Many renters dream of buying a starter home. They see themselves living without a landlord, free to do what they want with their own space. Home ownership suits many people, but it does take preparation to buy. Here are some considerations to help you prepare.
You may think you should buy a starter home because your friends are doing it or you think it is a good investment. You may think that interest rates will rise and you will miss out on affordable homes. You may be anxious to buy because you’ve graduated and have your first professional job. Unfortunately, none of these reasons are good ones unless you know what you are getting into.
Home ownership is a big commitment and plenty of work. All houses need maintenance and eventually upgrades. You’ve probably seen those DIY television shows where the homeowner buys a rundown shack and turns it into an amazing home. The problem is that it takes money and expertise to do that and most first-time buyers have little of either.
Before you consider buying, know you are not only buying a property, but taking on oodles of responsibility. You’re the landlord and you shoulder all the costs. A starter home isn’t a dream home. It a property you’ll be happy to live in for about five years and it takes work.
Recent changes to lending possibilities now mean you need a substantial down payment to buy a home with financing through major lenders. While mortgages are available with laxer policies, most require 20% of the purchase price if you want to get the best interest rates and terms. You should also have about six months savings in the bank for emergencies.
You will also need to examine your credit rating. Check your credit score with one of the two credit bureaus in Canada: Equifax or Transunion. If problems exist on your credit file, you will need to improve your credit or resolve the discrepancies. Lenders use these reports to decide whether they will risk lending you money.
Once you have your savings in place you can examine how much you can afford to buy. You should only spend what you feel comfortable paying, even if lenders offer more to you. They use the Gross Debt Service (GDS) ratio to calculate your maximum monthly payments, but you do not have to buy at the top of your buying power.
This ratio measures costs such as your mortgage payments, taxes, utilities and other expenses in relation to your income. The ceiling is usually 32% of your income.
You may have areas you prefer to live in and others you are unsure of that offer better value. Research areas thoroughly by checking the crime rate, sales in the area and visiting in-person. Are amenities nearby such as shopping, schools or medical facilities? Is the area well-kept and quiet during the day and evening? Decide what you must have in the area and what you must have in your home. You probably won’t find it all in a starter home, but you can find the best options.
Do you know what is happening in the real estate market? Are homes selling quickly or slowly? Are they affordable or priced very high? Are many homes on the market or just a few? Even when you are financially prepared to buy, it might not be the best time for you to do so. You need patience and information. Educate yourself and do not allow others to pressure you to buy unless you feel confident in your decision.
What about interest rates? Are they stable or ready to rise? Do you understand the impact interest rates have on what you will pay monthly and over the life of the mortgage? Do you understand the different types of terms available and which is best for you? A mortgage broker can assist you with this at no charge. They work for you and have access to many mortgage products.
When you feel ready to move ahead, you will want to get “pre-approval” for a mortgage. It makes the buying process quicker and smoother. Most buyers use a real estate agent to help them search for a home. A good agent has the legal and area expertise you need to buy wisely. They often know about properties not on the MLS, such as those offered by real estate investors.
If you need to connect to a broker or real estate agent, MicGil Property Solutions can assist you. They may also have a starter home suitable for your needs. Contact them at (613) 702-5551 to discuss the possibilities or complete the simple form here.