to have $10,000 saved up. If you’ve been approved to $300,000 and go the full limit, that means that you’ll need to have a $15,000 down payment and another $8,000 to $9,000 for closing costs – almost $25,000 in total.”
This is where first-time home buyers need to listen to the advice of their lending officer, mortgage broker, and, of course, their REALTOR®.
“These are the people who will assist you in setting a budget and people who will help you stay within those lines,” LeBlanc said. “The biggest obstacles for first-time home buyers are the down payment and closing costs. If your lending officer, mortgage broker or Realtor says you should spend $240,000 on a home rather than the full $300,000 to be on the safe side, then you should listen to them.”
Doing that could save a lot of heartache if the unthinkable happens: a sharp increase in interest rates.
“Right now, it might seem great to be able to get a mortgage at 2.64 per cent, but what if, at the end of your term, mortgage rates have gone up to the national average of 5.25 per cent – will you be able to afford your mortgage payment then? You need to leave yourself some room in case mortgage rates increase.”
He cited an example of clients who were seduced by low interest rates.
“One of the banks helped my clients get a $400,000-plus mortgage, then gave them a credit line for $60,000, which they then spent. Eventually, the husband had to take three jobs and the wife had to take two to keep up with all the payments,” said LeBlanc. “That’s not an isolated case. Many people get in the same situation because they don’t look at the big picture and make the mistake of not buying within comfortable financial limits.”
There’s also another pitfall that first-time buyers need to avoid in addition to spending beyond their means mortgage-wise: going nuts on buying accessories to fill their new home with.
“You have to resist the temptation of getting everything at once. If you’ve set a budget, be disciplined and keep to it. Being disciplined is tough, but you can get the things you need for your home by prioritizing, saving up and then purchasing the items gradually. And you don’t have to buy everything new, either.”
As difficult as it might be, said LeBlanc, first-time home buyers have to be disciplined, and stick to the reality-grounded advice provided them by their Realtor and mortgage professional.
“It’s essential to have an experienced Realtor to help guide you through the process. Get pre-approved, don’t buy a bunch of stuff and then buy your house first. Then, set a budget for the things you need. If first-time buyers spend what they can afford and stay within a realistic budget, they’ll get a home they can afford and enjoy for years to come.”