Since the financial effort required to buy a first home has increased since the turn of the 2000s, it is better to plan ahead. And 2021 is a good year to start.
According to forecasts from the Professional Association of Real Estate Brokers of Quebec (APCIQ), the share of disposable income allocated to mortgage payment rose from around 15% at the turn of the 2000s to just over 21% in 2020 .
Despite the recent drop in interest rates, it is therefore increasingly difficult to own a home. And according to APCIQ economists, this uptrend is likely to continue in 2021. If you ever want to own your own home, it’s best to start getting ready right away.
Here are five resolutions that will help you plan to buy your first property in 2021.
1. Plan for purchase costs
We must first think about the down payment. Allow a minimum of 5% of the purchase price for a home under $ 500,000, and 10% for the upper bracket in the case of a more expensive home. For example, for a house sold for $ 350,000, the minimum 5% equals $ 17,500.
But the down payment is not everything. You must add the notary’s fees, transfer duties, inspection fees, appraisal fees, taxes (in the case of a new house), moving costs, the purchase of new furniture, etc. In short, in addition to the down payment, it is recommended to provide an amount that corresponds to about 3% of the cost of buying the house.
2. Make a monthly budget
The second thing to do is to plan the monthly fees you want to allocate to your property. You can calculate your mortgage payments with a mortgage calculator available on the web, for example that of Multi-Prêts.
Then, you have to calculate the amount of municipal and school taxes, maintenance costs (such as mowing the lawn and snow removal), electricity and insurance. Also plan an amount for renovations.
3. Set goals
It’s easier to accumulate the down payment and purchase costs by setting small monthly goals. Note that according to the APCIQ, it takes an average of five years to save the minimum down payment on the purchase of a first home.
On the one hand, you could save a monthly amount with every payday, and on the other hand, you can go even faster by limiting non-essential expenses. For example, limit the restaurant or even the purchase of cigarettes if you are a smoker.
4. Reduce your debt
It’s more difficult to borrow for a mortgage if you have a lot of debt and are already paying a lot of interest every month.
Before applying for a mortgage, it is best to reduce debts that are negatively affecting your credit report.
Start by liquidating your smaller debts and then tackle the larger loans.
5. Obtain a mortgage pre-authorization
When you’re ready to buy your home, go to the bank for a mortgage pre-approval.
After analyzing your borrower file, the bank will authorize you to borrow a certain amount and freeze your rate for a given period.
Then you can get a better idea of the house you can afford to buy.
Advice
- Before buying your home, make sure you have a solid backing, for example by being sure you can afford the renovations that will occur over the years.
- Sometimes it is better to lower our ambitions. If the house of your dreams is not within your reach, nothing prevents you from buying smaller, if not to wait until the market is more favorable or until you are in better financial position.
- In addition to the down payment and purchase costs, it is important to keep an emergency fund for the unexpected.
Ghislain Larochelle is a professional registered with the Ordre des ingénieurs du Québec and the OACIQ.
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