The first-time home buying experience is overwhelming, especially in today’s real estate market.
The thought of buying your own home is exciting, yet terrifying. As a 25-year-old living north of Toronto, this “crazy housing market” is all I know.
The average price for a single family home in the GTA is about half a million dollars. The fact this is “normal,” in my opinion, is crazy. Is owning a home even feasible for millennials today?
Being an adult is hard. We all want to be independent, and often this means owning your own place, while still trying to follow your parents’ suggestions not to “bite off more than you can chew.” We’re told not to spend money we don’t have, and scrutinized as the generation who is living on credit. It’s frustrating to hear baby boomers talking like they know what were going through.
Of course they don’t get it!
My dad loves to remind me interest rates were 18 percent and higher when he bought his first home at age 29. Sorry dad, but I really don’t feel bad for you – your mortgage was $80,000! When my parents bought their first house together, they purchased a new 3,000 square foot home for $120,000… in MARKHAM. I don’t know whether to laugh or cry. In today’s world, $120,000 is a mediocre down payment.
Give me a break. As millennials, we’re lucky if we can put 5 percent down on a house.
So yes, mom and dad, we are unfortunately taking on $400,000-plus mortgages. At least, this is the case if we want to live south of Timmins.
The Bidding War
As a mortgage broker and first-time home buyer specialist in York Region, I’m seeing these situations with my clients all the time. And I’m currently going through this experience myself. I’m finding, in addition to advising clients, I’m also acting as a bit of a therapist. It can be discouraging, to say the least.
Let’s say, for talking sake, you saved up your money, got your mortgage pre-approval and you are ready to go buy your first home. The home buying process in 2016 is even wilder than the prices. You have about 10 minutes to make a decision on the biggest purchase of your life before someone else comes along to steal your dream right out from under you. Realtors are advising their clients to go into a deal completely free of conditions (taking away all your room for error or back-out options). Even when you actually put in a decent offer, chances are you’re going to get outbid by someone with more money to spend.
The New Construction Route
It seems like everywhere you look there is a new subdivision being built these days – this is especially true where I live and work, in northern York region. We have lots of space to grow up here.
But as a first time buyer, if you can’t buy in phase one, then forget it. Prices will be way too expensive after that. So what does it take to buy in phase one in 2016? Well, don’t expect to find yourself sitting down in a nice, calm sales office environment where you can review your options and take the time to discuss overnight with your partner before making a decision.
That’s old school.
Today, you’re going to have to sleep in your car at the sales centre over night, in the freezing cold, just to be first in line the next day for the grand opening. And when you walk in the door, you may have one or two options to choose from because the “Builder Family and Friends Day” was the day before, and you didn’t have access to it, or the investors who are buying six to 10 properties in one shot were in line before you.
How insane is that?
My Advice for Millennials
There is a lot to consider when buying your first home, and I don’t want you to click away from this article feeling completely discouraged. The truth is, it is possible – as long as you are armed with the right team, good knowledge, and the confidence to make the right choice, you’ll be alright.
Here are some steps you can follow to get ahead of the game and to feel a little more comfortable in this crazy housing market:
1. Get your financing in check.
Speak to a mortgage broker over your bank. Banks love first-time home buyers because they’re young and impressionable. A broker has a number of different options for many situations and can remove any bias in getting you the best deal. We don’t work for the banks, so we don’t have any quotas we have to hit. Are you self-employed? On maternity leave? Like I said, you have options. When you have your financing ready to go, you’re in a position of power. Even if you do find yourself bidding on your dream home, the option of removing your financing condition could be something to help you beat out the next guy.
2. Have a good realtor on your team.
Experience and high sales are great, but make sure you vibe well with your realtor – this person needs to understand why you’re buying a house, and what your goals are. They have to understand your comfort level.
3. If you’re buying a new construction, take your realtor with you.
Not many people think of doing this, but lots of builders will allow it, and you need people on your team to help guide you. Make sure to ask for special promotions (by visiting our model home on a particular day, I got a $1,000 reduction off the purchase price.)
4. Remember the extra costs.
Don’t fool yourself into thinking that by saving up $50,000 you can put the full amount towards a down payment. Closing costs alone are generally 1.5 percent of the purchase price of your home. Then you have furniture, appliances and moving costs to consider (renting a moving truck is around $800!).
5. Stay positive.
I know I pointed out a lot of the negative associations with buying a home in 2016, but there are some perks, too! Interest rates are super low right now, there are plenty of houses (and condos) being built, and you have more mortgage options than ever before. The right house will find you! You just have to believe it.
Remember, nothing is permanent. Even if you start with a small town home or condo just to get into the market – that’s great! Get your mortgage set up accordingly by having either a shorter term or very low break penalties, and in a few years you can move around and move up. At least your foot is in the door!