We didn’t do our first home legwork

Tina Di Vito heads the Bank of Montreal's Retirement Institute.

Supplied photo

By Tina DiVito | Mon Jun 20 2011

In my 20s, my husband and I purchased our first house in Pickering. It was an exciting time. Thinking back, housing prices were on the decline but interest rates were hovering around 10 per cent. We were young, but we really wanted to own our own home and start to build a financial foundation.

While we had saved the required 25 per cent for a down payment, the minimum mortgage payment seemed huge. But I was working as a chartered accountant and my prospects were good; my husband also had a good job. It just made sense to pay ourselves rather than a landlord.

We quickly found out that the carrying the costs of home ownership were a lot bigger than we had thought. We needed furniture and new appliances, including a stove, fridge and washer and dryer. We hadn’t factored in unexpected things like a new fence, or monthly bills like heat, electricity, water and property taxes, not to mention the extra transportation costs to take us into downtown Toronto where we both worked. When the first mortgage statement showed up in the mail, we were shocked that most of each payment was interest and just a tiny part was the principal.

We quickly realized our mistake. The only costs we’d really considered were the down payment and monthly mortgage payment. We hadn’t done the legwork to find out how much money it could take to cover all the other responsibilities of owning a home.

Over the next few years we were house poor. We didn’t have anything extra to contribute to savings like an RSP; we couldn’t afford to travel, and we had to minimize extras like restaurant meals. It was not quite the lifestyle two young professionals expected to live! The house – or in fact, paying the mortgage – became our sole focus.

In the end, it turned out to be the right decision – mostly because we maintained a strict budget. Also, interest rates began to fall, meaning we were able to renew the mortgage at a lower rate. As a result, we were able to continue investing in our home and moved up to a larger one a few years later.

But we were lucky – it might not have turned out that way. If one, or both of us, had lost our job or we’d been faced with a major repair, things could have been different.

It brings home the importance of developing a financial plan that takes into account all aspects of your finances before you take the big step of buying a home. It should include such things as:

 • Saving for as large a down payment as you can afford;

 • Keeping some money aside in an emergency fund;

 • Creating a family budget and sticking to it! Know how much you are spending and where you can reduce costs;

 • In addition to a down payment, always set aside some money for those “extras” such as buying furniture, appliances, lighting fixtures – and don’t forget the lawn mower;

 • Saving as much as possible to make extra payments to pay off your mortgage faster;

 • Making sure that your total housing costs, including mortgage payments, property taxes and heating costs do not exceed one-third of your household income.

You may well find out, in the end, that you’re not ready to buy a house. That might be depressing, especially with all the voices out there that say you should, but if you can’t really afford it, it’s the right choice.

For all your mortgage needs call: Eduarda (Eddie) Pita - 416-920-9931

Courtesy of: http://www.moneyville.ca/article/1011806--we-didn-t-do-our-first-home-legwork