My dad always used to say, ‘Don't spend more than what you have in your pocket.’ Credit is important and useful, but he always taught me that you don't want to overspend because you don't want to be caught in debt that can be hard to manage.
Growing up, my close-knit family spent a lot of time teaching me how to manage my money. I’m now an advisor at Scotiabank, celebrating my two-year anniversary. This year, I’ve just purchased my first home in the Vancouver area and have learned a lot from that process.
Here’s some tips and advice that I’ve learned from my experience buying a home:
Don't underestimate the power of savings
Instead of getting gifts, toys, and video games growing up, I was given pocket money. My mom, who is a banker, would say, “Don't spend it, start saving, and then you'll thank yourself later.”
While I was studying in my post-secondary education, a lot of the other students had this misconception that you need a lot of money to start saving and investing, and that's not the case. Every small amount can help, whether you're planning for retirement or making a home purchase. What may seem like a small amount of money can compound and go a long way when you give it five to ten years. Other students were unaware that by saving just $50-$100 from every paycheque, they could start this saving strategy earlier than they thought.
This is the same advice I give to my customers, especially those starting a new job or that have just graduated. Start saving as soon as possible because you want to pay yourself first.
Sticker shock is normal
In most instances, purchasing a home is going to be a long-term commitment. You want to make sure to find something that is financially suitable for you without stressing too much or borrowing to the point where you may be sacrificing your financial security.
It can be overwhelming when you become a first-time homeowner because you may have used most or all of your savings and now feel like you don't have the financial security you once did. While it takes time to get used to your new financial situation, the most critical thing you can do at this time is to continue your savings strategy.
Just because you have a mortgage now doesn't mean that you should compromise your quality of life or give up on saving for retirement or other expenses.
Always have an emergency fund
Setting aside an emergency fund is essential. As a homeowner, unexpected things are bound to happen. Whether it’s a water leak or roof damage, you don't want to be caught in a position where you're scrambling and having to borrow additional funds in order to pay for this emergency expense.
Consider a Scotia Total Equity® Plan STEP alongside a cash emergency fund
An emergency fund is perfect for home issues such as fixing a water heater you weren't expecting to stop working, but what about the more costly issues? With a Scotia Total Equity® Plan (STEP), you can use your home equity whenever, however you need it – especially when it comes to costly home repairs.1
You can initially borrow up to 80% of your home equity.2 As you pay down your mortgage, the equity in your home continues to build, and so does your borrowing power. STEP allows you to access credit through multiple secured revolving credit solutions at low rates.
So, how I think about it is that even if I need to borrow funds for an emergency or other fund, I know I'm also paying less interest and am better off financially in the big picture of things.
It’s important for home buyers to know which financial products are available to them. Many home buyers want to go through a broker because they typically focus on getting you the lowest rate, instead of the flexibility of a borrowing solution, such as STEP. In this way, some home buyers compromise their future saving potential for a temporary lower rate. I know a couple of my customers that personally took advantage of the STEP and greatly benefitted from the secured ScotiaLine® Personal Line of Credit, which is a great example of a low-rate borrowing solution.
Meet with your financial advisor annually
During the home buying process, you may meet with your advisor many times over a short time period. However, don't let this exciting time be the only time you talk with your advisor.
I would recommend meeting with your financial advisor at least once a year because a lot can happen in a year. With everything going on in the world, there are many changes happening and every person is impacted differently. Everyone will experience different financial scenarios, both good and bad, but having a financial advisor that you know and trust can help you navigate your money and set achievable financial goals.
For me, having that regular touchbase at least once a year with my financial advisor really gave me the confidence I needed to know that my financial plan is on track. For example, once I turned 19, I started my Tax-Free Savings Account. All the money I saved growing up—all my Christmas, Chinese New Year, and birthday money went into that account. This money was originally in a savings account and now I can navigate long-term investments with the savings. Meeting with my financial advisor helped make me aware of my options so I could allow my savings time to grow.
The right advisor makes a difference
The right advisor can make a difference; it starts with a conversation. It is important for me to take the time to understand my customers and develop a relationship with trust, confidence and transparency. You want an advisor that is willing to take the time to thoroughly understand what’s happening in your life, what your current financial picture is and your future goals rather than rush you into a home purchase or other investments you may not be ready for.
1. Subject to meeting Scotiabank’s standard credit criteria, residential mortgage standards and maximum permitted loan amounts. A new application may be required to add or change products under the STEP in some circumstances and, if you request a change to the credit limits of your products, you may be asked to provide updated information and/or submit a new application. In some cases, a new mortgage registration may be required. Not all mortgage solutions may be eligible to be included as part of the STEP. Additional restrictions and conditions may apply.
2. ALL STEPs opened or refinanced on or after September 15, 2012 that have a borrowing limit ("STEP Global Limit”) greater than 65% of the home’s value at time of approval will experience changes. Beginning November 2023, your STEP Global Limit will gradually reduce to 65% over the next 25 years. This will take effective through equal monthly reductions to your STEP Global Limit.
Legal Disclaimer: This article is provided for information purposes only. It is not to be relied upon as investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. Information contained in this article, including information relating to interest rates, market conditions, tax rules, and other investment factors are subject to change without notice and The Bank of Nova Scotia is not responsible to update this information. All third party sources are believed to be accurate and reliable as of the date of publication and The Bank of Nova Scotia does not guarantee its accuracy or reliability. Readers should consult their own professional advisor for specific investment and/or tax advice tailored to their needs to ensure that individual circumstances are considered properly and action is taken based on the latest available information.