Family Formation & Housing

For young couples starting families, buying their first home and/or other real estate. Covers mortgages, credit cards, interest rates, children’s education savings plans, joint accounts for couples and the like.

Thinking of buying a home in the U.S.? Here are 5 tips to help you on your journey

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Image RBC/www.pexels.com

By Alain Forget, Head of Sales and Business Development, RBC Bank

(Sponsor content)

When it comes to the ins and outs of purchasing a property in the U.S., the process may seem complex at first. While there are some differences from how you buy a home in Canada, such as the mortgage process, taxes and insurance requirements, with the right partner and preparation, purchasing your dream home south of the border may be easier than you think.

Whether you are just starting to dream about owning a home in the U.S. or you are ready to make a purchase, here are five things to consider to help you on your journey.

1) Choose where to buy

If you’ve been heading south for years to vacation in the U.S. you may already know where you want to buy. If not, it’s important to consider why you are purchasing a property and what’s important to you in terms of location. While warm weather may be at the top of your list, you’ll also want to think about what type of activities you want to be close to. For example, do you want to be within walking distance of restaurants, shopping and entertainment or do you envision yourself outdoors, either on a golf course or walking down a beach? If you need more time to think about where you want to buy, it might be helpful to rent first. By renting, you’ll be able to test out different areas and figure out where you’d like to call home.

2) Understand the dollars and cents of buying in the U.S.

While there are a lot of similarities when buying a home in the U.S., there are some key differences that could impact your budget and what you can afford. For example:

    • Exchange Rate – While you need to account for some level of currency exchange when buying a property in the U.S., it might not have as much of an impact as you might think. Homes in many markets in the U.S. tend to be more affordable than in Canada which means your budget can go farther even after the exchange.
    • Taxes and Insurance – It’s important to factor in the ongoing costs of owning a U.S. property into your purchase decision. For example, while you will usually pay lower taxes in the U.S. than in Canada, you may need different – and potentially more expensive – insurance to protect your investment.
    • Down Payment – In the U.S. a down payment is typically 20% if you plan to spend time in the home and 25% if it is an investment property you don’t plan to live in.
    • Closing Costs and Timelines – While closing costs in Canada are typically about 2.5% of the purchasing price, in the U.S. it can range from 1% to 5%. It’s also worth noting the extra time it takes to process a U.S. mortgage. In Canada, while mortgages can process in 5-10 days; in the U.S., it can take 30-45 days.

3) Consider the benefits of financing your purchase

Paying cash isn’t the only option when buying a U.S. property and financing your purchase may be the way to go. Whether you’re buying a home to enjoy or making an investment, you can save thousands in upfront costs just by financing with a U.S. mortgage. When you finance versus paying all cash, your initial costs are limited to a down payment and closing costs. This preserves your Canadian equity and assets and saves you thousands of dollars in one-time, upfront foreign exchange costs. In addition, U.S. mortgages are always open so you have the flexibility to repay your mortgage at any time without penalty, like when the Canadian dollar is stronger. Continue Reading…

How Millennials have shifted Homeownership Trends

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By Beau Peters

Special to the Financial Independence Hub

Many millennials prioritize homeownership. And today’s real estate market presents myriad opportunities for millennials to make their homeownership dream come true.

Research indicates U.S. home sales rose 7% month over month in September 2021. Meanwhile, the total housing inventory fell 0.8% month over month. In addition, the median existing price for homes totalled US$352,800, which represented a 13.3% year-over-year increase.

The aforementioned data highlight the rising demand for U.S. homes in 2021. They also illustrate home prices are increasing, which is making it difficult for millennials to pursue their homeownership dream.

At least one study shows some North Americans under the age of 40 have given up on their dream of homeownership. However, it is not too late for millennials to update their homeownership goals. With a clear understanding of home buying trends, millennials can fine-tune their approach to the real estate market. From here, millennials can work diligently to make their homeownership dream a reality.

Now, let’s look at four notable home buying trends and what they mean for millennials.

1.) Most Millennials are pursuing a Home for the first time

Most millennial homebuyers are entering the real estate market for the first time. As such, they may rely heavily on a real estate agent who can help them find a residence that matches their expectations.

When it comes to partnering with a real estate agent, millennials should choose carefully. It helps to select an agent who has extensive real estate industry experience and expertise and knows the ins and outs of the local housing sector. Plus, this agent should have no trouble negotiating on behalf of a millennial homebuyer.

Of course, it pays to work with a real estate agent who values communication. This agent can respond to a millennial homebuyer’s concerns and questions at any point during their quest to acquire their dream home. That way, the agent can help a buyer make an informed home purchase.

2.) Millennials are open to buying “Fixer-Upper” homes

“Fixer-upper” homes tend to be more affordable than other properties. Thus, they frequently generate significant interest among millennial homebuyers.

