The reality of real estate

I did the math – and four years of paying rent for a shared apartment has added up to $22,000. That could have bought me 9,777 coffees at Tim Hortons – a coffee a day for almost 27 years!

Just like cash spent on coffee, I’ll never see that rent money again. And it brings me to the question of whether I’m throwing my money away.

As a soon-to-be university grad with, I’m contemplating the next stage of my life and wondering when it’ll be time to buy my own home.

To find out, I pay a visit to my financial adviser. He asks me a lot of questions: are you working full-time? Where do you want to live? How much debt do you have? What’s your timeline?

Time for a timeline

Somehow, a timeline makes the hypothetical more realistic. And the realistic is far more expensive than I imagined.

The “real” costs go far beyond buying the property. There are lawyer’s fees, moving costs, annual taxes, monthly utilities, mortgage payments and repairs. And then there are the knick-knacks and furniture.

Suddenly, my $22,000 in rent doesn’t seem like all that much.

My advisor tells me it’s easier to get a loan if I have a good credit rating. He explains a down payment of 20 per cent or more is ideal because a bigger down payment means creditors see me as less of a risk.

The advisor’s advice: have a stable job for at least six months before inking a property deal.

So that’s all good – but I feel like there’s more I need to know. I look up Joel Grisé, a credit counselor with K3C Credit Counselling.

Grisé agrees that having a 20 per cent down payment is nice, but it’s also very difficult to put that kind of money together fresh out of university. An average home in Ottawa retails at about $300,000, and that means saving $60,000 before unpacking the coffee pot.

More than the minumum

Grisé says when I do buy a house, I should make sure to make more than just the minimum monthly payments. Minimum payments only service the debt, in other words, pay the interest and fees – but don’t actually help erode the principle – pay off my house.

“Any debt you have, you want to start to see it come down rather than go up,” Grisé explains.

And remember those “real” costs of owning a home? Grisé recommends budgeting at least $3,500 for annual property taxes and another $60 a month for property insurance.

Other costs that often get overlooked and add up to hundreds of dollars every month include heat, hydro, Internet and water bills. With all this to consider, Grisé recommends any soon-to-be homebuyer meet with a credit counselor. It’s usually a free service.

Other good advice: start saving early, and know how much you can actually afford to borrow when the time comes.

With a rough sense of how many dollars and cents it’s going to take, I head over to Keller Williams Ottawa Realty to meet with broker Mike Hooper.

It turns out there are even more fees to consider: a homebuyer needs to pay a land transfer tax when signing for a property, along with insurance premiums to the Canada Mortgage and Housing Corporation if the down payment is less than 20 per cent … ah yes, that’s why the advisors recommended a down payment of 20 per cent or more.

Hooper says a successful home buying experience involves getting help from real estate agents, mortgage brokers, lawyers and building inspectors.

Professional help helps

“You can avoid troubles if you get the right professionals involved at the start,” Hooper says.

Those troubles include overpaying for a property or getting bad mortgage advice.

“Sometimes people are just a little too excited about the house they are getting to spend a bit of time [consulting professionals],” Hooper says.

A home inspection runs between $400 and $600, which Hooper says is “really a drop in the bucket to do some due diligence when you’re considering the biggest purchase you’ve ever made.”

Overall, budget around two per cent of the value of the property to cover closing costs.

Borrow, or save first? Hooper says that if house values are increasing faster than the cost of borrowing, take out a loan.

For now, I’m going keep renting. But perhaps someday soon when my circumstances allow, I’ll be enchanted by the chance to call my home my own.

Buying a home is a big decision – almost as big a decision as whether to kick this coffee habit to the curb before it costs me $22,000 over then next 27 years.