Many renters aspire to own their own home one day. Renting may seem like money that is being thrown away instead of creating equity in a property. However, there are many factors to consider when deciding to rent or buy a home.
Canadian residents deserve to live in a home that provides them comfort and reflects their personal lifestyle. It is important to think through both options before creating a significant financial obligation for oneself by buying a home. A resident's current assets and the state of the housing market may also be worth considering when choosing to buy or rent.
Explore a few of those factors when thinking of buying or renting a home today.
Can you put down a significant down payment toward the purchase price?
Canadian lenders are looking for those first-time buyers that are willing to put down 10 per cent or more towards the purchase of a home. This helps establish some initial equity in a home and may improve the likelihood that an applicant is approved for a conventional home loan. Those who are able to make a down payment of 10 to 20 per cent may receive better terms on their loan. Those who make a smaller down payment may be obligated to pay mortgage loan insurance wherein payments do not go toward paying down the balance of the mortgage loan but serve to protect lenders in case of a default or foreclosure. One Toronto financial planner explains that the less potential homeowners put down, the more they will end up being charged.
Can you afford closing costs?
If a renter is looking to get into their first home, it would be an advantage to budget another 1.5 to 5 per cent, as the funds will be needed to cover closing costs. These costs may include moving costs, seller/buyer property tax adjustment, home inspection fees, lawyer fees, land transfer taxes and appraisal fees. An individual will want to have the Riversong home inspected prior to any purchase. A couple hundred dollars for a building inspection is a small price to pay toward a high-end home, according to Scotiabank's managing director of real estate secured lending.
Is now the right time to buy?
Depending on the state of the market or regulatory practices, it can be better to purchase before regulatory changes take place or to wait until the market becomes more advantageous to homebuyers. Housing bubbles in the past, such as those that occurred in Vancouver and Toronto, may leave homeowners paying more for a home than what the market deems it worth at a later date. Housing markets and ever-changing regulations can motivate individuals to wait to buy or to jump on a purchase.
Can you afford the additional expenses that come with homeownership?
Routine maintenance and emergency repairs are only a few of the additional expenses that may pop up as part of owning a home. Individuals switching from renting to owning a home may be surprised by the number of bills, including utility bills and property taxes, that they will be responsible for paying. In addition, a home may not appreciate as expected and money may be tied into a home that could be used for other investments. There is an opportunity cost worth considering when choosing to purchase rather than rent a home. Canadian residents need to carefully weigh their options before taking on the responsibility of home ownership.