Real estate: Tips for single homebuyers
I had enough money from an inheritance to make a sizeable down payment, and the monthly mortgage payment was lower than the rent for my apartment. But even so, my status as a young, single woman—coupled with the fact that I was a “freelance writer,” an occupation that at the time still rated somewhere below “goatherd” in the eyes of many lenders—made the process much more difficult than it should have been.
Thank heavens, times have changed a lot since then. According to a recent study by Genworth Financial, fully one-quarter of Canadian home purchasers in 2011/2012 will be single. While many of those buyers are purchasing condos, a sizeable proportion will be buying houses. And today, mortgage lenders and condo builders are eager to court the single’s business.
According to Jim Rawson, a broker with the mortgage company Invis, “A lot more single people are buying homes today, both condos and single-family houses.” Financially, it just makes a lot of sense, he says. “Rents, at least in Toronto, are not cheap. If you’re paying $1,000 to $1,500 or more a month in rent, you could be carrying a $250,000 mortgage for that same amount, and be building equity for the future.”Interest rates, he points out, are at historic lows and likely to stay there, even if they do rise in the next few years, making mortgages more affordable than ever. Whether you choose a low-cost variable rate, or the security of a fixed rate, it’s still nothing like the 14.5% I managed to negotiate on my bungalow. (The most recent predictions estimate that the prime rate could rise to about 6% by 2013, Rawson says, but that’s still a bargain by 20th-century standards.)
For Carla Sutton*, purchasing her first house about 10 years ago was, in part, a purely financial decision. “I’d been renting for the past 13 years, and I realized that if I bought a house and rented out part of it, it wouldn’t cost much more than my apartment did, and it would be a great investment for the future.” Both her parents and siblings owned income properties as well, so she had plenty of guidance.
Carla had clear priorities when she went house-shopping, she says. Along with a firm price range, her must-have list included off-street parking, a garden, a neighbourhood she loved—and she was prepared to take her time choosing the perfect house for her needs. After looking at dozens of homes, she finally chose a pretty little mid-town semi, with a sunny main-floor space for herself and two self-contained apartments for what turned out to be excellent tenants.
The number-one piece of advice Jim Rawson gives potential homebuyers is to sit down with a mortgage broker or a bank and find out exactly what you can afford, before you go home-shopping. Most lenders will either pre-qualify the mortgage, which means they do all the paperwork and guarantee the current rate, usually for 120 days, or if you’re not ready to commit just yet, at least calculate a ballpark figure for you.
* not her real nameOnce you know what you can afford, be prepared to stick with it, even if you see a house you love that’s just a little out of your price range. “You don’t want to be house-poor, especially when you’re young,” Rawson advises. “You want to have money to enjoy your life, not pay it all to your mortgage—and if your interest rate does go up, you could be caught.”
Still, there are several options for boosting “how much” house or condo you can afford. Carla took advantage of a government program that allows first-time buyers to borrow up to $25,000 from their RRSP to use as a down payment. The rules state that you must start repaying the loan within two years of the home purchase and pay off the balance by 15 years, or else pay income tax on the outstanding amount. (As Rawson points out, though, even on $25,000, the tax is not likely to be an onerous amount, especially compared to how much you’ve saved over that time in mortgage interest.)
Another option is to purchase a home that includes one or more rental units. There is an upside and downside to this idea; the upside is that if you play your cards right, your tenants can pay a large chunk of your mortgage for you. The downside is taking on all the responsibilities of a good landlord, which includes qualifying tenants, carrying out repairs and maintenance, and being prepared to carry the mortgage by yourself if the apartment stands empty for a time.
Nowadays, both banks and consumers themselves are much more sophisticated about buying and financing a home than they were back when I bought my little bungalow. Even with the ups and downs of the last few years, real estate is still one of the safest investments you can make for the future.
And for many Canadians, there’s just something indefinably satisfying about owning your own acre of ground—even if it’s several storeys up.