Dear David,
I finished university a while ago, and landed a job in my field. I still live at home, and fortunately, have no student debt. I’ve been saving vigorously to buy a home, and think I have enough for the five percent minimum down payment. My parents have offered to either help me with my down payment now, or share funds later when they downsize their house. Which is the best way to go? Should I take the help now, or try to do this on my own? – BREAKING IN TO THE MARKET
DEAR BREAKING: Today’s first-time buyers face much different challenges than they did a decade ago before local property values started to skyrocket. Ten years back, the average local sale price in our region was about $350 thousand. That figure has more than doubled today, although wages have not risen anywhere near as fast. Prior to the boom, many couples new to the market set their sights on a resale three-bedroom townhouse with a garage, which was more than achievable at the time. Couples in a similar position these days may instead start out looking at two-bedroom apartment-style condos.
Everyone needs to live somewhere, and getting into the real estate market sooner rather than later has historically proven to be one of the best long-term investments available. At this point it sounds like you’ve created an ideal scenario: you’re living at home, have landed a good job, are debt-free and committed to saving. As admirable as it is to want to make your own way in the world, you may do even better if you take the help that’s offered.
A generation ago, many young couples could graduate from high school or university, work for a few years, and save enough to afford to buy a home. Today’s housing prices are in a different hemisphere, which means kids are staying home longer and parents are reconsidering how to launch them into the world.
In my view, parents are here to help their children. If a parent or grandparent wants to leave a nest egg for a young adult, I encourage them to consider doing it early if financially feasible. If help from your family can boost your down payment from five percent to 20 percent, you will save almost $23 thousand in insurance premiums on a $600 thousand mortgage. Additionally, if you can move into a superior property you won’t grow out of as quickly, you can avoid another move in the next few years and build your equity even faster.
PRO TIP: Nest eggs are often distributed at the reading of a will, but legacy gifts may have more impact if you share them sooner rather than later. As a first-time buyer, purchasing at a higher price point (rather than renting) will help you build greater equity moving forward. When you do the math, you’ll find your parents’ contribution can be much more productive now due to the power of appreciation. In all likelihood, your mom and dad have had personal experience building net worth by investing in real estate. #Advice #AskDavid #TheNegotiator
David is a top-selling Broker in Kitchener-Waterloo Region. He works personally with you when selling or buying your home. Moving? Get it right. Ask David today! Call or text 519-577-1212.
