Home ownership doesn't come cheap

I agree with most of the tips listed. “Your first home doesn’t have to be your dream home.” Home ownership is possible if you keep your expectations realistic.

I am a mortgage agent in Toronto and I counsel my clients (especially first time buyers) on building sensible household budgets and realistic expectations in terms of a buying budget. In addition, I walk them through the financial side of the home buying process (closing costs, land transfer tax, initial set up fees, etc.).

Today’s ultra low interest rates make taking the first step in home ownership a lot easier, however, all buyers need to check what their mortgage payment will be in 5 years time when the interest rates may be 5% or 6% (compared to today’s 2.89% or 2.99%).

Still further, buyers need to ensure that what they are signing up for fits their lifestyle today and in to the future. Do they have children? Are they planning to have them? If they are, then they need to factor in one year (or more) of parental leave at reduced income.

Bottom line, home ownership is achievable for most people. The first step is discovering your options and developing a plan to make it happen.

mary@creatingequity.ca

Further to my previous post about home ownership being achievable for most people, I want to add that I disagree with the tip about avoiding mortgage insurance.

Ideally, everyone would be able to save 20% to use as a down payment but in markets like Toronto, where the average home price is over $500K, that’s a whopping $100K! Even if someone could manage to save $1K per month, it would take over 8 years to have $100K and who knows where house prices will be by that time. That is exactly why mortgage insurance was created. Initially developed by the Canadian government to provide an opportunity for every Canadian to purchase a home, it is now available from 3 insurers across the country and buyers can become home owners with as little as 5% down.

Let’s take a look at the numbers:

$500K purchase price would require a $100K downpayment, IF you did NOT want mortgage insurance. At an interest rate of 2.89% for a 5 year term and amortized over 25 years, the monthly payment would be $1871.

A $500K purchase with 5% downpayment ($25K) and mortgage insurance ($13K added to the mortgage) at 2.89% for a 5 year term and amortized over 25 years works out to $2282 per month.

So, for $411 more per month, a buyer could be in a house of their own YEARS sooner than if they waited and saved up enough to put 20% down.

It looks to me like mortgage insurance isn’t such a bad thing after all.

I myself am a mortgage lender and I can see where your coming from in a sense. However, to say "only $411" more is not that big of a deal is exactly why were in the mess that we are in. The 20% argument is very sound to me if you can't come up with that you can not afford the house. When you purchase a home with very little down you give yourself very little wiggle room if anything happens. We do have to get away from the I deserve a home attitude if you can not really afford the home you dont buy!

I am very desepointed with this philosofy to owne a house.Well it is descriminatory the way Canadians think.Well hir we are:If you work in job were they pay not much but suficient to buy a house,and you education is everige,and not a doctor,or engineer or work in oil fiel,you are not qualified to buy a house,because your score in the finincial world you r are just a little man.I must say one things,the population of Canada is decreasing and not encreasing,because we are fithing with the society what whant to be up there,but in realety they cutting in there own foot.In the end of another 30 years there will be no oldage pension.Because there going to be more oldage, then people working,and certenly the taxes will so high that nobady in Canada can oforder a house or a car or buying groceres to live confertable.So think again,and sharpin your own pencile.So is Canada a place to live or just a dream,and die with starvation,and sleep in the streets in the carbourd boxes.

Response to Mike:

I agree with you that many buyers have over extended themselves and left no wiggle room. They were too busy chasing after the "Joneses" to really look at their numbers. That's why I'm glad that the government abolished the 35 and 40 year amortizations and continue to tighten the mortgage rules because if a buyer had to use 35 or 40 year amort. in order to qualify, then they are spending too much money on the property itself. As I said in my previous posts, I work with clients to build a reasonable and sensible budget and show them how much the mortgage will cost them at 5% or 6% interest rates so that when renewal time comes, they are prepared for it. My only reason for providing the example was because I felt that the original article was very negative towards mortgage insurance. Still further, lenders (as I'm sure you know), prefer clients that have mortgage insurance because it is a "no fail" situation for the loan because if the borrower defaults, then the insurer pays out the loan. So there is very little risk for lenders when there is mortgage insurance in place. In fact, lenders often offer better interest rates for buyers that will be using mortgage insurance. The real problem is with buyers expectations - they should visit a mortgage agent or bank mortgage specialist to find out what they can "reasonably" afford and ask for it to be calculated based on 5% or 6% interest rates.

mary@creatingequity.ca

nice set of info here

thnx