There’s no denying that Canadians value the concept of home ownership, in spite of the bubble rumours, speculation and even in light of COVID-19. The housing market has remained resilient, as evidenced by recent record-breaking Canadian housing real estate activity.
Home ownership is a way to plant roots, create family security and build future wealth. In fact, it’s how many of the world’s richest people earned their fortunes, and it’s how many “regular Joes” finance their retirement or build generational wealth. But home ownership is 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, are are some important things to consider.
5 Questions to Ask Before Buying Canadian Real Estate…
Can I afford to buy Canadian 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.
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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 invest in the Canadian real estate market for a slew of different reasons. For homeowners, this is a method of forced savings for retirement and future generations, while also fulfilling the basic need of providing shelter. It’s also a great source of pride for many. 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 the bigger picture.
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