What you should know before buying your first home
A few months ago, I found myself doing something I thought I would never do as a twentysomething in Toronto: I bought a home.
I was standing in a mall parking lot when my realtor called to tell me that the bid I’d made on a condo just one hour before had been accepted. I remember thinking, “What have I done?”
As my real estate agent started to explain next steps, I looked up and saw a department store logo outside the mall. Instead of asking the unanswerable (“Is this the right choice?”), I blurted out that I’d spent longer comparison-shopping shoes than I had making the biggest purchase decision of my life. Realistically, that wasn’t true, but it certainly felt like things were moving fast.
I started to panic.
I was surprised by my reaction because, as a financial journalist, I thought I was more prepared than the average homebuyer. I had been tracking my investment portfolio, the housing market and the economy obsessively, and I had written step-by-step articles about taxes for first-time homebuyers. I had even combed through financial literacy websites and tried mortgage calculators for fun. And I had a financial advisor.
So I thought I was above making behavioural investment mistakes. I was wrong.
Here’s everything your advisor should inform and warn you about if you’re buying a home for the first time.
Forgetting the basics
To achieve this, my advisor recommended withdrawing money from my registered accounts immediately, as the process would take a few days. I’m glad she did, because a few weeks after I bought my condo, a friend had to scramble when she couldn’t come up with her own condo deposit because the cash was in registered accounts – her advisor hadn’t warned her of the lag.
At this point I made a classic emotional investing mistake. I asked my advisor to take my deposit from a Canadian income fund that hadn’t fully recovered from the oil correction. She patiently explained why it’s unwise to sell investments at a loss – and I still cringe at myself in that moment.
The lesson for you? A good advisor will know you’re anxious and won’t mind explaining things to you. So don’t be afraid to check any assumptions and get feedback on your requests.
I could have done an exhaustive search for the best lawyer, real estate agent and mortgage broker. Instead, I craved security and familiarity, so I used my family’s referrals.
This was a missed opportunity for my advisor.
If she’d sent me a shortlist of professionals, I would have used her recommendations. For an advisor, the goal doesn’t have to – and shouldn’t be – earning a referral fee. Instead, the benefit for an advisor should be establishing a relationship with you and the other financial professionals you’re working throughout the buying process. Advisors aren’t required to tell you about referral fees they receive for non-registerable services but, as a client, you’ll likely want to know about such fees.
In the days after my offer was accepted, I was busy signing paperwork, completing mortgage forms, collecting documents and running to the bank for drafts. During that period, I turned to my mortgage broker, who sent me a list of all the documents I needed to gather.
To simplify your to-do list, I suggest asking your advisor or mortgage specialist and realtor to send you a list of all the documents you’ll need to collect, sign and send back.
I’ve paused my investment plan for a few months while I see how mortgage payments, condo fees and utility bills impact my budget. If you’d like help deciding whether or not you should keep investing after buying a home, ask your advisor to run through your costs and devise a budget for you, with an updated savings rate. That budget should take into account the question I’m now grappling with: how do I balance saving for retirement with paying off my mortgage?
The wrong approach for an advisor would be to pressure you to jump back into investing without helping you establish new goals. A first-time homebuyer goes through a financial coming of age. So even if you’re a confident investor and are financially lierate, be prepared for the stress that comes with buying a home.
Also remember that your advisor should be demonstrating why she values your business – and why you should value him or her – during the buying process. This can include calling to check in with you, offering continuous advice and support beyond just how to withdraw your deposit, and helping you plan for your financial future. If this happens you’ll end up with not only a new home but also a lifelong partner for your financial plan.
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