How to Tell If You're Ready to Buy Your First Home
With average Canadian home prices hovering around at $450,000, a lot of young educated people are simply planning on renting for the rest of their lives. It's simply too big of a commitment to take on when it's getting more and more difficult to find good jobs and pay down student debt. However, if you're thinking about owning your own home, here's a little checklist to make sure it's the best option and the right time.
My friend Rosie Townshend-Carter bought her first home in Charlottetown, PEI last year, at only 20 years old. A lot of people that age are more worried about cramming for exams rather than owning a home, so you may be wondering just how she was ready to do it.
Rosie and her mom outside her new home
The Budget
Conventional mortgages usually require a down payment of 20% or more, but low down payment mortgages can be found for as little as 5%. However these come with the added cost of mortgage default insurance from the Canada Mortgage and Housing Corporation, better known as CMHC. Of course, getting the best interest rate will save you thousands of dollars in the long run so do an online comparison to find the lowest mortgage rates.
Rosie's parents helped her with the $23,000 down payment, following in the footsteps of her grandfather, who helped her dad buy a home when he was younger.
Her mortgage was $131,000 after the down payment, making the purchase price $154,000 in total. Overall, a very affordable home for a 20 year old. She currently pays $854 per month in mortgage payments and property taxes.
Plan for the Future
Houses are more than just boxes that hold all our stuff, they're expensive assets and for many people, the most valuable ones they'll ever own. Make sure you have a clear idea of what you want out of your home.
Rosie knew that she wanted to rent out rooms just like her father did. So she picked a house with 5 bedrooms and found some tenants. With what she collects from her tenants every month, she's not only covering her mortgage, but actually making money that she can then put away for her future.
Rosie also decided that she'll eventually sell the house and has taken into consideration what she can do to improve its resale value, like renovating the basement and fixing up older areas in the house. Luckily, she has a pretty handy father who helped with a lot of the renovations. This saved her a lot of money.
Expect the Unexpected
When it came to protecting her asset, Rosie did what many people do, turn to one of the big banks. While such institutions are traditionally the easiest and most trustworthy places to purchase home insurance, you will often be able to find a better deal by simply taking a few minutes to shop online.
During the life of your home unexpected events can (and probably will) happen. The air conditioning might stop working or your basement may be flooded. One of the most important things to have as a homeowner is an emergency fund for taking care of unforeseen events.
These are three things everyone needs to take into account when buying their first home, regardless of how old (or young) you are.
So tell us, when did you buy your first home?