According to Statistics Canada’s first-time homebuyer report of 2018, only 9% of Canadian households bought their first home in the last five years. Of that 9 %, nearly half are less than 35 years old; two-thirds of the households were families; 52.9% bought a single-detached home. However, the numbers are even worse for our major cities. For instance, in Toronto, 41.2% of the households were under 35 years old and only 26.4% of the households bought a single-detached house. It is evident that it is becoming harder and harder to get into the housing game and buy your first home. Based on our experience, see the tips below which can help you to get into your first home.
1. Buy early
Life gets complicated as we grow old. When we are young, we have fewer worries, lower expectations, and possibly a low debt load. We are used to living in small spaces, sharing accommodation, and living an overall frugal life. Often, we have student debt to worry about, but that is usually it. As soon as you start working, you should start thinking about getting your first home. For most Canadians, the average new graduate salary will be anywhere between $30K-$50K. Based on current government guidelines, that translates to a maximum mortgage amount of $120K-$200K. In hindsight, it may not seem much. For a city like Toronto, finding a place for such a small amount is nearly impossible. However, if you have a partner who doesn’t mind sharing a small space, your potential for mortgage affordability can more than double to $250K - $450K.
Checkout the Affordability Calculators under Tools on our website.
2. Focus on keeping your monthly expenses lower
After landing the first job, we tend to get carried away. We splurge a little more, might it be a new car, streaming subscriptions, gym/other memberships, or develop new habits that tend to eat away our income. This is a vicious trap that we have a hard time coming out of. If you plan to buy a property, keep the total monthly non-housing expenses less than 5% of your monthly gross income. This includes your monthly student loan payment or any other debts. Keeping your monthly obligations low is the best way to qualify for a mortgage. Always keep in mind, all loans and leases will affect your mortgage application.
3. Arrange/save the minimum down payment
With our busy, YOLO lifestyle, it is becoming harder to save. A minimum down payment of 5% is required for properties up to $500,000. For any amount above $500,000 down payment of 10% is mandatory up to a maximum purchase price of $1,000,000. Therefore, it is important to start saving as early as possible. Savings can accumulate very quickly if you stick to a savings plan. For example, saving $100 a week can add up to over $5000 per year. In two years, you have enough down payment to buy a property valued over $200,000. Take advantage of all the savings programs offered by most banks. You can also check with your friends and family to canvass for any additional down payment or partnership to purchase your first home. The complete down payment must be in the bank account for at least 30 days before prior to starting a mortgage application.
4. Know your credit score
Maintaining your credit score is very important. In order to qualify for the best mortgage rates, a credit score of over 680 is usually required. Free credit score and report can be accessed through some banks, credit card companies, and other websites like CreditKarma and Borrowell. In Canada, credit history is managed by either Equifax or TransUnion. It is good to know the score from both companies and compare the reports for any discrepancies.
5. Make the move/know your options
Purchasing your first property can be daunting and strenuous. All the tips above are useless if you don’t have the courage to do it. Once you take that leap of faith, it always tends to work out. However, it is very important to know your options. You should know the best, worst, and most likely scenario before making the move. Utilize all the resources available to make an informed decision. It is best to consult with one or more mortgage professionals before signing any long-term commitment. After all, this is the biggest debt of your life which will help you acquire the biggest asset of your life.
We hope these tips help you with your first home. If you are stuck or confused feel free to get in touch with us and we will be happy to assist you.