Summer Report in Mortgages Thursday August 18th 2016
Sound, creative solutions for first-time homebuyers
Before taking the step from renting to buying, there are additional boxes to check, such as looking at your personal financial situation and getting advice from a mortgage specialist.
Not surprisingly, homeownership continues to rank high on the list of priorities and goals for Canadians of all ages. A recent Ipsos study found that almost three in 10 say they are likely to buy a home within the next two years, and 89 per cent feel buying a house or condo is a good investment.
Having an opportunity to build equity while enjoying the comforts of your own home is attractive, yet it is essential to crunch the numbers before taking the plunge, says Bill Whyte. “You want to go in with your eyes wide open. Don’t get caught up in the hype, do your homework and comparisons, and make an informed choice,” says the senior vice-president and chief of member services at Meridian, Ontario’s largest credit union.
Mr. Whyte considers current interest rates an important factor fuelling the real estate market. “The historic low interest rate environment can help people gain entry into the market – it allows them to carry more debt. And while rates may not stay exactly where they are today, they are not likely to jump dramatically over the next few years.
“Today, you can get a five-year mortgage rate for under 2.5 per cent, which can make this time frame very stable for people who have taken all the different aspects of their personal situation into account.”
While low interest rates act as an incentive for prospective homebuyers, entering a “hot market – where real estate prices have outpaced earnings – can [be] challenging,” he cautions.
Residents in the Toronto area, for example, may adjust their expectations as they search for more affordable options, he explains. “Some are moving further into the suburbs or even beyond, to Hamilton, Guelph, Barrie or Oshawa. Others opt for areas with higher density and choose a condo, where we haven’t seen quite the same price increase as in detached homes.”
Both scenarios have different implications for expenses – such as commuting costs – that homebuyers should be aware of, says Mr. Whyte. “You have to make sure you can afford your mortgage and related expenses.”
Working through a budget with a mortgage professional or financial adviser can be helpful, especially for first-time buyers, he notes.
“Knowing your goals can help you map outthe steps for getting there” Angela Calla, is a Host of”The Mortgage Show on CKNW AM980 Saturdays at 7pm
The same principles apply in the Vancouver region, says mortgage professional Angela Calla, who is also the host of The Mortgage Show on CKNW Radio. “A one-bedroom condo in downtown Vancouver can cost $500,000 on average, which would take a gross annual household income of approximately $100,000 to qualify for. If you look at Port Coquitlam or Coquitlam, which is a 30-minute commute from the downtown core, a one-bedroom condo can still be purchased for around $200,000, which takes a gross annual income of approximately $40,000 to qualify for,” she explains. “For the Coquitlam condo example, you would need to have a $10,000 down payment. Your mortgage payment is approximately $890 a month, plus $300 in strata fees and taxes. That puts your total monthly payment at around $1,190.”
An estimate like this can help potential homebuyers test their appetite for owning a place. “If you are paying over $1,500 a month in rent, why not take a look at what’s out there for you?” suggests Ms. Calla.
She adds that it’s never too early to seek advice. “Knowing your goals can help you map out the steps for getting there. If you are saving for a $10,000 down payment, for example, and you’re starting from zero, you would aim for saving $834 a month for a year by finding ways to reduce your spending or bringing in that money by selling an asset,” she says. “And if you have outside debt, it’s important to know which loans should be paid out to help your qualifications along.”
Mr. Whyte cautions that goals need to be realistic since one of the most common pitfalls is purchasing a home that is out of the buyer’s price range. “There is no sense owning a home if you’re not able to pay your bills or go out and do the things you want to do,” he says. “We also recommend ‘stress testing’ your mortgage rate – we run the scenario of it going up one per cent at the end of the term to see if you can afford that.”
Some first-time homebuyers are gifted money from their parents for getting a foothold in the housing market, he says. Others postpone purchasing a home in order to save a more substantial sum for a down payment.
Mr. Whyte has also seen examples where friends and family members pool their resources in order to afford homeownership. “Among the non-traditional scenarios are two young families, groups of friends, or elderly and younger relatives getting together to buy a home,” he says, adding that Meridian offers mortgage solutions that are designed to take such creative approaches into account.
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The Angela Calla Mortgage Team can help you personally with your mortgage, Please email firstname.lastname@example.org or call 604-802-3983 www.angelacalla.ca