Owning a home has gotten harder, but that doesn't mean it's out of reach
If you were to grow up in New York City or London, England - or even Vancouver - owning a home might not have been one of your fantasies of grown-up life. For most Canadians, however, the idea that we’ll grow up, get a job and buy a house is almost a given. Indeed, in most parts of the country, there’s space galore for suburbs and two-car garages and tidy backyards. And it’s places like these where many of us were raised. Unfortunately, higher prices, tighter lending conditions and more debt are making it increasingly difficult to make that dream a reality.
According to a recent poll by TD Canada Trust, today’s first-time homebuyers say they’re up against challenges their parents never had to face - and they’re right. The real estate market is a lot less affordable than it was 30 years ago or even 10 years ago. According to a report released by TD in April, home prices have risen by about 7 percent per year over the last decade, considerably faster than both wages and inflation. Top that with five-digit student debt loads and tighter lending standards, and it’s no wonder that young people report feeling that prices are too high (53 percent), their wages too low (48 percent), and a solid down payment too hard to scrape together (57 percent).
Fortunately, aspiring homeowners seeking the property-owning dream don’t have to give up. We asked Farhaneh Haque, director of mortgage advice at TD Canada Trust, for some tips on the hurdles new homeowners are facing - and how they can leap right over them.
1) Higher home prices
Higher home prices don’t necessarily mean you can’t own a home, but they might mean you can’t buy the home of your dreams. So, if you envisioned a big, beautiful house with a front porch and a two-car garage (you totally did, right?), you might just have to let it go, at least for a few years. Fortunately, that doesn’t mean you can’t get comfortable in a condo or duplex and start building equity in the meantime.
Haque says it’s important to approach homeownership from the perspective of affordability. Dreams are a beautiful thing, but they don’t keep you warm and dry at night. A home that’s a little smaller and a little less grand than you imagined, however, will. Plus, paying it down will be much less of a nightmare.
2) More debt
In 2012, Canadians dug themselves into record-high levels of personal debt. And while our digging has slowed, it hasn’t stopped. According to the most recent data from Statistics Canada, household debt levels among 25 to 44 year olds continue to inch up. When it comes to qualifying for a mortgage, debt can be a total deal-killer: It reduces your disposable income, affects the size of the mortgage you can qualify for, and may even negatively affect your credit score. If you want to be a homeowner, dropping (or at least reducing) your debt is the first challenge to tackle. Haque recommends consolidating loans whenever possible, and then zeroing in on your spending to find a little extra for debt repayment.
“Start with the small numbers first and work your way up,” Haque said. “Just work to get that extra $10, $15, $25 per week. Could you skip your coffee run during the day or bring your lunch to work? That’s money that could be redirected to savings or debt repayment.”
3) Not earning enough
Chances are, most of us will never make the kind of wages our little diva hearts desire, but according to TD, about 48 percent of young Canadians feel they don’t even make enough to cover a monthly mortgage payment. The reality is that you just won’t have any idea of what you can afford until you visit a mortgage specialist and run the numbers. In many cases, the mortgage payments on a property similar to the one you’re renting are comparable.
Even if you aren’t thinking of buying for a few years, a mortgage specialist can examine your finances and find any flaws that might be holding you back from qualifying for the loan amount you want – and give you tips on how to correct them. The process of becoming a homeowner starts way before you drag your mattress through the front door. Find out what’s standing between you and your goal, then take the right steps to achieve it.
4) Tighter lending conditions
Last year, the Canadian government imposed tighter lending standards that essentially reduced the size of the mortgage many first-time homeowners might qualify for. Frustrating, right? Well, not really, says Haque.
“About 25 percent of Gen Y think the new lending standards make it harder to get into home ownership. What those standards really do is make you think about your affordability more carefully,” Haque said. “They help you to create more equity in your home – and that’s a very valuable thing.”
Okay, so you might not qualify for the house of your dreams (are you seeing the trend here?), but the new mortgage rules help to ensure that you can truly afford what you do qualify for. Remember, if you get into a mortgage you can just barely pay, you could find yourself curb-side if interest rates rise.
5) No down payment
In many parts of the country, the average home price is approaching $400,000. That means you’d need aminimum down payment of $20,000. That’s a lot of dough, but scraping it together is worth the effort, even if it takes some time.
The bigger the down payment you make on your home, the less interest you’ll pay, which can significantly reduce how much you pay for that home over the long term. Find room in your budget for saving and set up an automated plan to make sure it happens. If you can set aside about $800 per month (cut those expenses, or earn more via a second job or freelance work), you’ll have that $20,000 in two years.
It just might take a little longer
So maybe your parents had it easier when it came to buying their first home, but homeownership is still a dream many young people can work towards. It just might take a little longer to get there.
From Goldengirlfinance.com/ Posted by Mags
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