Ignore the market, focus on home affordabiliy
Mortgage adviser says first-time buyers should move when they can afford to, rather than worry about trends
First-time homebuyers should ignore market fluctuations and focus on what they can afford over the long term regardless of the purchase price, says Farhaneh Haque, director of mortgage advice at TD Canada Trust.
It’s never a good idea to try to time your home-buying decision based on what the market is doing, Haque said. What really matters is when you’re ready to buy and if you can afford the payments on your mortgage, she said.
“You really want to be looking at your life stage, your affordability, your down payment and your cash flow to make that buying decision,” Haque said, adding that it really doesn’t matter what happens to the value of your home in the next year, but rather over the long-term.
“Home ownership is a long-term plan, not a short-term investment. You want to have a long-term view,” Haque said.
She said when people are considering making the leap into home ownership, the first thing they should consider is their affordability. “What are you paying in rent today?”
It’s important to remember that renters usually only have one monthly shelter payment, she said. But homeowners have to remember property taxes, home insurance, maintenance costs and other expenses, which are sometimes unexpected.
“You really want to make sure that is affordable and comfortable within your budget,” she said.
A good rule of thumb is to figure on house-related expenses being 30 per cent on top of whatever the mortgage payment is, Haque said.
“Secondly, I think you want to look at your personal life stage,” she said. “For some, renting make sense because they live a transient lifestyle, or their job makes them move around a fair bit.
“If you are a person who is ready to plant some roots and you’re committed to a location where you are comfortable and happy, or if you’re at a life stage where you can make a commitment in terms of where you live, that might be the right time to think about investing into a property.”
By waiting a bit longer to buy a home and saving up a larger down payment, buyers can save themselves the extra cost of a high-ratio mortgage insurance premium, which adds between 0.5 per cent and 2.9 per cent.
“It is significant,” Haque said. “If you were able to push yourself to a 20-per-cent down payment, you could save that insurance premium. Also, the bigger the down payment, the more affordable your monthly mortgage payment will be.”
A mortgage professional can help determine how much mortgage principal could be paid off in a year’s time, Haque said. Once that number is calculated, potential homebuyers can compare it to how much they can save toward a down payment in the same period.
The Real Estate Board of Greater Vancouver conducts an informal survey of realtors each month; the survey shows 33 to 40 per cent of all home purchases are made by first-time homebuyers.