There’s no denying that Canadians value the idea of buying real estate. In spite of all the housing policies and promises, bubble rumours, speculation and trepidation, 51 per cent of Canadians are still planning to purchase a home in the next five years. This number is up from 36 per cent at the same time last year.
Home ownership is a great way to build future wealth, but it’s not for everyone. Ultimately, buying a home is a very personal decision that depends on a number of factors, such as your financial fitness, your future plans and your overall comfort level. The good news is, professional real estate agents, mortgage brokers and real estate lawyers are there to advise you before you dive in.
To help get you thinking about whether home ownership is right for you, here are five important questions to ask yourself.
Can I afford buying real estate?
Buying real estate involves up-front costs, which can include things like your deposit, downpayment, home inspection and appraisal fees, property insurance, Land Transfer Tax, title insurance, legal fees and moving expenses.
Then, there are your ongoing costs that include property tax, regular maintenance, condo fees and utilities. If you’re saving some money up-front by buying a fixer-upper, also factor in renovation costs.
Do I have too much debt?
When buying real estate, most people will take on a mortgage. Lenders evaluate your costs versus income to determine your qualification. Your Gross Debt Service ratio is your housing costs (mortgage principal and interest + property taxes + heat + 50% of your condo fees, if applicable) divided by your pre-tax income. The result should be 32 per cent or less.
Then, lenders look at your Total Debt Service ratio: all debt (GDS + car payments + alimony + other loans + the remaining 50% of your condo fees) divided by your pre-tax income. This should be less than 40 per cent.
Am I secure in my job?
Think about this honestly. Is business bustling? Is the industry on an upward or downward trend? Are you comfortable with the financial commitment of home ownership?
Speak to your supervisor to get some additional insight. Mortgage lenders like to see stable employment, and you’ll need to provide proof of income in the form of an employment letter or current pay stub, your position and length of employment, and if you’re self-employed, Notices of Assessment from the Canada Revenue Agency for the past two years.
Am I sticking around?
Buying real estate has historically proven to be a good long-term investment. Ask your parents how much they paid for their home 30 years ago, and compare that to the home’s value today. On the other hand, a quick sale can mean financial losses if the home’s appreciation doesn’t surpass closing costs, which are estimated at 1.5 to five per cent of a home’s value.
Typically, the magic number to stay in the home before putting it back on the market is five years – hence the five-year plan.
Do I even want to own a home?
People buy homes for a slew of different reasons. Home ownership is a method of forced savings for retirement and future generations, while also fulfilling the basic need of providing you shelter. It’s also a great source of pride for many.
It’s a place to live, but also the lifestyle that comes with it. What does “liveability” mean to you? Picture yourself in five years. Do you plan to relocate at some point? Where will you work? What’s your family structure? Then, consider how home ownership fits into that vision.
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