Purchasing a Home or Property
A recent survey by NerdWallet revealed that many Canadians who plan to purchase a home in the next two years have various reasons for wanting to be a homeowner.
The most common reasons among them are:
the desire for more space (32%)
the belief that a home is a good investment (24%)
moving to a more affordable area (22%)
a desire to be closer to family/friends (20%)
a belief that buying is more affordable than renting (19%)
a desire for a better location, such as a community with warmer weather or proximity to water (18%)
While there are some common and sensible reasons for purchasing a home, it's essential to identify the personal passions and motivations behind this major investment. Owning a home is a significant milestone that requires financial stability, personal commitment, and sacrifice. It's vital to evaluate whether you are emotionally and mentally prepared to take on the responsibilities of owning a home.
As you contemplate the decision to become a homeowner, ask yourself if this aligns with your personal aspirations and goals. Do you value stability and security, and do you have a passion for creating a space that is uniquely yours? Are you ready to embrace the challenges of homeownership, such as financial planning, maintenance, and repairs? Consider what you're willing to sacrifice to own a home, such as vacations, eating out, or other luxuries.
In addition, evaluate your financial situation, including your ability to manage debt, and assess whether you're ready for the financial responsibility that comes with owning a home. By reflecting on your passions and personal motivations, you can make an informed decision about whether homeownership is the right choice for you.
What Can You Afford?
While dreaming of a spacious and luxurious home is exciting, it's crucial to stay grounded and align your home goals with your financial reality. As much as we all desire a dream home, it's essential to be honest with ourselves and consider our income limitations. It's not uncommon for Canadians to face difficulties in finding affordable homes, with almost a quarter of aspiring homeowners citing budget constraints as a significant obstacle.To determine how much home you can afford, turn to experts like the Canada Mortgage and Housing Corporation (CMHC), who recommend that your monthly housing costs should not exceed 32% of your before-tax monthly income. This calculation is known as your gross debt service (GDS) ratio.
But don't let these guidelines discourage you from pursuing your passion for homeownership. There are ways to make owning a home a reality, such as saving for a larger down payment, exploring different mortgage options, and considering alternative locations. By staying focused on your personal aspirations and remaining realistic about your financial situation, you can find a home that meets both your practical needs and your passionate desires.
>>FIND OUT : How much can you afford?
Tips For Getting Your First Mortgage
If you dream of owning your own home someday, it's never too early to start saving for your down payment. Even if your plans are several years down the road, there are significant benefits to beginning your down payment savings early.
Unless you have the cash to purchase a home outright, you'll need to secure a mortgage. In Canada, if you don't have a down payment of at least 20% of the home's value, you'll also need to obtain mortgage loan insurance. This insurance protects financial institutions in the event that homebuyers default on their mortgage.
Start Saving Early for Your Down Payment:
The smaller your down payment, the higher your premiums, and the greater your mortgage payments overall. Starting to save for your down payment early could mean avoiding mortgage insurance, resulting in a smaller monthly payment and increased home equity.
Know Your Credit Score:
When you're ready to purchase a home, your credit score will play a critical role in securing a mortgage and determining your interest rates. Knowing your credit score will help you decide whether to wait and improve your score or move forward with a mortgage. Keep in mind that the CMHC requires a minimum credit score of at least 680 for mortgage insurance.
Pass the Mortgage Stress Test:
To qualify for a mortgage in Canada, you'll need to pass the mortgage stress test, which ensures that you can afford to maintain your mortgage payments if interest rates were to rise. All potential borrowers must show that they can afford mortgage payments based on their contracted mortgage interest rate plus 2%, or 5.25%, whichever is higher.
Research Different Types of Mortgages:
Before securing a mortgage, it's crucial to research different types of mortgages and determine what works best for you. Do you want a fixed or variable interest rate? Do you prefer a closed or open mortgage? How long of a mortgage term do you feel comfortable with? By researching and understanding your options, you can make an informed decision that aligns with your financial goals and passions.
>>FIND OUT: Which mortgage type is right for you?
