So I’ve been driving back and forth on my commute to work and noticed a lot of for sale signs on lawns all over my city. It’s a reminder that we are at peak home selling season and Canadians all over the country have real estate fever.
All those signs, harken me back to the first house Mrs. Prairie Fire and I bought together. We were just engaged and on the hunt for the right place to call home. The whole experience was intense and intimidating. We both had owned our own homes before we met, but past experience did not seem to lessen the intensity nor the intimidation.
Buying A Home Can Suck the Life out of You
The home buying experience for me was super intimidating and stressful. There was so much that we had to do and figure out on our own: establishing our first budget, getting pre-approved for financing, deciding on the type of home we wanted, touring homes, making an offer, getting rejected from that offer, making another offer and losing out to a higher bidder. We finally found a home we both liked that was a good location. We made an offer and it was accepted. Stick a fork in me, I’m done!
5 Things I Would Have Done Differently Before Buying a Home
Looking back at the whole experience, I really wish I had connected with the FI/RE community before jumping into home ownership. I was quite naive and didn’t have a strong grasp of the implications of making the biggest purchase of my life. If I knew what I know now back then, I would have done a lot of things differently.
I cannot change the past, but perhaps by sharing with you some of my missteps you can avoid making the same mistakes. Below are 5 things I would have done differently before buying a home:
1. Buy A Home That You Can Afford on One Income
When Mr.s Prairie FIRE and I jumped into home ownership together, it was always assumed both of us would be working. At the time it was true. I had a nice gig working at a non-profit and my wife was just starting her small business doing home organizing and back yard landscape design. But things changed quickly. Less than a year after we bought, we were expecting our first child. We decided Mrs. Prairie FIRE would provide care for the kids and I would continue working. Just like that we were a one income family.
If you are on the path to financial independence buying a home you can afford on one income is a key strategy to reach your financial goals. There are two reasons for this:
- Flexibility: Being able to afford a home on one income gives you flexibility. For example if you decide to have children and have one person stay home, or one person gets laid off work, or there is a family health emergency, it won’t really impact your ability to keep up with housing costs. You can continue to pay for the essentials until you are able to secure a second income for your family.
- Accelerating Your Investment Savings: Using one income to cover all your essentials (such as housing, food, utilities, etc.) gives your household the ability to contribute more money toward your asset collection business AKA investment savings.
2. Pay Off All Your Debts First
Luckily for us we did not have very much debt other than my wife’s student loans and some credit card debt. Nonetheless, it took a decent chunk of our income to pay it off (approximately $800/month). Combining the debt with our housing costs really didn’t leave much at the end of the month for investment savings.
If I was to do it again, I would have aggressively paid off our debt as quickly as possible. By doing this we would have undoubtedly improved our credit score and put us in a power position to get a better interest rates.
3. Think About All Housing Costs
When it comes to housing costs, there is a lot of emphasis on the monthly mortgage payment. The thing is that there are a number of other one time and long-term costs to keep in mind. For example moving costs, lawyer fees, land transfer fees, realtor fees, taxes, insurance, repairs and maintenance, utilities, etc. You need to look at the full costs of homeownership. It starts to build up over time. You need to be able to cash flow all of these items. Looking back, I really should have taken into account all the costs. Some of the one-time costs caught us off guard and added to our debt burdens.
4. Be Ready to Commit for at Least 5 Years
Investing in your home is a long-term commitment. As newly weds, our lives were just starting and not exactly stable. Over 5 years our family continued to grow and we were itching to upgrade to a larger home (AKA lifestyle inflation). We ended moving into a new home and selling our house at a loss. The lesson we learned from this experience is that our lives were not stable enough to gain any advantage of owning a home.
If you are thinking of buying a home, you will need to to commit to staying in your home for at least 5 years. There are two reasons for this: (1) Building your equity by paying off your mortgage; (2) Giving some time for appreciation to kick in. Both of these factors need time for this to happen. If you sell your home in less than 5 years, you could end up not benefiting from either equity build up or appreciation because of the transaction fees (e.g. realty fees, moving costs, etc.) associated with the sale of your home.
5. House Hacking
The one biggest regret in our home buying experience was the fact we did not consider using the house hacking strategy for our first home. A part of me really wishes we looked more closely at house hacking as a way to build our wealth. House hacking can come in a variety of forms, but the main principle behind house hacking is renting out part of your primary residence to cover some or all of your housing costs. For example you could purchase a duplex, live on one side and rent out the other. There are a variety of methods to house hacking and in the video below you can see some interesting examples of house hacking:
For the Prairie FIRE Family it all worked out in the end, despite some bumps along the way. We learned the hard way about what to do and not do when it came to buying a home. Hopefully you can use some of my tips to help you in your journey to home ownership.
All the best my friend,