If there is one thing we have all noticed lately it’s how crazy home prices are. If there is a second thing we have all noticed it’s how crazy rental rates are to rent a house or apartment as well. So the burning question of late is: Does it make sense to buy a house now or wait, as a first-time home buyer?
As a first-time home buyer, there is a lot to wrap your head around when you step into the world of homeownership. How much of a mortgage can you afford? How do you save your downpayment? Should you keep your downpayment savings in RRSPs or a TFSA? What are closing costs? What is land transfer tax? Where do you want to live? The list literally goes on and on. But, the first question you should really ask yourself is: Is now the right time to become a first-time home buyer? To help you make this decision I’ve outlined a few pros and cons as well as a few key things you should think about before heading out on your house hunting adventure.
First, the pros of buying a house now.
Interest rates are at an all-time low
Historically we have never seen interest rates this low before. The lower the interest rate you pay on your mortgage, the more of the principal you pay off with each mortgage payment. This means that you can create equity in your home more quickly than if your interest rate was higher. It also means that you have more buying power depending on your monthly cash flow.
Home values are rising and that could mean more equity
The average price of homes sold in Barrie in July 2021 was $822,444 which is an increase of 30% over July 2020 according to CREA. That means that individuals who purchased a home in July 2020 saw a 30% increase in the value of their investment. It’s true that we can’t guarantee that trends that steep will continue but it’s less likely for values to drop than to increase given the trends we have seen in the last 5 years in the real estate market.
There are many good incentives to help you get started
Simcoe County has a program called the Affordable Homeownership Program that could specifically help you buy your first home in Barrie. It’s a program the helps renters with lower income, purchase a home by providing a 10% down payment in the form of a forgivable loan.
The Government of Canada has a First-Time Home Buyer Incentive program which you might be able to take advantage of as well. It’s an incentive specifically designed to help Canadians buy their first home giving you funding for 5-10% o the home’s purchase price to put towards a down payment.
Mortgage options are plentiful
When you work with an experienced mortgage broker like myself, you’ll be sure to hear about just how many mortgage options are available to you as a first-time home buyer. From the length of your mortgage amortization to being able to make lump-sum payments to pay down your mortgage, to private mortgage options for those that are self-employed or have higher debt-to-income ratios. There are so many mortgage options out there to choose from. If you work with your bank though, you’ll likely be told there are limited options to choose from when it comes to securing the mortgage you need to buy your first home. This is why it’s more important now than ever before to work with a mortgage broker instead of accepting the first-rate that your bank offers you.
Paying a mortgage is better than paying rent
This one might seem like a no-brainer but, when you pay rent to a landlord month after month that money is being thrown out the window. Whereas if you were to buy a home and pay a mortgage instead of rent each month, that money accumulates into home equity and typically increases in value year after year.
Next, the cons of buying a house now
It’s a seller’s market with low inventory
With the real estate market being so hot right now, there is limited inventory. Houses sell within a week or two, sometimes even less time. This can make buying your first home even more stressful and frustrating than it might already feel in a more normal market. Buying your first home is a big investment and a long-term one as well. It’s not like renting an apartment you can give your 60 days notice on if you want to move. You want to be sure before signing that offer to purchase that you are 100% confident that the home you buy is one you will want to stay in for a few years at the minimum.
Competition is steep
Given that inventory is low in the real estate market, that naturally means that competition will be more aggressive because there isn’t a whole lot to choose from. That means more competitive offers with potential home buyers offering more than the asking price, bidding wars and firm offers with no conditions. When inventory is low you might expect to put offers in on many homes before you actually have an offer accepted by the seller.
Firms offers mean no time for inspections
A firm offer is an offer to purchase a home without any conditions. Typically when you make an offer to buy a home you would put in a condition of being able to secure financing and a condition to have a home inspection. These act as a bit of a fail-safe in case you find issues during these inspections or if your lender won’t approve you for the financing you need. If the conditions of the offer are not met you can back out of the deal fairly unscathed. However, with a firm offer, you’re making an offer to purchase without any conditions. This means you don’t have an opportunity to have a home inspector take a look at the structure of the home to make sure it’s a sound purchase. It also means that you had better have a pre-approval in hand from your mortgage lender before you make that offer to make sure you will get the financing you need to fulfill the mortgage obligations. If you make a firm offer and then can’t get financing for it, you’re still on the hook to come up with the money.
Mortgage rules are tighter
Before 2019 mortgage rules had changed to include the stress test. Since 2020 the pandemic has inspired more rules to be put into place when it comes to mortgages due to increased financial risks. Lenders want to see higher credit scores, hefty cash reserves for your first couple of mortgage payments and even larger down payments.
Remote work today doesn’t guarantee remote work tomorrow
Many Canadians have been seen moving out of metropolis areas like Toronto, and into areas like Barrie, Innisfil, and many other surrounding smaller towns like Midland, Alcona, and Elmvale. With remote work on the rise during the pandemic, some employers plan to stay with a remote work environment having learned to operate without a brick and mortar location. Without the need to physically be in the office, workers are taking to the wind and finding new places to call home without the worry of ever having to commute. But, does a remote work environment today mean a remote work environment a year from now? That’s something to think about before buying a home thousands of miles away from your workplace.
When we review the pros and cons of buying a home as a first-time home buyer in today’s real estate market there is a lot to think about. Just because there are cons, that doesn’t mean that you shouldn’t buy now. It means you should make sure you’ve thought through the purchase you are about to make thorough to make sure it makes financial sense for you today and in the future. If you have questions about your mortgage options or you would like to get pre-approved in advance of your house hunt (which I definitely recommend), give me a call at (705) 315-0516, and let’s set up a meeting today and get started!
It’s free to meet with me to discuss your mortgage needs, and with my ample years of experience, I’ve got the answers you’ve been searching for. Let’s talk.