Are you currently on the hunt to buy your first home?
If you are, you’ll know this process can be really exciting, discouraging, or a little bit of both.
If you have an unlimited amount of cash (and I'm not talking about access to a line of credit, I'm talking about cold hard cash in your bank account) then building your dream home might just be in the cards.
However, if you’re like most Canadians and need to take out a mortgage to purchase a home, you’ll more likely want to temper your dreams to ensure you buy a home that you can actually afford.
The home buying process is often full of emotions, but you need your reason to be your guide when purchasing a home.
And sometimes that means giving up on a home you "love" for one that you "like" or consider "just fine."
Here are the reasons why you should overlook a home you love for one that you like, plus what you can expect the process to be like:
How to buy a house
Here are the 7 major steps to buying a house:
Step 1: find out what you can afford
This will involve a lot of introspection and a detailed review of your spending. It can help to think of it in terms of monthly payments, since once you get into hundreds of thousands of dollars, things can get a bit blurry...
So outline your budget, including everything from services to monthly makeup hauls, and be realistic. A home is a huge purchase – make sure you know what you can afford.
There are various rules of thumb out there that people often cite. One example is the total cost should be no more than 3x-5x your annual household income. Or you can simply abide by the 28/36 rule – household expenses don't exceed 28% of gross monthly income, household debt doesn't exceed 36% of gross monthly income.
But simply sitting down and working the numbers can work too.
And try to aim for a 20% downpayment in order to get the best mortgage rates.
Step 2: get pre-qualified for your mortgage
This is as simple as meeting up with the bank you plan to get your mortgage from and giving them the information they need to know. They'll tell you a rough estimate of how much they're willing to loan you.
Just keep in mind that just because you get pre-approved for a $200,000 mortgage, doesn't mean you need a $200,000 house...
Step 3: find the right real estate agent
This will take a bit of research, but essentially you'll want to find someone that has your interests in mind. Try to look for an agent you feel comfortable talking with so they can learn what your needs and wants are.
Their experience is invaluable to the home buying process, so don't be afraid to ask questions.
Step 4: look at a bunch of homes
Shop until you drop. Don't just look at the ones you love, consider the ones you wouldn't normally take a second glance at too.
Curb appeal isn't everything, and a good (though ugly) home is better than a pretty one filled with structural issues.
Step 5: make an offer
Once you've found "the one" for you and your family (or one that's good enough…), it's time to make an offer. Discuss with your real estate agent thoroughly what the value of the home is. Also consider hiring an independent property inspector.
It's a good idea to make the offer contingent on a good inspection and appraisal, so you still have some breathing room before you sign your money away.
Step 6: have the house inspected and appraised
Once the offer has been accepted, make sure to have the house inspected and appraised before you take the final step. Failing to do so can result in thousands of dollars lost – it's not worth the gamble.
Step 7: close the sale
Once both the seller and buyer are satisfied with the offer, there will be a lot of paperwork involved. It won't be hard work, but it will be tedious. Work with your realtor and lenders diligently as you finish up this final step.
After the loan has been paid to the seller and you receive the keys, you're ready to move in!
Related: How To Save Money On Moving Expenses
So, what should I even be looking for when buying a house?
When starting to house hunt, it can be easy to get carried away with all the emotions that come with finding that perfect home for your family.
If you’re like me, you enjoy the interior decorating side of home ownership and spend way too much time on Instagram and Pinterest saving your favourite kitchens, bathrooms, and living rooms.
I would love a never-ending island which separates the kitchen from the living room with its cathedral ceilings and French doors that lead out to a backyard oasis...
But I would never prioritize these items over affordability, the right location, and overall functionality for my family.
It’s fine to make a wish list of items you would love to find in your next home, but it’s more important to focus on the true priorities of buying your next home. Think deeper than open layouts and the number of bathrooms.
In my experience, price and location should be included in the top priorities.
The price is right
What is the top price you feel most comfortable with?
I’m not talking about the top mortgage amount you’ve been pre-approved for, I’m talking about the number you’ve come to after calculating your monthly expenses.
Your calculations should also include savings and investments aside from your real estate investment, as your home should never be your sole means of investing for the future. Sure, you could buy more house by getting a bigger mortgage, but you’re taking a huge risk putting all of your eggs in one basket.
Don’t forget to plan for the unplannable
The way our family has always calculated our "price" is not only what’s left after expenses and savings, but what we can afford on one income.
