Becoming a homeowner can be a daunting and stressful journey, especially if you’re trekking solo. High home prices, ever-changing mortgage rules and the need for a healthy down payment seem easier to manage if you’re one-half of a team. But that doesn’t mean it’s impossible to buy a home alone. After all, plenty of Canadians are doing it.
Last year, real estate search portal Point2 revealed that 42 per cent of potential first-time home buyers considered applying for a solo mortgage. Most of those buyers were older, but according to the survey, 38 per cent of the 18 to 34 crew were still thinking about going at it alone.
If you want to buy a home on a single income, here’s how to do it.
Get Your Finances in Order
The first step to buying a home solo is figuring out your financials. If you have debts, pay them off. If you’re concerned about your credit, make your payments on time. Take a deep dive into your finances to ensure everything is correct, up-to-date and on track. Doing so will put you in a better situation when you apply for a mortgage, and it’s also great practice for the day you do become a responsible homeowner.
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Make a Detailed Budget
Once you have your financials in order, make a spreadsheet of all your expenses and income to see what you’re working with. By figuring out where your money is going and when, you can get a better idea of what kind of mortgage you can afford. Don’t forget to add expenses like gas and hydro, property taxes and maintenance. Because when you own a home, unexpected expenses always come up.
Plan for a Rainy Day
When you purchase a home solo, all the financials fall on you. That means you need a backup plan if you suddenly lose your job or sustain an injury. Some people consider getting disability or critical illness insurance, while others put together a savings plan. A good rule of thumb is to squirrel away three-to-six months of expenses in case anything ever comes up. That isn’t always practical, of course, so ensure you save what you can in addition to a potential mortgage payment.
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Determine Your Down Payment
Your down payment affects your mortgage as it helps determine what you can afford and whether you need mortgage insurance. In Canada, if your down payment is less than 20 per cent of the purchase price, you will need to pay insurance on your mortgage in case anything happens.
Your down payment can come from many sources: savings, a gift from a family member or official accounts like your Registered Retirement Savings Plan and the First Home Savings Account.
Get a Mortgage Pre-Approval
Before you start house-hunting, you need solid advice on what you can afford and what kind of interest rate you qualify for. That’s why it’s a good idea to work with your bank or a qualified mortgage broker, who can lock in the best rate for you now. You can still get a better rate if it drops, but you’re also protected if rates increase.
Choose Your Mortgage
There are many different types of mortgages, with varying terms, amortization periods and interest rates. Determining which type of mortgage is for you, along with your ideal payment schedule, is important because if you choose to change things up in the future, you could face heavy penalties. For example, if you only plan to stay in your place for a few years, look at a shorter term. Or, if you don’t mind paying more interest in exchange for a lower payment schedule, pick a higher amortization period.
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Find Your Dream Home
Once your finances are in order, it’s time for the fun part: finding a place to live. Make a list of everything you want in your dream home, but be realistic about the things you’re willing to compromise on. Buying a home in Ontario is different than buying a home in New Brunswick, just as buying in the city is different than buying a property in the suburbs. If location is key, accept that you might have to settle for a smaller property. Or if you’re set on a gorgeous yard, remember that you might have some home renos in your future.
Most importantly, don’t even look at properties above your affordability. Focus on what’s within your buying power now and work with a professional to secure the best price. Before you know it, you’ll be packing those boxes and counting down the days until you get the keys.
