Everything you need to know about buying a house in your 20’s and 30’s

buying a house in your 20s and 30s

Buying a house really takes gumption. But it is a goal that meets our needs financially, socially and emotionally.

According to a study conducted by Remax, 72 percent of Canadians aged 18 to 34 are hoping to buy a house in the next five years. If you fit into this percentage, you might be feeling a bit daunted and unsure of where to start. That is completely understandable. After all, this will be one of the most important purchases of your whole life – if not the most important!

The idea of buying a house connects with a yearning for stability and the will to invest in the future. While many millennials value a low-key, low-maintenance lifestyle (and, therefore, don’t plan to buy a house any time soon), others feel more than ready to invest in stability – often wanting to long before being married or having kids. Yet, they understand, just like you, that purchasing a house isn’t exactly easy or swift.

To become a homeowner, there are many steps that you must take. You need to assess the housing market, consider your lifestyle and needs, be scrupulously conscious of your finances, and also consider interest rates and mortgage insurance. And trust us: this is just the initial to-do list. 

So is buying a house even a good idea?

Buying a house is a significant financial decision that will very likely put you through a period of stress. But the truth is that, once you have the keys in your hands, you will be holding an asset that can bring huge peace of mind… and happiness!

Purchasing your first house will feel like a tremendous commitment, but the financial and lifestyle benefits are well worth the cost. You will be able to stabilize your monthly housing costs (something that, with landlords, you can never be sure), take advantage of homeowner tax breaks, and, more importantly, enjoy a more stable and comfortable life. On top of that, you can even think of your first house as an investment that can eventually become a money-making property.

However, you must first ask yourself: are you truly ready to buy a house? If the answer is mostly positive, here is what you need to know before buying your home. 

What you should take into account before buying a house

Do your research and a serious self-inventory.

Before starting home-hunting (which is undoubtedly the fun part), you should assess the local real estate conditions and ensure they are favourable for a purchase. After observing the price trends, you must figure out how much you can afford to spend. The more you know about your financial situation, the more prepared you will be when the time comes to meet with your lender or broker. It is important to have a steady income and career, but it is also essential to have a good credit score (for mortgage approval in Canada, you need at least a credit score of 640), savings, and be as debt-free as possible. All of this may seem overwhelming, but it is the first step you must take to become a homeowner – and a responsible one. If you need a little help with math, the Canada Mortgage and Housing Corporation created an online calculator where you can calculate your affordability and find your best mortgage options. 

After all this, you should also assess how emotionally ready you are to take this sort of commitment. Generally, if you find that you are financially prepared, your emotional readiness will likely follow!

Set financial goals and start saving.

According to a report by Generation Squeeze, millennials take an average of 13 years to save for a 20 percent down payment, instead of the five years it took their parents in 1976.  Therefore, if you already did your homework and know what type of house you want (and can) buy, it is time to start trimming the budget and saving.
As the Canadian banking laws state, you need a 20 percent down payment when you buy a home with a price of over $1 million. For houses priced between $500,000 and $1 million, you need at least 10%, while for a home under $500,000, you only need 5%.

If you realize that you don’t have enough money to cover the down payment after doing some math, you should start saving aggressively before jumping into large loans. That means, prioritize your expenses, pay off your debts, find cheaper ways to maintain your lifestyle, and maybe consider getting rid of expensive assets (for instance, if you and your partner have a car each, this could be the right moment to sell one of them).

And one last tip: check if you can apply for the First Time Homebuyers Program. This incentive created by the Government of Canada aims to help first-time homebuyers by providing a 5% – 10% for a buyer’s purchase by allowing you to withdraw from your registered retirement savings plans (RRSPs). This is a much-needed boost for many young buyers, but it also has some disadvantages, which is why you should get informed before deciding.

Work on your credit score.

Twenty-somethings usually have low (or no) credit. If this is your case, you will have a hard time getting approved for a mortgage in Canada. Luckily, this is something that can be changed. Improving your credit score might take time, but the sooner you address the issues dragging it down, the faster you can make it go up. Remember: when lenders request your credit score, they are interested in knowing how reliably you pay your bills. It is a huge component of homebuying. 

To boost your credit score, you should focus on paying your bills on time (payment history is the most decisive ranking factor), keep a low balance, and try to keep a variety of credit accounts. If you have any credit debt, student loan debt, car loans, or a line of credit with a balance, it is time to pay those off. Lowering your debt levels will positively impact your credit score, so work on it as fast as possible.

