Answers to the question, ‘Are you ready for home ownership? veer all over the map.
You may be super-confident and ambitious. You are sure that you can buy your first
home and are already thinking about buying your second home. You may have the
financial backing of your family in purchasing a house or condo. Or you may be a
cautious person, prepared to let the years pass until you are certain that this is the
right time for you. You may feel that home ownership is an unrealistic goal for you.
Whatever your personal feelings are about purchasing a home, here are some practical tips for deciding for or against home ownership. If you do not need these tips at this stage in your life, forward them to someone who might need them.
The first thing to do is put aside FOMO (fear of missing out). This is your life, not anyone else’s. You are not obligated to purchase a home right now or ever. Given your current career choice or nomadic lifestyle, home ownership may not be for you. Are you thinking about pursuing an amazing job opportunity in Vancouver or San Francisco? How about having the freedom for a business startup, serving a non-profit for a year or two, or to write a book? Is this the time to hike the AT (Appalachian Trail) or spend six months in India? Are you in a long-distance relationship with someone who lives in Montreal?
You may put off tying yourself down to a house for fear of missing out on all that joyous freedom. The unfortunate result is that you have become a prisoner of Toronto’s awful rental market. You may face the endless prospect of living with your family.
Owning a property that you call home might be wonderful. A stable HQ for your life, home decorating and gardening, a family home, and many other things may be aspects of your vision of house and home. Even if you leave town for a while, you can rent it out and enjoy the passive income stream. Many Canadians have experienced significant growth in the market value of their properties and rely on this increase for a large part of their retirement funds.
Here is the hard part: You need savings, a stable income, and good credit. Many people do not know how much or how little they need. Depending on your personality and life experience, you are probably over- or underestimating the requirements. Reach out to me and I can help you decide if your savings, income, and credit will be in the right places to purchase your first home.
You need savings. In Canada, you can purchase a home for 5% down. This can be an amazing opportunity for you. If you are purchasing a home in the $750,000 range, this means a down payment of $37,500.00. A bigger down payment is always better (lower payments etc). You also need additional funds to close your purchase and for moving and living expenses. Buyers often empty their accounts when they purchase their home, but you should be able to rebuild your emergency fund (you have an emergency fund, don’t you?) immediately after your purchase. Again, contact me for specifics that apply to your situation.
You need a stable income. This does not always mean a boring corporate or government job (but congratulations if you have one - the banks love you best). You need to show a consistent income stream because coincidentally, whoever lends you money for a mortgage is likely to want a payment from you every single month. Your income needs to cover your bills, debt repayment, and the new mortgage for your home purchase.
You need good credit. Call me and I will help you check your credit and make suggestions on how to improve it. Common-sense prevails here. If you are often late on payments or engaged in various financial disputes, this might alarm a potential mortgage lender. Do not assume that your credit report is accurate. Confirm the details.
Are you ready for home ownership?
Your natural inclination might be to rush into it, wait too long, or to close the door on owning a home. Or you know this is what you would like to do. You develop a plan and a budget to achieve your goal.
For example, there are strict rules for saving towards down payments. This is not something you want to be sorting this out in the weeks before completing your home purchase. In another case, you can work hard to pay down a debt of $10,000 or save another $20,000 in the time that your potential purchase jumps $30,000 in price. In another situation, you might make a small deposit to secure a new construction property at a great price. These homes are scheduled to be built several years from now when you will be ready to complete your purchase. The new build can go up in value many thousands in the intervening period, but you only pay the original price.
If you are heading toward purchasing a home in the next 12-36 months, open up communication with a professional realtor and a full-time mortgage agent. Work with us to develop an appropriate timeline, budget, and savings plan.