The four Ds to buying your first home

An old wooden house in Dalarna, SwedenBy Sheila O’Hearn, Zoocasa

Special to the Financial Independence Hub

 “If a monkey can be taught to salt away money by sticking it in a sock, so can we.”

That’s what my partner and I told each other the day we decided to start saving for a home. Real estate can be tough, so we started our plan early. In some ways, it was madness. We still had to pay monthly rent and a first baby was on the way. It meant cutting back on activities we enjoyed, little extras and big extras.

But what we had going for us were the four D’s: the dream, the drive, the discipline, and a deadline.

Eventually we hit our target and moved to a small town where houses still cost less than they do in a city. Ours was a modest, century-old farmhouse that would require work, just right for my partner’s creative outlet. It was a cozy fit for our two additional children, but it was home and has been for 28 years.

How a person or couple saves for their first home is not a question of doing it one way, but of having knowledge of the options to make informed choices and a solid plan.

The dream

A good place to start is to know your credit rating, which is a record of your credit history and current financial position. A good credit rating improves your ability to receive loans, so before applying for a mortgage, work on paying off credit-card debt to better your score. Using cash for most daily purchases spares you from paying unnecessary interest.

The drive

Set up a savings account just for your down payment and watch it grow! Not all savings accounts are created equally, so hunt for a no- or low-fee account with the best interest rates, or talk to your banker about creating an investment account that’s right for you. Compare financial institutions to learn if they offer a mortgage program for first-time buyers.

The discipline

Keep asking yourself: Can I live without that? Consider a less prestigious apartment or location, or simply downsize. Remember: You’re investing in a bigger picture!

If you pay utilities separately, use low-energy light-bulbs; turn devices and electronics off when not in use; seek cost-saving alternatives to cable or phone use. Share one car instead of two separate vehicles to see major savings or, if feasible, ditch your one car altogether. The more you trim, the more you can put toward your down payment.

The deadline

It’s good to have goals and deadlines are motivating, but hold off on jumping into the market until you’ve thoroughly researched down payment options and choices. Here are a few examples:

  • If you save for longer, you’ll save money in the long run. A higher down payment reduces thousands of dollars in interest over the life of your mortgage.
  • Pay weekly or bi-weekly instead of monthly to save on interest. Paying off your mortgage sooner frees you from interest costs, while a longer amortization period means more accessible cash-flow. Increasing your payments, even a little, also shaves off thousands of dollars in interest fees.

Additional costs

My partner and I were stressed, having failed to factor in a few important costs. We should have saved 1.5% to 2.5% more to cover extra expenses, including:

  • moving costs and legal fees
  • closing and home inspection costs
  • land transfer and property taxes
  • property/title insurance and utility hookups.

There are lists of sample closing costs you can check out, for both US homes and Canadian homes.

A cautionary tale

Back when, we could opt for a home inspection with attached fees, whereas many regions demand it now. We decided upon skipping the inspection to save a buck; we also discovered, after move-in, that the house was not insulated, the plumbing pipes were old or corroded, the electricity was sub-standard, there was no heating in the master bedroom, and a leaky skylight in another. A plethora of pests to top it off had me fleeing from the house on many occasions, in addition to making desperate calls to tradespeople for exorbitant upgrades.

Nevertheless, while you might opt for a newer home with less problems, save a little more for the unexpected, and ask questions about your prospective house from top to bottom. These early questions and preparation will save you headaches, both financial and otherwise, down the line.

Sheila O’Hearn is a freelance and creative writer, and has worn many hats throughout her career, from general staff reporter to magazine editor. She has a keen interest in business entrepreneurship and currently writes for several outlets. Check out her LinkedIn for more info.

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