How to save for a house

How to save for a house

👋🏾 I want to start by calling out the elephant in the room. Just because your parents can't afford a house doesn't mean you should give up on your own. No matter how small your down payment may be or where you find your money, every dollar you put toward a dream home can mean the difference between feeling like you own your place and renting out part of it or staying put and paying higher rents every month. This article will break down the different types of credit cards available and how much you need each one to achieve financial independence.

Buying a house won't turn you into an overnight millionaire. But it can help increase your lifetime earnings by reducing your monthly payments and increasing the value of your investment. In addition to increasing your pay, house-buying can provide a great catalyst for saving and investing. When you take out a mortgage, your lender owns your house until it sells, even if you don't live in it. With a loan, you give the lender credit for money used to buy your house. With a 15-year fixed-rate mortgage, for instance, the lender can charge you a 25% penalty for exceeding your loan limit.

Smart budgeting decisions and always offering yourself as a roommate/loophole, you can put months (even years) of stress behind you and finally get on with the task of saving for that dream home. What I want most of all is for you to figure out how you can save. That way, your story is worthy, and there's less excuse for you not to take action.

Cut down on your expenses

The easiest way to save for a house is to eliminate small purchases that have become habitual but likely provide relatively little value to your life. House hacking is about reusing what you already have, finding deals on things no one else is looking at, and generally getting more for less. It's about recognizing that the price of convenience tends to be higher the more you use it. 

Once you identify the areas where you are spending more than you earn, reduce those outlays until they balance out. That sounds easy. It isn't. Until you try it, you will not know whether it is more effective in reducing expenses or growing your savings over time.

Saving on rent 

Renting is an option if you can't buy your place. It's not ideal for everyone, though. Many young people enter the housing market when they're still young and healthy, and there are few rules about how much you can pay per month. Once you get into a place, though, you have to live there for at least six months to a year, so there's an incentive to find extremely cheap rent. A great time to start saving money, even if you don't have a can opener in your hands. 

Who says you have to be poor to be rich?

That rent should be a factor when looking at housing. But what sort of rent can you afford? What's your budget? Are you willing to sacrifice certain luxuries to save money? Rental properties can be pretty sweet, especially if you have space, but not everyone has that luxury. (Especially if you rent in Williamsburg....) So if you find yourself dreaming about prison cells or Toddlers in Leather Shorts, it might be time to start putting together a budget for your next housing adventure.

Use cash for your daily transactions

The biggest everyday expenses are in your pocket. Your phone bill, your rent, whatever it is you have to do for work every week – these should be paid off by the end of the month. If they aren't, you should start thinking about changing that behavior. Putting off the next payment for fear of having to pay more in late fees or being late on payments, consider using a cash card for regularly scheduled purchases – things you know you can afford to purchase without thinking about using a card instead.

When most of your purchases are with cash, it's easy to get out of control. When you get a new credit card or new loan, understand that bringing forward the money for the purchase can be difficult. If you're used to saving up for your big purchases, it may be easier to get a new credit card or loan with high interest rates and fees than to pay off your old debt over time. If you throw away money, you save each month in cash, figuring that it will all come back to you one day, be careful how much and how often you use your cash.

Build an emergency fund

The biggest financial decision you will make is how much money to put aside for your future homeownership. And the truth is, there's no hard and fast rule about how much money should be set aside. But there are things to keep in mind as you look around to see what cards might best suit your needs. When it comes to the amount of money, you're going to need to save up for a down payment, the more flexible you will be in your spending habits. The harder part about homeownership is saving up for everything—including down payments and closing costs—without straining your income.

As a first-time homebuyer, creating an emergency fund is one of the most important things you can do to protect yourself during a down payment. It is a crucial investment in your future financial security. Only by having an emergency fund will you be able to afford a home when the time comes and help someone that needs help purchasing one for you. If a flood or fire causes your home to lose value or becomes worth less than your current worth, having an emergency fund will help you get through it. You may be tempted to dip into your savings, hoping that one day it will all work out and you will be able to buy your dream home. However, when things don't go as planned, and you are faced with an unaffordable alternative — whether that means staying in your present home or moving somewhere else — it is best not to take any chances.

Keep growing credit score, so it's in good shape

Your credit score is a number that represents your financial standing relative to other people. Your credit score can be very different from person to person. For instance, it could be very low if you've never borrowed money or very high if you've had a lot of credit card debt. The higher your credit score, the more likely it is that you'll be approved for a mortgage loan, car loan, student loan, or advance payment on a purchase. The lower your score, the less likely it is that any of these loans will be approved. You want your credit score to be in good enough shape that it will qualify you for the best possible terms on credit cards —otherwise known as your credit limit.

