Canada Mortgage Housing Corporation (CMHC) has some interesting statistics available on home purchases. It normally takes people nine to fourteen months to decide to move. However, once someone has made the decision, they normally act promptly when they see a house they’d like to buy.
For the first time in 2015 more first time home buyers used a mortgage broker than going directly to a bank. So at The Mortgage Centre we see a lot of first-time home buyers!
One of the most common questions I get is, “Should I wait to buy a home until I have more money saved?”
I think that good job stability and credit history are almost more important that having a significant down payment on a house. Job stability will give you the financial means to pay for the home expenses. Mortgage lenders are now conservative to whom they lend to. A good credit history is mandatory if you’re putting less than 20% as a down payment on your first house. And your credit history proves you can pay your financial obligations on time.
Buying a home is likely the largest financial purchase you will make in your life. As a mortgage professional, I’m programmed to take the financial approach.
Let’s consider if it makes sense to buy a house now with a minimal down payment, or wait until you have more money saved.
Most first-time homebuyers can purchase a decent condo or home for the price of $280,000. With $14,000 (5 per cent) as a down payment, the monthly mortgage payment will be approximately $1365.
Home prices are slated to rise in the next year. The average price increase in Guelph, over the last forty years, has been approximately 6 per cent. However, let’s take a conservative estimate in this example. If home prices increase only by 4 per cent in the next year, the same house you can buy today for $280,000 will cost $11,200 more in a year or $291,200. Assuming that mortgage rates increase by 0.75% in the year, the monthly mortgage payment will increase by about $43 per month, or it will cost you an additional $2580 over the 5-year mortgage term.
In order to circumvent these increases, the borrower would need to put 10% as a down payment to get a similar mortgage payment. They will need to save an additional $15,100 more in a year, or about $1260 more per month over 12 months.
If you don’t have the 5 per cent as a down payment, some good mortgage lenders are still offering mortgages with borrowed down payments to people with excellent credit and job stability.
Waiting another year to buy your first home can be costly. If you have good credit and job stability, be proactive with your financial future and purchase a home. More and more individuals are buying homes as single people too!