As we’re about to have our third child, my income isn’t always consistent. Sometimes it doesn’t even exist.
Besides parental leave, there are many health issues that could come up for either partner at any time. Depending on 2 incomes to pay the mortgage can leave a family financially troubled in case of an emergency. Don’t make a bad situation worse by adding unpayable bills on top of it.
These are factors that should be taken into consideration when coming up with the right price for your family.
While both partners may plan to work if you have kids, do you have a contingency plan if one partner loses their job or mortgage rates significantly increase?
Location, location, location
This is probably the oldest rule in the real estate world.
Even if you think the house itself is your dream home, if it’s not in the right location, you might want to reconsider. Location plays a huge factor in the real estate market, so you may have trouble when it comes to selling that house in the future.
There’s something to be said about buying the worst home in the best neighbourhood – as long as you’re in the right location, you can always add value to your home by renovations, expansions, or simply rebuilding it all together.
But you can’t renovate its location. Not by yourself, anyway.
So what should I look for in a home’s location?
When it comes to finding the right location, look for these factors:
- top-rated school districts,
- scenic views,
- economically stable neighbourhoods, and
- close to public transportation.
Buying in these neighbourhoods can cost you, but if you manage to look past aesthetics, you can find affordable homes that are in need of some TLC.
Generally speaking, the worst homes tend to be the least expensive in a neighbourhood. If you’re willing to look past the outdated kitchen and awful landscaping, then you might pick up a home that’s a lot cheaper, but has lots of potential.
And when you choose to sell, you’ll likely reap back all that you put into the home – and more.
Tips for buying a house: Pragmatism over idealism
My general rule of thumb when I go house-hunting is to give the benefit of the doubt when looking at listings.
Even if a home looks uninspiring in its photos, if it's in the right location, has the right number of bedrooms, and is within our price range, I will go and look at it. A lack of curb appeal won’t stop me.
In fact, the last 2 homes we purchased were ones I passed by the first time around because I didn’t like the way they looked on the outside. But I gave them both the benefit of the doubt and took a look inside anyway.
Admittedly, I didn’t fall in love with them after my initial walk-through either, but I could see the potential in them both. That’s what’s important.
Related: Budget Home Decorating Ideas
My first home
Our first home needed some aesthetic updates but was structurally sound, so we bought it.
We invested about $10,000 into the home the first year to update it and sold it less than a year later for over $100,000 more than we purchased it for.
Location and timing played a huge role in the great return on investment (ROI) we got.
In general, I would suggest staying in a home as long as you can, but if you need to move, that makes the argument of being in the right location that much stronger.
Whether it’s a buyer’s or seller’s market, if your home is in a desirable area, there will always be a demand for homes in your neighbourhood.
My second home
The next home we purchased didn’t hit a lot of items on my wish list, but it fit the bill in terms of price, location, and space for our growing family.
We put in around $7,000 in upgrades and sold it 2 years later for $150,000 more than what we paid.
I should note that neither my husband nor I are handy DIY-ers, so we had to pay someone else for the upgrades we did. If you happen to be handy, you will most likely find your ROI even higher, as your overall labour costs will be lower.
Also, in general people are willing to pay more for renovated homes – if they’re in the right location.
Be willing to walk away
When you become too emotionally invested in a home, thanks to a spa-like master bathroom or a walk-in kitchen pantry that would make all your friends jealous, you can ultimately end up paying way too much for a house.
Look past the fancy upgrades and make sure the house ticks all the other boxes in terms of price, location, and functionality.
If it does, never go above the price range you feel comfortable with.
Bidding wars are common in many hot locations, but don’t get discouraged if you're ultimately outbidded. Walk away feeling satisfied that you didn’t overpay for a home that was most likely overvalued.
And adopt an abundance mindset – there will always be another house for you in the right neighbourhood at the right price. The one that got away simply wasn’t the one for your family.
The bottom line
Choosing to buy a home that isn’t necessarily your dream home, but can work for your family due to price, size, and location, can be one of the smartest financial moves you ever make.
And who knows, the house you like can easily turn into the home you love after investing in it with updates, additions, and priceless family memories.
Buying a home is a huge investment of time, effort, and, of course, money. Go into it with an open mind, because some things can change – but some things can’t.
Don’t be seduced by the ceiling-length windows if it means an hour commute to a grocery store.
What do you think?
Do you have any home-buying horror stories?
Or have you found love in hopeless places while buying a home?
Let us know in the comments.