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Margot Bai

To read the article in it's entirety, visit the Toronto Star's website for Monday April 30, page F5.
The Toronto Star
An Excerpt from the article by Rosie Del Campo in the TORONTO STAR
Monday, April 30, 2007

Adjust your wish list to reality, author says

If your ideal location is too expensive, try a more affordable neighbourhood nearby

Margot Bai and husband James

Margot Bai and husband James scraped together the
down payment on an 1,800 square-foot
townhouse in Richmond Hill while
struggling to pay rent on an apartment
and to pay off student loans.
(Photograph by: Colin McConnell, Toronto Star)

Don't buy a beautiful and pricey home if you're going to end up pinching pennies to live in it.

"It's easy to get carried away when shopping for a new home," says Margot Bai, author of Spend Smarter, Save Bigger. "People think, `This is my home. I want it to be perfect.'"

But buying a home with the biggest mortgage you can afford makes you house-rich and cash-poor, Bai says, so first-time home buyers should be realistic about what they can afford and do their homework before closing a deal.

"Buy less than what you can afford in terms of a mortgage payment," says Myron Knodel, manager of tax and real estate planning at Investors Group. "It'll give you that bigger flexibility for unexpected expenses that occur." But not all home buyers are taking Knodel's advice. Cyd Palacio, vice-president of consumer loans and mortgages at BMO Financial Group, says traditional down payments of 25 per cent have dropped to as little as zero, while 25-year mortgage amortizations have been extended to 40 years.

Bai, 33, and her husband, James, tried to save money by separating their wants and needs in the home-buying process. They scraped together a 10 per cent down payment for an 1,800-square-foot townhouse in Richmond Hill that was listed for $197,000. They saved while struggling to pay $900 monthly rent for their apartment and to pay off about $18,000 in student loans.

"As first-time buyers, we weren't that picky," Bai says. Home hunters need to adjust their wish lists while finding out what's available in the target area and price range, she adds.

Bai checked out all of the builders to see what they were offering and shopped around for the best value.

"Be flexible about your location," she says. "If your dream neighbourhood is beyond your budget, look at surrounding neighbourhoods that may be more affordable."

Most people would prefer a detached home, Bai says.

"We would have liked one, but prices in the GTA have put that out of reach for many buyers."

Semi-detached houses and townhouses can be more affordable while still offering street-level entries with front doors.

Fancy finishings such as marble floors and wrought-iron railings can add to a home's cost, but they may also provide more potential for prices to appreciate when it's time to resell.

"When buying new, spend upgrade money on kitchens and flooring, because this gives you the best return on your money," Bai says. "Consider upgrading to hardwood on the main floor and upstairs hallway and choosing a higher-quality carpet and underpad for the bedrooms."

Older homes often need repairs and renovations, so bear that in mind when you estimate how much you can afford to spend on the home.

"If the foundation of your home has problems, you have no choice. You have to fix that," says Knodel. "When you buy the home, think, `how long is this room going to last?' and factor that into your cash flow right off the bat."

Professional home inspections can also help pinpoint potential problems in the home, Bai says.

© 2007, The Toronto Star