For millennials who pursue fixer-uppers, buyers beware. There are many reasons why fixer-upper homes are available, so it pays to conduct comprehensive research before purchasing one of these houses. This ensures a millennial home buyer can weigh the pros and cons of a fixer-upper and decide if it is worth investing their time, energy, and resources to upgrade the home.

If a millennial home buyer moves forward with buying a fixer-upper home, purchase the right tools for house improvements. For instance, waterproof wood glue, wall spackle, and other home improvement tools make it simple for a buyer to upgrade a residence without breaking their budget. These tools are generally easy to use and won’t require a buyer to hire a home improvement professional to upgrade their house, either.

3.) Millennials want to limit their Carbon Footprint

Research shows most millennials feel personally responsible for having a positive impact on the environment. As part of this responsibility, many millennials are committed to owning and maintaining sustainable houses.

There is no shortage of opportunities available to millennials who want to buy a house and minimize their carbon footprint. For instance, millennials can compost at home. They can set up home compost piles where fruits, vegetables, and other food products can decompose. Continue Reading…

6 investment tips for Millennials

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Source: Unsplash (Edited on Canva)

By Hari Subramanian

Special to the Financial Independence Hub

From the ‘safety-first’ attitude of baby boomers to the ‘putting themselves out there’ nature of Gen Z, generational cohorts offer great insights into the evolution of the human psyche based on different experiences.  

Millennials are not exactly what you call ‘risk takers’ but are more open towards new opportunities, compared to previous generations. This characteristic of millennials can be seen in the way they invest their money: they are willing to move away from fixed deposits and RRSPs that the boomers swore by and are looking to invest in stocks, cryptocurrency, and other financial avenues. 

Why should Millennials invest?

While more and more millennials are dabbling into investing in different portfolios, almost 50% of the cohort is still waiting to invest until they earn more money. This data contradicts the popular belief that the best time to invest is yesterday, and those who wait are losing precious time to grow their money. 

If you are one of those who procrastinate about investing money for later or think you need a 6-digit income to substantially boost your financial growth, you couldn’t be more wrong. Start your investment journey as early as you can as your returns compound  with time, and you’ll learn the tricks of the trade to become a more component investor in the future. And, you can start investing with just a handful of dollars.   

Investment Tips for 2022

If you are a millennial just beginning to build your investment portfolio or a seasoned millennial investor, these 6 financial tips will help you stand in good stead for 2022:    

Robo Advisors to the rescue

Trading in stocks requires constant scrutiny of rising and falling stock prices and earnings, and a good understanding of how the stock market functions. In the recent phenomenon of a surge in GameStop shares created by a group of Reddit investors, many retail investors and short-selling hedge funds that were betting for the company to fail lost billions of dollars. 

While it is only human to jump on the bandwagon of a stock market frenzy in an attempt to earn substantial profits, it entails high risks and can cause a lot of damage to your finances.   

If you are new to the stock investment game or don’t have enough time to monitor the peaks and troughs of the stock market, then you should explore robo advisors to help you achieve your financial goals with minimal risks. 

For the uninitiated, robo advisors are digital portals that control and optimize your investment portfolios through the use of algorithms and data-driven strategies. Robo advisors are very easy to use, as they automate your investments based on your investment budget and long-term financial goals. 

They also are pretty inexpensive with an affordable minimal balance to open investment accounts for investors from all walks of life. With minimal human supervision, a robo advisor can adjust your investments automatically based on market fluctuations while focussing on your monetary goals. Thus, if you wish for steady growth of your investments without any undue risk, you can explore the web to find the right robo advisor for you.  

ESG Investments can make you a better investor

Source: Pixabay

As more and more millennials are standing up for environmental, social, and socio-political causes, it is time for their investments to reflect their thought process. ESG investments are defined as investments based on non-financial factors such as environmental, social, and governance impact of a company on society.

In ESG investments, millennials pour in money on the company stocks they believe will make a difference to the world they live in. Through ESGs, millennials extend their support to companies whose beliefs align with theirs and hope that it creates a sustainable future for their children. 

ESG investments also provide a great learning curve for investors. Since personal beliefs, values, and socio-environmental impact are involved, you as an investor tend to go the extra mile to learn everything about the company including its financial health and revenue model instead of just blindly buying stocks that are on the rise.

ESGs can help you understand how and why a company’s stock performs in a certain way and can teach you a lesson in becoming better investors.      

Ditch individual Stock Picking

Before we delve into why stock picking is not a good investment option, it is imperative to understand what stock picking is. Based on market research and analysis, stock picking is a strategy to find the stocks that are most likely to deliver favourable investment returns.  Continue Reading…

Collateral vs Conventional Mortgages

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By Sean Cooper

Special to the Financial Independence Hub 

Collateral and conventional mortgages may sound similar, but they’re actually two separate and distinct things. In this article we’ll look at the difference between the two.

