Gail Vaz-Oxlade, host of the new HGTV show Til Debt Do Us Part: Home Edition, says one of the biggest challenges for home buyers is to go into the process with their eyes wide open. Too often they take on a mortgage that is too big and then can't afford to maintain their homes, or they don't make the lifestyle changes required to stay out of debt. It's only when they're on the verge of losing their homes that they seek help.
On her new show, Ms. Vaz-Oxlade challenges homeowners to trim their spending and debt, with a chance to earn $5,000 if they succeed. She spoke to The Globe and Mail about how home buyers can avoid making the bad choices that lead to the dream-house disasters she sees on her show.
What are the biggest mistakes you see home buyers make?
It's dumb things, like they know they need to have a home inspection, so they pay for a home inspection and they totally ignore everything in the home inspection report.
Routinely people take on more mortgage than they can actually afford. For some reason, people think that because we live in an expensive housing market, that entitles them to use 60 per cent of their income for housing. Well, then, how are you going to buy food? So that pushes them to use their lines of credit or their credit cards to supplement their cash flow.
People renovate themselves to death. They start their renovations and all of a sudden everything sort of whirls out of control. And they have to have the best of this and the latest of that.
People have no ability to defer their gratification. They decide they want Persian rugs, they have to buy the Persian rugs now, and if that means they have to use credit, they use credit. And that's the wrong way to do it. The right way to do it is to save the money.
How do people not realize they're piling up so much debt?
Because they keep all their debt in different pools. So they have the credit-card debt in one pool and they have their department-store-card debt in another pool and they have their line-of-credit debt in another pool. And all these pools of debt, they don't add them up because if they added them up they would just get sick.
The families on your show are at risk of losing their homes. How prevalent is that in Canada?
I think what you need to look at is the number of high-ratio mortgages that are out there and the number of mortgages that are also amortized longer than 30 years, because I think those are the people who squeezed themselves into properties. I say to people all the time, if you can't save up 20 per cent to put down on a house, you're doing something wrong, because you're not really prepared for home ownership yet.
A lot of people think home ownership is always the right choice.
Everybody has sold them the idea that a home is a good investment. But when you look at all the people who are doing equity takeouts [when someone withdraws from the home equity to finance other activities] clearly they're not treating their home as an investment. They're treating it as a cash cow to cover their consumer debt.
What are your best tools and tips for homeowners who want to educate themselves and avoid debt?
The first thing you need to do is a spending analysis so you can see where your money's going.
Once you know what your spending analysis is all about, you have to make sure you're not spending more than you make, so you have to have a budget. I don't know what it is about people that they're so reluctant to make a budget. It's like they think a budget is concrete shoes, and it's not. It's actually your plan for how you're going to use your money.
Then you have to think a little bit ahead. Very often people are short-sighted in the maintenance that they're going to have to do to keep their house in shape. It's a very sad thing to spend all that money to acquire your largest single asset and then to just watch it rot because you don't have any money to do the most basic of maintenance, never mind home improvement.
Never mind all the people who say to me, "Gail, if I put this $45,000 kitchen into my house, that's an investment." I say, "Okay, when are you planning to sell the house? Fifteen years, maybe?" Well, then it's not an investment, it's a consumer item because 15 years from now that brand new kitchen is going to be an old kitchen. Nobody's going to want it. Everything has a lifespan.
How much should people set aside for home maintenance?
The rule of thumb is between 3 per cent and 5 per cent of the value of the home per year.
What else should home buyers know?
Not everybody's cut out for home ownership. There's a big bias against renting, and there shouldn't be because for some people renting is the right choice. If you're highly mobile and your ins and outs [when people move house a lot]are going to eat up all your profit or cost you money, then you're a better renter than you are an owner.
One of the things people think is you can swap a rental payment for a mortgage payment - if they're even, you're coming out even. You're not, because there's property taxes, utilities will change, maintenance will go up. There's a whole bunch of stuff that goes into home ownership.
Til Debt Do Us Part: Home Edition airs Tuesdays at 9 p.m. ET/PT beginning April 5 on HGTV Canada.
This interview has been edited and condensed.