Before starting the search for your new apartment or condominium, it’s important to think about your objectives.
What are you hoping to achieve by buying your first place? Are you looking for more space, or to be in a better location? Do you wish to be closer to work and cut down on your commute, or to be closer to the city? Figure out what your goals are and put them down on paper. This can help you mentally succeed in your home search.
Your debt vs. income ratio
The CMHC (Canadian Mortgage and Housing Corporation) recommends that your total monthly housing costs (including mortgage payments, property taxes and heating expenses) should be no more than 32 per cent of your gross household monthly income.
In addition, your total monthly debt load (meaning housing costs, car loans, credit card payments, personal loans, line of credit payments or other debts) shouldn’t exceed 40 per cent of your monthly income.
Get your downpayment together
Most lenders require a downpayment of at least five per cent on the first $500,000, and 10 per cent on the remainder.
If you are struggling to fund your downpayment, good sources include the RRSP Home Buyers Plan in Canada, which is a great option for first time homebuyers. It allows you to withdraw up to $25,000 from your RRSP to buy a home. However, keep in mind that this money must be paid back after you purchase the home, in yearly instalments.
Other ideas for putting together a downpayment include:
- getting a part time job and dedicating all earnings to your “downpayment fund”
- asking your family to help you with a financial contribution
- selling your vehicle and relying on solely on transit
- selling furniture or other goods of value, such as collectibles, rare items, etc.
How to save money and not even notice
Perhaps the best way to work towards saving for a downpayment is commit to putting a portion of every paycheque into a savings account every time you get paid. It’s best to do have automatic withdrawals, so you are not tempted to spend the money. Using a different bank for the downpayment savings account, and hiding (or freezing!) the bank card will help stop the temptation to drain the account.
With apartment and condo prices rising in the double digits annually in many urban markets, one bedroom condos over $500,000 are becoming more commonplace, especially in the downtown cores of major cities like Vancouver and Toronto.
Budget accordingly and figure out if you want to live downtown in a smaller space, or live in the suburbs and have more square footage, ideally on a rapid transit line.
Other expenses and closing costs
The downpayment is not the only expense you will incur when purchasing your first apartment or condo, so be prepared. Other expenses you can expect to incur include legal and notary fees, moving expenses, property taxes (depending on your jurisdiction), property transfer taxes and fees, and more. Your real estate agent or realtor can advise on what additional expenses you can anticipate.