Get off the home owning fence!
Get off the home owning fence
Globe and Mail
I've had the same rent-versus-own discussion with a close friend of mine for years. Every now and then she'll see a new statistic from the Canadian Real Estate Association about where prices are headed and rethink the decision she made just months before.
My advice to her today is: it's time to get off the fence. Although mortgage rates rose last week, money is still cheap right now. Given the slowdown in the housing market, which is also showing signs of picking up, there is a greater selection in housing stock and more time to make a decision and put an offer on a home, without the intense competition.
A combination of other factors means it is the perfect time for property virgins to make their move. The federal government's 2009 operating budget has contributed two important ingredients to the mix: the option to withdraw as much as $25,000 from your RRSP (compared to $20,000 in 2008) and a First-Time Home Buyers' Tax Credit that provides up to $750 in tax relief when buying a starter home.
If thinking about becoming a home owner for the first time makes you nauseous, don't worry - that's natural. Getting into the market is a good idea, as long as you do your research, view it at a long-term investment and have the money to do so.
Let's start with the most important element - getting the green stuff. The first step in the home-buying process is getting pre-approved by a mortgage broker.
Once you get the green light you may be compelled to open-house hop down the ritziest street in your hood. While test-driving your dreams is OK, touring too many homes beyond your budget is a waste of time. If you're serious, search only in your approved price range and know that starting small and building equity will give you a chance to upgrade in the future.
If you're trying to estimate how much you can reasonably afford, take this as a general rule: according to the Canada Mortgage and Housing Corporation your monthly housing costs - including mortgage principal and interest, taxes and heating expenses - shouldn't be more than 32 per cent of your gross household monthly income (for the math-weary: that's your annual gross salary multiplied by 0.32 and divided by 12).
Equally - if not more - important is your credit score. Ranging from 300 to 900, it determines how much interest you'll likely pay when you apply for a loan. The higher your score, the lower the risk creditors will consider you - and the less interest you'll pay. A low interest rate could translate into thousands in savings over the life of a loan.
According to myfico.com, a score of 720 or higher is ideal. You can review your score - which is calculated by a credit bureau based on personal financial information - at www.transunion.ca or www.equifax.ca for about $20.
It's possible to buy a home for as little as 5 per cent down, but anything less than 20 per cent means you'll need to have your mortgage insured by a third party. Insurance costs can be paid in a lump sum at the time of purchase or worked into the principal balance.
When you broach the subject of buying property with your broker or banker he or she will tell you what you can afford. Immediately aim to spend less. The last thing you need as a first-time buyer is to be house-poor. Remember, you'll need money to pay closing fees (which can be 1.5 per cent to 4 per cent of a home's value), as well as any unexpected costs that crop up (one leak in the roof could mean a flood of new expenses).
In terms of doing your research, don't get wrapped up watching national housing averages or analyzing what the six o'clock news has to say about the market. The only market you should pick apart is the neighbourhood you want to move to. Using national stats to determine trends in your area is like comparing condos to townhouses. Real estate changes from district to district, sometimes from street to street.
A qualified realtor will help you with research and connect you to the right team (lawyer, inspector, mortgage broker). Always work with a realtor as a first-time buyer. There's too much you don't know to go it alone, plus you don't pay commissions - the seller does. This doesn't mean you should work with the first guy to flash his pearly whites and hand you a business card at an open house - the best place to start is with a referral. Check out www.howrealtorshelp.ca for more realtor realities.
Still hanging out on that fence? Click over to www.myhomeplanner.ca for a rent-versus-own calculator.
Emotion has no place in purchasing property, especially as a novice buyer. You'll feel more confident in your decision if you simply stick to working the numbers, doing your research, gathering a good team.
Then you can do all the sitting around you want - as a home owner on your very own fence.
Pls call Tina at 604-412-5860 or email me at tinamak@tinamak.com for your "House Hunting Action Plan"!
