BUDGETING FOR A HOME
Buying a home is the largest purchase most Canadians will make, and in the current landscape of changing regulations and rising interest rates, buyers need to educate themselves more than ever in order to truly understand the homebuying process. Determining how these recent changes will impact the type of property you can afford is the first step in deciding whether or not now is the right time to purchase a home.
“The real estate market in Canada continues to be competitive,” said Jean-François Laurin, regional director, Eastern Canada, mobile mortgage specialist at TD. “Combined with rising interest rates and the new B20 mortgage qualifying guidelines, these are all factors that may impact the type of home customers may purchase. But our advice always comes down to affordability.”
The term affordability in real estate is always relative, and is much more comprehensive than most people think. Rather than simply defining affordability by house price, buyers need to determine a truly realistic budget based on their lifestyle, goals, and priorities.
“It’s not just your mortgage; there’s insurance, taxes, monthly bills, and more,” said Teddy Kyres, mortgage broker and president of Groupe Hypothécaire Orbis.
“Determine what you can afford based on this personal budget as opposed to what the bank approves you for; you don’t want to be house poor, not being able to go out for dinner or to pursue your passions. You still want to be able to live your life.”
Once you determine your budget, the next step is to seek a mortgage preapproval from the bank. Having a preapproval helps ensure that you don’t waste your time shopping for homes outside of your price range, and it also lets sellers know that you’re a serious buyer and that financing won’t be an issue.
“There are more preapprovals today than ever before in the past as a direct result of the changes to regulations and the rising rates,” Kyres said. “People are being more proactive because they don’t want to spend time on properties they can’t afford, and they also want to lock in lower rates while they can.”
If buyers see a disconnect between their budget and the listing prices of homes that match their needs, responsible financial institutions will typically advise them to explore other options.
“We’d encourage them to consider alternatives or hold off until they can save for a larger down payment to stay within their budget,” Laurin said.
“With careful planning and a good savings plan for a down payment, it is possible to get a property that works with their lifestyle and budget without ending up with buyers’ remorse after they’ve closed the deal.”
Cutting back on expenses, ramping up your savings plan to reflect what your mortgage and other costs will be, and for first-time buyers borrowing funds from their RRSPs, are all ways to help increase the size of your down payment and prepare financially for the realities of homeownership.
“Creating a monthly savings plan that reflects what your mortgage payments will be is a great way to save extra money while seeing what life is like on that particular budget,” Kyres said.
“There’s nothing wrong with delaying your plans to purchase if it’s the most responsible choice for your personal financial situation, and that’s definitely something a mortgage professional can help you determine. For instance, people looking to buy their first home may opt to rent longer, or find other ways to increase their savings.”
As for people who already own a home, the recent changes to mortgage regulations are less likely to affect their purchasing power.
“It’s not like suddenly you won’t be able to afford the house you’re in, especially in the short term,” Kyres said. “That said, when homeowners go to renew their mortgage, their rate will be higher — which, long term, could impact the market and affordability, and people may need to amortize over a longer term to keep payments lower. But really, it’ll impact first-time buyers more than current owners.”
If you’re planning to purchase a home in the near future, or are seeking guidance about renewing your mortgage, the best thing to do is to contact your mortgage professional to discuss your situation, and learn about the current mortgage rates and regulations.