What is a Conventional Mortgage?

A conventional mortgage is the mortgage type most Canadians are familiar with. When you make at least a 20% down payment on a property, you can take out a conventional mortgage. This differs from an insured mortgage, where you can put down as little as 5% on a home.

With a conventional mortgage, the lender will let you borrow up to 80% of the property’s value. The property value is the lesser of the purchase price or the appraised value. Usually the purchase price and appraised value are the same, but sometimes they differ.

If the home is appraised higher than the purchase price, that’s a good thing. That means that you’re getting a good deal on the home. However, if the home is appraised at less than the purchase price, you’ll need to make up the difference if you still want to put at least 20% down.

With conventional mortgages, you get to choose the length of the mortgage. The most popular lengths or amortization periods are 25 and 30 years. If you’re looking for the lowest mortgage rate, a 25 year amortization usually offers that. However, if you’re looking for lower mortgage payments, the 30 year amortization is the best option.

What is a Collateral Mortgage?

Not to be confused with a conventional mortgage, a collateral mortgage is a lot like a conventional mortgage, but with a key difference. Unlike a conventional mortgage, a collateral mortgage re-advances. This means that a mortgage lender is able to loan out more funds as the value of the property goes up, without needing to refinance your mortgage. Continue Reading…

Retired Money: What is the Rule of 30?

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ECW Press

My latest MoneySense Retired Money column reviews actuary Fred Vettese’s new retirement book: The Rule of 30 (ECW Press).

You can find the full column by clicking on the highlighted headline here: What’s the Rule of 30? And what does it have to do with Income and Retirement?

Never heard of the Rule of 30? Neither had I, nor Fred himself until he invented it.

In a nutshell, it’s a rule of thumb financial planners can use to guestimate how much young couples starting off on their financial journeys need to save for Retirement. Rather than flatly state something like save 10 or 12 or 15% of your gross (pre tax) income each and every year, the Rule of 30 sees retirement saving as occurring in tandem to Daycare and Mortgage Repayment.

From the get go Vettese suggests young couples allocate 30% of their gross or after-tax income to the three expenses of Retirement saving, Daycare and Mortgage paydown. However, in the early years they may save less in order to handle Daycare and the mortgage. Since daycare expenses usually fall away after a few years (depending on how many children a couple has), once it has gone you can ramp up the mortgage paydown and/or retirement savings. And if – ideally five years before retirement – the home mortgage is paid off, then couples can kick their retirement saving into overdrive by allocating a full 30% or more solely to building their nest egg.

Wealthy Barber style fictional format

In a departure from his previous books — Retirement Income for Life and The Essential Retirement Guide among them — The Rule of 30 uses the tried-and-true quasi-fictional “story” pioneered by David Chilton’s The Wealthy Barber. That road has been ploughed by many subsequent financial authors, including Yours Truly in Findependence Day. 

As Vettese told me in an interview mentioned in the column, he didn’t plan it that way initially. “I did a first chapter using that format and then realized it’s a lot easier to write this way and it’s not as dry: it’s somewhat easier to read and to write. When you get a problem, a character chimes in.”

The main characters are a couple, X and Y, and — conveniently — the neighbour next door who happens to be an actuary with time on his hands.

No doubt it would have worked either way, but Vettese’s dialogs are readable enough and he even works in a minor subplot involving the actuary and his estranged daughter.

One of the people acknowledged by Vettese at the back of the book is fellow actuary and retiree Malcolm Hamilton. In an email, Hamilton said “I have always believed that middle class Canadians who marry, buy a house and have children cannot reasonably expect to save much for retirement until after the age of 45,” Hamilton told me via email, “There just isn’t enough income to cover mortgage payments, the cost of raising children and Canada’s heavy tax burden (with child care expenses and mortgage payments generally non deductible for those with incomes that suggest they need to save.”

All in all, a useful rule of thumb for young couples setting out on family formation, home ownership and ultimately Retirement. Note that Vettese says that once you are within five years of your hoped-for Retirement age, you should strive to be mortgage free. And around 55, you should move from the Rule of 30 to using a Retirement calculator like the free one Vettese developed for Morneau Shepell: PERC, or the Personal Enhanced Retirement Calculator.

PS: I am now Investing Editor at Large for MoneySense

Alert readers who got to the bottom of the column and read the author blurb will see a slight change in my status at MoneySense. In addition to writing the monthly Retired Money column I am now also the Investing Editor at Large for the site, a fact that’s also divulged in my Twitter profile.  I will continue to publish Hub blogs every business day: so much for Retirement!