The tightening of mortgage rules, announced by the Federal Government last fall, caused quite a stir and has raised a lot of concern. For buyers, generally speaking, this means that they must either save a bit more or set their sights on a more affordable home.
But let’s take a closer look at the impact on buyers under the age of 30. Burdened by the reimbursement of student loans or other debt, and faced with entry-level wages, must they give up their dream of home-ownership?
The good news is, the answer is NO! Owning a home before age 30 is still possible.
Firstly, it is important to save! Indeed, for both first-time and seasoned buyers, a down payment is still required! Ideally it should represent as much as 20% of the value of the property. However, there is no need to panic should that not be possible. Mortgage loan insurance is available from the Canadian Mortgage and Housing Corporation (CMHC) or from Genworth Financial Canada. The down payment is then set at a minimum of 5%.
Additionally, one must set aside 3% of the value of the house to cover start-up costs (notary, welcome tax, renovations, etc.)
The question is, how does one save that much money? Here are a few ideas:
- Collect spare change, that is, put aside all the coins from your daily errands. You’ll notice small change adds up quickly!
- Automate, or rather, set up a monthly automatic transfer of a fixed amount to be deposited into a savings account, and include this in your budget.
- Avoid wasting: buying used items, making your own lunch, and clipping coupons are all ways to avoid spending uselessly.
Another important point to consider when aspiring to home-ownership, is paying one’s debts! In fact, all debts will be considered when calculating borrowing capacity.
Furthermore, the fewer debts there are to pay, the more money there is available for saving. The debts to be reimbursed first and foremost are consumer loans (credit card or credit margin, personal loan, etc.)
Regarding student loans, accelerated payments are rarely advantageous since student loans are usually amortised over a period of 10 years, the applicable rate is low, and interest payments are tax deductible. This surely makes some people happy! So consider paying off all of your credit cards!
These are the fundamental principles to consider for any aspiring home-owner under age 30. You’ll find more information in the blog article Desjardins, Comment acheter sa première maison avant 30 ans.