Buying a home will likely be the largest investment that an individual will ever make. When two people join together in matrimony, or opt to live together in a common-law relationship, purchasing a home takes on added dimensions. Because of the long-term nature of the investment, the purchase decision brings some other factors into the equation, such as location and the potential value of the home as an investment, as well as financing options.
An old adage says that the three most important things to consider when buying real estate are: location, location and location. This takes on many meanings when a couple is buying their home, especially their first home. One of the individuals may be accustomed to living near downtown while the other person is used to suburban or rural living. For couples with children or planning to have children, some of the issues that come to mind in making a purchase are the quality of the schools in the immediate vicinity, the proximity of parks and other recreational areas, such as bike paths, the availability of organized recreational and sporting activities and the proximity to public transit.
Location can also be thought in terms of the area’s future potential, which will be an important factor in determining the property’s value over time and whether the property will be a profitable investment in the next 20-30 years. In Toronto and Montreal, for instance, older neighborhoods with houses that are 60 years or older are considered trendy now, with the proliferation of restaurants, cafés, grocery stores and specialty shops. However, the increased traffic volume in these neighborhoods may pose a risk to children playing nearby. To say nothing on the renovation costs!
Once the decision is made where to buy, the next question is how will it be financed? Given the fact that some young couples will be stretched with making mortgage payments, they might decide to manage with one car. Discuss the available payment options with the lending institution. Increasing the frequency and taking advantage of lump-sum payments can cut years off the time it takes to pay for the property. What is the credit history of the couple? Does one have a stellar credit record while the other one has a spotty credit history? How much should be borrowed? What is the couple’s capacity to take on debt? Should they go fixed or variable? One source of funds is one’s RRSP, made available through the Home Buyers’ Plan. This plan allows both individuals to withdraw, tax-free, up to $25,000 each, for the purchase of a home. There are certain conditions that apply, such as the requirement to repay the funds withdrawn over a period not exceeding 15 years. If an individual has an investment portfolio, should it be sold to purchase the house, thus reducing the amount to be financed? If so, then perhaps one could borrow to invest and thus convert non-deductible interest to deductible interest.
These issues can be addressed by looking at the couple’s overall financial situation including their goals and objectives and cash flow. Certainly, the look and feel of one’s home will be top of mind before purchasing. By also thinking about location in terms of school, work and recreation, the financing options available and the long-term potential in terms of resale value, there is a higher likelihood that the purchase will meet the needs of all members of the family… which of course, is most important!
