Rushing into a new home might not be a great idea for a first time home buyer
Home ownership is viewed by many as a mark of success and stability. Does it make sense if the debt involved with buying and owning a home is actually going to threaten that success and stability?
That’s exactly what happens if you jump into the home ownership pool at the wrong time in your life, when your financial ducks are not in a row. It takes time to accumulate wealth, which is a must-have base before taking on home ownership.
In order to answer this question, a recent study in the U.S. produced a recommendation for millennials about the life stage at which they should enter into home ownership, based the relationship between carrying debt and overall wealth. The summary? Hurry up and wait.
“It’s a well-known fact that owning a home can be a major part of a successful financial plan. But long-term success is harder to achieve if you jeopardize your immediate and short-term finances. Millennials, in particular, need to take a hard look at the market and at their own debt loads and cash flow before buying a home in the current economy,” says Jeff Schwartz, executive director of Consolidated Credit Counseling Services of Canada.
Timing is everything
Millennials are faced with an interesting dilemma. Many are at the beginning of their careers, so they have not yet realized their earning potential and most are vulnerable to job loss through downsizing. On top of that, many are saddled with student debt, which may be weighing on cash flow, making it harder to sock away savings.
As if the variables within their own lives weren’t difficult enough, Millennials also need to contend with the economy at large. There are question marks surrounding the housing market, interest rates, and employment. These are worrying times, and Millennials need to make sure their finances are ship-shape if they want to successfully navigate these choppy waters.
Take a step back
Buying a home is a decidedly emotional experience, so it is time to separate heart from head. There is a lot of pressure to get into the home ownership game, especially in markets where prices are rising rapidly (like Toronto and Vancouver). There is a sense of panic: “If I don’t get in now, I might not be able to afford it later.”
If you can’t comfortably afford it right now, you won’t be able to afford it later either. You’ll be house poor.
Is renting so bad?
The thought of paying someone else rent when you could make a mortgage payment to build your own asset may be killing you, but there are perks to renting, from a convenience and financial planning standpoint.
The main advantage is that you can spend the time now accumulating savings and getting your financial house in order to buy a house comfortably. More savings means a bigger down payment (which in turn means more options and buying power when you do buy).
Unexpected repairs as a renter? Call the landlord instead of getting out your chequebook, and bank the sum for when you’re a homeowner.
Take control from the start
Simply, the best way to be on top of your finances is to be proactive. From day one. Think about it. When driving a car, is it easy to maintain control, or to regain control if you begin to slide. The same can be said about your financial situation. Make a plan, with a detailed budget that is heavy on the savings, so that you can set out as a homeowner on the right foot.
Are you weighing the pros and cons of renting and owning? Are you not sure if you can afford home ownership due to heavy debt payments? Call one of our trained credit counsellors at 1-888-294-3130 to see if they can help, or check out our free online debt analysis tool to get started.