Priced out of the market? Here are seven tips to help achieve your homeownership dream

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Priced out of the market? Here are seven tips to help achieve your homeownership dream

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from TD Insurance

  1. property
  2. personal finance
  3. mortgages
  4. family finances
  5. debts

Your dream could still become a reality with some creative planning and ingenuity

A home for sale on Emerald Street in Hamilton, Ontario. A home for sale on Emerald Street in Hamilton, Ontario. Photo by REUTERS/Carlos Osorio/File Photo

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If you’re a wannabe homeowner it’s daunting to think that rising interest rates and costs could mean it’s no longer affordable, especially in some of the priciest cities like Toronto and Vancouver, but your dream could still be a reality with a little creative planning become and ingenuity.

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To figure out how it works, it helps to understand the qualification process. The mortgage amount a buyer qualifies for is based on household income, money available for a down payment, and money owed on outstanding debt.

If you are single, it can be even more difficult to afford your own place. To get an idea of ​​how much mortgage you qualify for, check out a free online mortgage calculator from your bank/lender, the Financial Consumer Agency of Canada, or Canada Mortgage and Housing Corp.

If you find you can’t afford to buy a home, consider some of the options below as you plan to own a home during these trying times.

Reduce your overall debt burden beforehand: Outstanding car loans, credit cards, and lines of credit reduce the mortgage amount you qualify for. Eliminating that debt first increases the mortgage you can get.

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Increase the amount of your deposit: The more money a borrower has upfront, the lower the mortgage they must qualify for. If you have invested in a registered retirement savings plan (RRSP), you can borrow from yourself under the homebuyer plan to make your new home more affordable.

Just make sure you adjust your homeowner’s budget to pay back 1/15th of the total amount you’ve withdrawn from your RRSPs annually. If you don’t pay yourself back, it means that the outstanding amount is considered taxable income that year.

Consider shared property: Buying a home with a trusted friend or family member who is looking to invest in real estate or move into their own home can ease the buying burden. Two (or more) individuals with income on the application equates to a higher mortgage for which you may qualify. And a slightly larger house will be cheaper than two smaller houses.

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If you might want to give this a try, make sure you choose your co-owner carefully. For example, if you hate clutter and your co-owner is less organized, it could lead to a tense living situation. Another option is to buy a house with two separate living spaces around a common common area.

However, make sure you put all agreements in writing after each of you has obtained independent legal advice. This also prevents unnecessary conflicts when you decide to sell.

Buy with the intention of having a tenant: If it’s a standalone suite and you have a lease, depending on your lender’s policies, 50 to 80 percent of that expected rental income can be used to qualify for the mortgage. This can help a new homeowner get on the market faster than having to wait until they have a large enough down payment to make the mortgage affordable.

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Adopt a roommate to prevent being poor: If you qualify for the mortgage amount you need but are concerned about ongoing maintenance costs, then the income from one or more housemates can provide a solid emergency reserve. Set rental income aside so the money is available for upgrades or those inevitable repairs that every homeowner faces.

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Look at ownership in smaller places: Dormitories can often be cheaper than larger centres. If you no longer have to commute to work every day, this option becomes even cheaper. However, when faced with a longer daily commute and inflated gas prices, you may need to conduct a cost-benefit analysis to ensure you can afford to live outside the city.

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get rid of your car: If you want to own a home in the city, you can free up some space in your budget by cutting your vehicle expenses. Owning a vehicle is a significant financial investment that involves much more than a monthly loan or lease payment. Then there are the additional costs for insurance, parking, maintenance and repairs.

If you work from home most of the time, you may find that you don’t need a vehicle. Public transportation, taxis, chauffeur services, or a car-coop/ride-sharing service can get you to your destination inexpensively without limiting your homeownership options.

If all of these options seem overwhelming, contact a nonprofit credit counseling agency for a free financial check. There are alternatives to home ownership that you may not have thought of.

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You may also be wondering if buying or renting for a while is right for you. An impartial, knowledgeable assessment of your situation gives you peace of mind and helps ensure you are on the right path to making your dream a reality.

Sandra Fry is a Winnipeg-based credit counselor with the Credit Counseling Society, a nonprofit organization that has been helping Canadians with debt management for more than 25 years.

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