How to save for a house in a year checklist (Ontario)

If homeownership seemed too good to be true, the chances are that it probably is. But, unfortunately, even with all of the tips and advice that we have to share with young people about saving for their first home, it's nearly impossible to make a physical, on-page commitment to paying for a new house. That's why we created this handy list of 5-tips and tricks, straight from our resident experts:

  1. Get rid of your car, if you can
  2. Get a side-hustle
  3. Don't go on holiday
  4. Move in with your parents
  5. Choose high-yield, low-risk investments

5-tips when buying rental property

Before you buy:

  1. Look through your options.
  2. Work out what type of property you want and what kind of property management service you need. While the market is still volatile, some trends can help give you a good idea of what prices will be this time next year.
  3. Find the best agent with connections to your local area.
  4. Ask around for references from past clients.
  5. Make an offer on the property with cash down and ensure you have money for any renovations needed once the deal's closed.

Highly recommend things to have in place when purchasing a home

  1. Minimum down payment 

    For us, Ontario buyers, the minimum down payment for a first-time homebuyer yet again rises. The new standard is now down to 20% for condos and properties valued at less than $500,000 (this does not include land transfer taxes which are always included in the assessed value). It is worth noting that the federal government is currently reviewing its policy on student loans and properties for which interest rates are set to be implemented as of July 1, 2021. If this interests you, it is advised that you speak with a financial advisor about your needs and future goals.

  2. Assemble a team

     of professionals who will help you pick the best real estate of any size for you. When you're ready to buy, send them an offer (email or text) asking for their opinion. Don't just rely on their first-hand experience. Prove that you've gone through every aspect of the process yourself by including references from professionals who've worked on similar properties before.

  3. Research the area you're considering

     Before you start looking, though, you need to do some research on the area. Wherever you're going to live, you want something where there are already people who live there and are willing to sell their homes to you at higher prices than you could find elsewhere. This is called bidding wars, and it's an old-fashioned method of buying real estate that still works in lots of parts of the country. You can also try networking with homeowners who have already sold their homes to someone else or meeting up with current tenants at local condo conversions going on now. Most importantly, though, find a place with high vacancy rates and low buyer demand (people who want to move there are already looking).

  4. Choose an appropriate mortgage

     Mortgage services can sometimes seem overwhelming. With so many choices available, how do you choose the best mortgage? Your MD Advisor and Scotiabank mortgage specialist will help you find the right mortgage solution to fit your financial needs. The key factor in making a good choice is knowing how much you can save over the life of your mortgage. Learn more about what factors determine the best mortgages available today and how you can take advantage of them!

  5. Don't forget about insurance 

    There are many different types and companies of rental insurance. Before you purchase, it's important to know what's covered and what isn't. For example, some renters have homeowner's insurance that pays to replace anything that's damaged beyond normal wear and tear. However, this type of coverage may not pay for damage caused by an earthquake or hurricane. Obtain the appropriate rental insurance policy for your needs. Insurance can protect against both large and small losses — however, large losses may require separate coverage.

  6. Consider hiring a property manager

     Not everyone has the time to respond to tenants and deal with repairs — especially emergencies. While the cost of hiring a property manager — usually 8%-10% of your rent revenue — will cut into your monthly income, it will also reduce your stress level. When you have someone on-site 24/7, you're less inclined to pay big bucks to repair things that should be fixed anyway. Hiring a professional will also help conserve money you would have spent on repairs had you been in your own home repairing things on your own.

  7. Educate yourself on landlord-tenant laws

     It is your responsibility to familiarize yourself with all laws related to housing. Landlords and tenants have the same basic rights when it comes to their properties. These include things like how much rent you can pay, what responsibilities fall on the renter if there's an issue, and what responsibilities fall on the landlord if the property fails to be paid for. If there's a lease as part of your lease agreement, it will be up to you to read and understand it. Some states have laws specifically dealing with tenants. It would help if you familiarized yourself with those laws before renting out a property.

Conclusion

If you want to buy a house as an investor, there are a few things you should consider:

  1. Make sure you have enough money saved up to pay for the down payment.
  2. Know what type of house you want. If it's a starter home, you may need more cash than if you wanted a big house with an expansive yard.
  3. Ensure you know which type of property is right for you based on your finances, lifestyle needs, and budget.

So why not focus on the step listed above, your instincts, and what works best for you? I recommend using Wealthsimple Trade as your foundation to build the portfolio that best suits your financial goals for your first home!

LET'S GET SH*T DONE, TOGETHER!

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