7 Things Millennials Should Know About Real Estate
On May 23rd, Jessica Moorehouse hosted the second bi-annual Millennial Money Meetup, an event where millennials have the opportunity to learn from panelists in respect to a specific personal finance topic.
For the second Millennial Money Meetup – the panel discussion was in regards to real estate (specifically within the Toronto area).
There were four panelists (including myself) with real estate experience:
Heather is a mortgage specialist at Meridian Credit Union, and shared useful advice on mortgages for first time home buyers (which I will get into detail below).
Penelope Graham is the Managing Editor for Zoocasa – shared her extensive knowledge on the current scope of Toronto’s Real Estate market.
Leslie (founder of GoCoSolutions) is a Toronto-based real estate agent who is a huge advocate for real estate co-ownership – an increasingly popular option that many first time homebuyers are considering.
The panelists covered the ins and out of real estate, such as buying your first home and the common real estate misconceptions. Here are the 7 key takeaways from the Millennial Money Meetup:
First steps needed to get into the market:
All panelists agreed that adjusting your expectations is an important first step. In other words, be realistic, and make sure to budget according to the area you’re searching in. For example, going further away from the city’s core would get you more square footage per dollar. A townhouse in the Durham region would cost around the same as a 1 + 1 (or 2 bedroom in some cases) condo in the downtown region (TREB).
Heather recommends speaking with a mortgage specialist first – make sure to understand your budget first. Ask yourself, will you be able to afford the monthly mortgage payments with your current spending habits?
Another important factor is to know your credit score and understanding what goes into it. Taking actions to maintain and/or improve your credit score will be extremely beneficial when it comes to mortgage shopping.
Be fully prepared before putting an offer on a house. How much mortgage can you afford? Be sure you’re able to afford the mortgage that you’re pre-approved for.
It’s suggested to include monthly carrying costs (such as utilities, and cable) in your budget, instead of only looking at the mortgage payment. Heather made a great suggestion for first time home buyers – look into how much your desired mortgage payment will be, and start saving up for that amount each month.
Last but not least, be realistic with your budget. Leslie has seen many buyers stating they’ll make sacrifices such as skipping out on dinner at a restaurant. It may be possible to a certain extent, however, do not do the budget cuts in an unrealistic way (or in a way that you know won’t be aligned with your spending behaviour).
House hunting is not an easy process. There are several resources, such as financial advisors, mortgage specialists, and real estate agent(s).
It’s important to be patient, especially in heated housing markets with intense bidding wars. I recommend working with a real estate agent – to understand the property’s market value. Some homes are severely underlisted, to stir bidding wars (such as the infamous Don Mills Home that sold for $1.15 million over asking).
Unlike tenants, homeowners are financially responsible for the upkeep of the house. It’s important to have an emergency fund set aside, in case anything happens (i.e. broken kitchen sink, basement flood).
Avoid Being House Poor
One advice: don’t buy too much house. It can be hard to avoid falling in this trap, especially when you’re pre-approved for a higher amount. Buying too much house can be disastrous if interest rates were to rise and/or if you lost your job.
2 key tips for mortgage shopping: avoid excessive mortgage shopping and make sure you’re comparing apples to apples.
Doing a ‘hard credit check’ on various mortgage applications is damaging for your credit score. Step back, do your research on the best mortgage rates, and then do your application. It’s typically recommended to do no more than 2 – 3 applications. To avoid this problem, some first time homebuyers use mortgage specialists in order to one ‘master application,’ where there would be one ‘hard credit check.’
Heather mentioned to make sure you’re not comparing apples to oranges when comparing mortgage rates. In other words, if one mortgage rate is cheaper, it may be more expensive in other areas, such as more expensive penalties for prepayment.
Co-operative buyers have been an increasingly popular option – as buyers can take advantage of pooling their resources and take advantage of cash flow savings on particular items, such as property maintenance.
As Leslie stated, buying a property is like a business transaction – make sure to have everything outlined in the legal documents (especially the exit strategy). Co-operative buying is a good way to enter the market – some may buy it as an investment to build equity in order to help with their next home purchase.
Toronto Life has an interesting article on how some Toronto homebuyers are pooling resources, and buying properties through cooperative buying.
Millennial Money Meetup was a great event – the audience learnt a lot in terms of real estate, from tips for first time home buyers, to financially maintaining your home.
Jessica will be hosting another Millennial Money Meetup – make sure to pre-register for the event, before the tickets are sold out.
You May Also Be Interested In: First Time Home Buyer at the Age of 22: How I Did It
Writer: Jelani Smith
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