Proactive planning for a major purchase like a home is awesome, right? But let’s face it, we’re in a pandemic, and most of us are as busy and stressed as ever, and not as organized as we’d like. If you’re one of those people who didn’t have a crystal-clear path to home ownership mapped out, you can still buy fairly quickly in a market primed for buying. Here’s how.
Park the pressures
I get it. You want in. You’re possibly thinking that if you don’t buy now, prices will escalate at a faster pace than you can save. Layer in thousands of Canadians desperately wanting their own home for health and financial peace of mind, and it’s a pressure cooker of stress.
Take 10 very deep breaths and pace yourself. A cool head will lead to a better decision. And rest assured: economists almost unanimously agree that these historically low current mortgage rates are expected to remain low for a while longer, until the economy starts to pick up.
Slap together your down payment
Maybe you haven’t been strategically saving for a down payment, or perhaps you have. The rules are the same for everyone. You need at least five per cent down on the purchase price to buy, and the best practice is to have 20 per cent. Less than 20 per cent means you’ll be paying hefty mortgage insurance premiums (there is a sliding scale on the premium to incentivize you to put more money down).
Try these eight ways to quickly piece together your down payment while still having a bit of money left over for closing costs, taxes and some savings.
- Did you know you can borrow money from your RRSP for your first purchase? It’s called the RRSP Home Buyers’ Plan, and it allows you to borrow $ 35,000 from your RRSP (for a couple that’s up to $ 70,000), tax free, and pay it back over 15 years.
- You can take money out of your TFSA at any time, without taxes, and get your contribution room back the following year. Consider using your savings from here.
- Sell off anything you don’t need. This is the part where you and your partner (if applicable) purge every room, including the garage, and sell electronics, snowmobiles, second cars, furniture, appliances and more. The goal is to raise a few thousand dollars.
- If someone owes you money, call in the loan. Sorry to be crass here, but now is probably not the right time to be lending money, if you want to buy a place. This principle applies if your business owes you money, too.
- Early inheritance. Talk to your family to see if they want to pitch in. My advice is that you ask for a no-strings-attached gift, also known as a living inheritance. It’s still OK if you need to pay it back, but work out those details using a budget so that you can legitimately afford the repayment.
- Continued regular savings. Don’t underestimate the power of steadily tucking away money for your down payment with every paycheque. Figure out how much makes sense, and capitalize on the fact that you’re not spending nearly as much as you were, pre-pandemic. This is also the part where you will want to trim anything that’s non essential from your spending.
- Re-prioritize your retirement savings — but only temporarily. You can press pause on your retirement savings to quickly build your down payment. But don’t forget to press play again after you’ve taken possession of your property. Retirement readiness is just as important as this first purchase.
- Amplify your income. This can be through a side-hustle, taking on a few extra shifts at work, freelancing, booking in a few more client appointments and more. Get creative.
Get your dream team together
When you’re moving fast, you should use experts. It should save you time and help you make a better purchase. Get a referral for a realtor (or two) and make a “wish list” of must-haves for your property. A great agent will stick to your list, and still offer helpful suggestions so that you get good value. Also, get a mortgage pre-approval in place with your bank or a broker. Some real estate agents won’t take you on without the pre-approval. You’ll eventually need a lawyer, and a good one, who’s hyper organized and doesn’t let the work pile up until the closing date.
Your agent will probably instruct you to pull together a certain amount of money for a deposit. Get this recommended sum moved to your chequing account so that on offer day you can get a bank draft (yes, you need to physically walk into the bank for this).
Home poverty is the pits, and it’s 100 per cent avoidable when you don’t overbuy
This is going to be the largest purchase you’ll make in your life. So stick to the fundamentals of buying well; be clear about what you really want in a home and how much your budget can comfortably handle when all home ownership costs are taken into account (mortgage, taxes, maintenance, insurance, parking and more).