Although a credit score of 640 is considered sufficient, it is better to aim a bit higher, especially if you want mortgage approval from one of Canada’s big banks. According to Equifax Canada, scores from 725 to 759 are considered very good, and 760 and up are considered excellent. This is the type of score you should work hard to achieve.

Don’t be shy about getting financial support.

In the current high-priced housing markets, it isn’t easy to be a homeowner, especially for those in their 20’s and early 30’s. At this age, it is rare to find someone with an impeccable credit history or enough funds to pay for the down payment alone. And this is understandable. Among many other factors, most millennials are more heavily laden with student debt than previous generations. 

That makes it more than fair that many young workers use their family’s financial aid to buy their first home. The numbers confirm it. According to a KPMG’s survey, 46 percent of the millennials who have bought a house recently relied on their parents financial help to boost their down payment. 

So if your family wants to give you a little hand, by giving you money for a down payment or keep your mortgage debt lower, don’t feel bad about accepting it. Think of it as a natural extension of their care and support. You are very likely to end up doing the same for your own children. 

Don’t buy a house you can’t afford.

You know where this is going. A house with a vast garden, a swimming pool, and a garage where you could fit three cars indeed feels like a dream. But remember: you should buy the house you need, in the most practical sense, not the home that will get you stuck with a big mortgage for eternity. 

When you start looking for a house, the temptation to like something aspirational rather than something practical is going to be strong – so strong that you will find yourself debating whether or not you should splurge a little. 

In the face of temptation, keep in mind that purchasing a home is a significant decision that must be approached with a clear head. As a rule, you should think that your house’s monthly payment should never be more than a third of your stable income.

Furthermore, owning a house also means being responsible for all of the bills and unexpected expenses that it can generate. The bigger and more luxurious, the more costly it will be to maintain it.

Prepare for other associated costs.

Buying a house involves a lot of money. In GTA, for example, the average price for a home is roughly $900,000. But here is the thing: the costs don’t end there. For your home-buying situation to work, you need to ensure you have resources available to handle homeownership’s inevitable extra costs. From property taxes to regular repairs, many additional costs can pop up at any moment. If you buy a condo, for example, you will likely be charged a monthly fee to cover common area maintenance costs, like snow removal. If you decide to hire a lawyer to walk you through the process or a team for home inspection, you also have to consider these services’ fees and disbursements. In short, there are many hidden and unexpected costs related to home buying that you should consider when doing your math.

Even when you finally hold the keys, the extra expenses won’t end. The freedom to renovate or modify your home as you wish also comes with high costs, just like decorating, landscaping, buying appliances and furniture, or simply moving. 

Get Mortgage Life Insurance.

Here is an important topic. Usually, when someone decides to buy a house, the concept of mortgage insurance pops up. Is it mandatory? Who needs it? What type of insurances are there? What kind of protection does it offer?

Mortgage insurance, referred to as CMHC insurance, is mandatory in Canada for down payments between 5% and 19.99%. If you can’t meet the 20% down payment, you will have to take the mortgage default insurance from your lender. In short, this plan protects your lender in case you can’t make your regular payments. However, if you can meet a 20% down payment, you won’t need to get CMHC insurance.

Nevertheless, life can be unpredictable, and especially if you have a family, having insurance can make a huge difference in their financial security. This is where Mortgage Life Insurance arises. Unlike CMHC insurance, this policy aims to protect you and your loved ones, not your lender. Its main goal is to ensure that your family can pay the bills (mortgage or any others) when you no longer can, by providing coverage that can be used freely by your designated beneficiaries. 

Mortgage Insurance Group is the right choice for you.

We know it: entering the Canadian housing market isn’t easy. And if you are in your 20’s or 30’s, the whole thing can even feel more daunting and risky. So, we decided to create a Mortgage Life Insurance plan that aims to make you feel more supported and protected. You. Not your lender!

Our simplified Mortgage Life Insurance plans are flexible, affordable, and very easy to apply. And when we say easy, we really mean it. With Mortgage Life Insurance, you won’t need to go through medical exams, health questions, inconvenient face-to-face meetings, or tedious paperwork. With just a few clicks, you can receive the insurance plan you and your family deserve and ensure that your home will always stay in their possession, regardless of what the future holds.

Our coverage goes up to $1,000,000, and you are the one who decides for how long you want the protection (10, 20, or 30 years). Even if your mortgage gets paid, you keep your coverage for other expenses, like college tuition or caregiving. With our flexible policies, your family won’t ever be burdened with unnecessary financial troubles.

If you want to know more or receive assistance through the buying process, don’t hesitate to contact our team of experts.

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