Abstract

This piece has arisen out of a qualitative interview conducted with Patricia Forbes, a practising real estate agent in Toronto, in order to explore the ongoing misconceptions in first-time home buyers regarding finances. The focus will be on identifying mistakes and giving advice in the light of experience with a similar category of client to the writer in terms of age and related issues.

Introduction

Having a mother in the real estate sector influences the discussion of housing and finance, and this is where the author has heard many first-time buyer stories that include success, struggles, and the odd decision that doesn’t make sense financially. For the purpose of this investigation, the author conducted an interview with her mother, a real estate practitioner in Toronto. The overriding question in this investigation is: "First-time buyers misunderstand the following financial elements:"

Rationale

The person interviewed has experience working with clients much the same age and in the same circumstances as the author and his peers, who rent, finance their education through student loans and/or OSAP, supplement their income, and wonder if homeownership is feasible.

1. The critical misalignment: focus on ill-equipped number targets

“As a rule, clients focus their attention on the interest rate while ignoring the payment and the cost of ownership,” according to the source. The order of events that has been noted to occur in a typical case is:

- Setting a price range based on peer purchase decisions

- Securing pre-approval and treating the number as a maximum cost limit

- The failure to test stresses related to rate variability and income variability

Core question restated: The question to be asked instead of “What can I be qualified for?” is “What payment can I make each month that will not cause ongoing resentment of the mortgage?”

Implications For Generation Z:

- Build a simple budget each month to include:

- Mortgage payment

- Property tax

- Condominium Fees/Maintenance Fees (if applicable)

- Utilities & internet

- Insurance

- Personal budget based on life realities (food, transportation, entertainment, and emergency funds)

- If the total balance is a source of discomfort, then the ownership structure might be unadvisable financially, regardless of the lenders’ approval for the loan.

2. The triad of common rookie mistakes

The interviewee listed the three most frequent financial mistakes made by first-time buyers in their 20s and early 30s.

2.1: Falling in love before pre- approval 

Prospective purchasers view homes, form an emotional connection, and then face the constraints of securing funds to purchase a home. Obtaining pre-approval is more than an administrative process and encompasses the following:

- Build a real budget

- Improves the competitiveness of the offer

- Requires pre-emptive organization of credit and documentation

2.2.  Ignorings Costs

The second frequent mistake is the failure to consider closing costs. "Buyers put together a down payment and find that there is a large gap to make up for closing costs, such as attorneys' fees and transfer taxes."

Tips for first-time purchasers: Set aside approximately 3% to 4% of the purchase price for closing costs, depending on the province and rebates that apply. The importance of preserving available reserves for the client is emphasized by the fact that “it is always better for a client to delay a purchase than to draw upon the last remaining financial reserves available to them,” because “living in a house with no emergency funds is financially precarious.”

2.3. Day Two Costs

Lastly, the so-called “day two” problem is examined:

“You do not move into the MLS photos,” she said laughingly. “You move into a real house, possibly needing painting, furniture, window treatment, and perhaps new appliances. Those are real costs.”

"One thing she recommends doing before making a purchase is a "pre-purchase assessment": in the space you are in, you make a list of things that you know you will need to replace in a new house and put a price tag on each."

3. Recommendations to Gen Z before arranging a showing

Late in the interview, I asked what she would like people in my demographic to accomplish six to twelve months before a purchase decision is made. She gave a three-step homework assignment:

- Get a copy of one’s credit score and correct any discrepancies. “Do not wait for the bank to discover an old phone bill in collections,” she said.

- Regular and stable savings pattern: This involves predictability instead of irregular cash outflows. “I would like to see the $500 per month deposited into a ’future home fund’ instead of nothing for the first three months and a surprise $2,000 payment afterwards.”

- Track the total expenditures incurred per month for a period of 90 days.

"A knowledgeable real estate practitioner might offer options," she said, "though only the client has a clear sense of the level of compromise they are prepared to make in order to accomplish financial feasibility."

4. Personal Reflection: Balancing Financial Factors with Emotional Elements in Real Estate

By thinking critically about my mother’s perspective, I realized that it deviated from the typical representation characterizing the experience in the typical TikTok videos, where homeownership is fundamentally an experiential feel. My mother views the experience differently, where she sees the commitment in terms of a recurring payment associated with homeownership. The important thing to take note of in my mother’s perspective is that she has the tendency to discourage potential buyers if the financial experience doesn’t make sense.

     “I’m clearly not doing you any favours in securing a house that you cannot comfortably afford,” my mother said.

     “A good real estate agent values long-term comfort in excess of short-term gain,” she added.

          “Besides,” she said, “if I don’t mean anything to you, the house will be a less important priority to you. This highlights the type of practical know-how that simply cannot be mimicked by artificial intelligence: the experience of pattern recognition derived through observing numerous people go through the same decision-tree process for numerous years in a row.

Expert bio & link

Patricia Forbes is a licensed real estate agent with 5 years of experience helping first-time buyers and young families in Toronto. You can learn more about her work at https://www.realtor.ca/agent/2087273/patty-forbes-1858-queen-street-e-toronto-ontario-m4l1h1 or on Instagram at @pattyforbes_realestate