4 Hacks for Buying your First Property
There are so many steps to buying and owning a house, that it can seem overwhelming to even know where to start. So I have compiled a list of 4 hacks to get you started on your path to home-ownership on PEI.
Know how you are spending your money.
When it comes to owning a property, there is a chunk of money that is required to even buy a property (on top of the minimum 5% down) in addition to the money required to maintain your property. One of the biggest differences between renting and owning is that when the sink is leaking, you as the home owner have to be willing to fix it or pay someone to fix it. There is the very real possibility that you may need to fork out several thousand dollars at a moments notice if something essential stops working (like your furnace in the middle of winter.). Getting a comprehensive understanding of your spending can help you prepare for owning a home and ensuring that you have the funds saved for the eventual rainy day.
If you have read other blog posts that I have written, you will know that I am a big fan of You Need a Budget (YNAB). But that is just one solution to understanding your spending. It can be as simple as a Google sheet that you import your spending to. I remember when we made the decision that purchasing a property was in our immediate future and we wanted to start the financial step of being ready for owning a home. We were just a couple of DINKS, enjoying our late 20’s, who loved food and wine. And we spent money like a couple of dinks, in our late 20’s who loved food and wine. Finally sitting down and looking at how much money we were just putting into our mouths was a big eye-opener. And this was possible because of YNAB.
When you are thinking of saving for a new fridge, to redo the floors in an area, or knowing that the roof is going to need to be replaced in the next couple of years, starting to plan for that saving and spending cycle before you are a homeowner can make the transition easier. Plus remember all those other expenses I eluded to? Closing costs (Inspector(s), lawyer, fuel adjustment, etc), moving costs, things that you now need because you own a house and have to do the lawn and snow removal and everything else…
Saving 5% is not the only way to get a down payment.
To purchase a home, the buyer is required to put money down. The minimum amount that a buyer is required to put down is 5% of the purchase price. This means that if you are buying a $400,000 property, you have to put, at least, $20,000 down. And I don’t know about you guys, but with rising inflation, a 0% rental vacancy and actually living life, saving $20,000 can seem like an impossible task that will take YEARS. So here are 3 hacks to help you get that down payment without saving the entire thing:
PEI Down-Payment Assistance program (click here for more information):
Eligible applicants can apply to receive a conditionally interest free loan of up to five per cent of the purchase price of a home, to a maximum loan of $17,500. The loan proceeds must go toward the down payment for the home and cannot be used for financing, closing or other costs.
$17,500 is 5% of a $350,000 property - this is an important thing to note as it can be difficult to find a property in the Greater Charlottetown Area that is under $350,000.
PEI Rent-to-Own Program (click here for more information):
Finance PEI will purchase a home on behalf of an approved program Participant, who will in turn enter a 5-year Rent-to-Own Agreement with Finance PEI on the same day the home is purchased.
This is an interesting option for those that have “other” reasons that they are not qualifying for a mortgage. This program would allow you to purchase a home now and work on the “other” reasons over the next 5 years at which point you would need to qualify for a conventional mortgage. This would be a great option for those who are ready to put the work in to get their finances on track for home ownership.
Buy with a friend: If you are both able to save for the downpayment (equally) but need help qualifying for a higher mortgage amount, this can be an interesting solution. If you are considering this option, please consult a lawyer to ensure that all eventualities are thought of and planned for.
Get real about the idea of a starter property.
Trust me, we all love watching those program on Netflix and other streaming services that show us beautiful properties and we think that those homes are where we are supposed to be living. I know, for me, I had to really think about the idea of a starter home. When you move out of your parents house, that is the image of “home” that you have in your mind; it’s not the first house that your parents bought when you were 3 years old that cost $35,000. But even if they have a nice home now, chances are that is not where they started. And it’s not where you are supposed to start either.
Consider the following as great options for starting home ownership.
Condo - These are just starting to become more and more popular in the Greater Charlottetown Area and are a great option for first time buyers. There isn’t as much upkeep as you don’t have to worry about snow removal, grass cutting, roof and exterior maintenance. Downside, they do have a monthly condo fee that you have to budget for but they also tend to have lower heating costs per unit.
A property outside of the city, within a 30 minute radius can drastically reduce the price per square foot of house that you are buying.
A property that needs a bit more updating. It can have really good bones and need nothing immediately. The key word ther’re being NEED. Yes the cabinets may be original 1970’s pine, the flooring is scuffed and things don’t look pretty but this is where you can earn yourself some “sweat equity”. And it can pay off big time!
And the last hack for today is:
Rent out space in your home to a roommate.
If you could have someone paying you $1000/month to live with you, and you can do this for a couple of years, then just think what you could do with an extra $12000 per year. New Kitchen? Juj up the bathroom? Save up for a second property?
While it may not be as “fun” to have a roommate, sacrificing a bit while you are (theoretically) younger can pay off big in the long run. Just make sure you are vetting your prospective tenants.
