First Time Home-Buyers:  Don’t Let Eagerness Overrule Caution

June 4, 2013

First Time Home Buyer

By: Geoff Lee

The desire to own a home runs deep.  It inspires people to get better jobs, save money and live within their budgets — all good things.  But the yearning to call a piece of property “my house” also encourages some first-time home buyers to ignore common sense.

Don’t let desire turn to desperation.   If you’re shopping for a house in an expensive market — Toronto or Vancouver, for example — you may be looking for shortcuts on the long road to home ownership.  Two recent trends — buying a home with a rental unit and obtaining variable rate mortgages — offer pitfalls as well as promise.   Understand both before you become a landlord or mortgage holder.

In a previous article Geoff Lee of Geoff Lee Mortgage Group related important factors for US investors buying real estate in Canada. Many have bought vacation properties, retirement homes or condos for their children enrolled in Canadian universities. Whatever the reasons; knowing what you are buying and where, are important factors in making that decision to invest in Canadian property.

In British Columbia, more than half of home buyers are seeking duplexes or other types of houses that include rental units, according to a first time buyers report by TD Canada Trust.

“The strong interest is likely a reaction to the average price for a home in Vancouver, which is up 25.7% year-over-year to reach $831,555,” reports Canada Real Estate magazine.

It takes a long time — more than three years for most BC residents — to save enough money to buy their first home.  And if you’re facing a monthly mortgage payment of about $4,000, it’s natural to look for ways to reduce or offset those costs.

Meet the Ropers

A home with a rental unit might provide $500 to $1,000 a month in income, according to the TD Canada Trust survey, but rental income is not guaranteed.

Your rental unit may not immediately attract a tenant and the residents will not necessarily pay their rent on time — or at all.

If you’re including rent payments in your mortgage payment budget, consider non-payment issues.  Also consider costs that you may incur, such as paying for repairs.

And think about what it will be like to live with strangers on your property.  Fred and Ethel Mertz became best friends with the crazy redhead and bandleader who rented an apartment from them on “I Love Lucy.”  And Stanley and Helen Roper got to flirt with attractive young people on “Three’s Company.”

Your tenants might turn out to be crazier — and less amusing — than those on TV.  And getting rid of tenants is not simple.

Before you decide if you want to assume the role of landlord, learn about your rights and responsibilities.  Laws vary by province.  The Canada Mortgage and Housing provides a fact sheet about renting regulations in British Columbia.

Downward Dog

In yoga, flexibility is essential.  Mortgage rates can also be flexible, but this isn’t necessarily a good thing.

A Vancouver mortgage broker will discuss mortgage options, including variable and fixed-term rates.  Depending on your circumstances, a variable rate mortgage might make home ownership more affordable.  But if you choose a variable rate mortgage as hedge against locking yourself into an unfavorable rate, understand that your gamble might not pay off.

Canadian Mortgage Trends correctly takes issue with a statement by the co-host of the Lang and O’Leary exchange that the risks of a sudden rise in mortgage interest rates is nonexistent.

In the past two decades, there have been four occasions when mortgage rates have climbed swiftly in fewer than six months, according to Canadian Mortgage Trends. And fixed rates have sometimes proved a better investment.  It is costly, for example, to choose a variable rate mortgage just before interest rates rise.

Talk to your mortgage broker about the advantages and disadvantages of variable term rates.  The mortgage option that best fits your needs is the only option that matters.

Geoff Lee Mortgage Group specializes in a wide range of lending options and solutions. To read more on Mortgage and Housing trends visit Geoff Lee Mortgage here: