First time home buyers are financially fit and educated
(TORONTO, ON) — With housing prices reaching monstrous heights in some parts of the country, the question on everyone’s mind is “how do first-time home buyers do it?”
The answer: very carefully.
Recent data from a study commissioned by Genworth Canada shows that today’s first-time home buyers are not blindly diving into the housing market; rather they are taking a financially balanced approach while carefully managing their debt levels.
The survey points out that first-time home buyers are primarily millennial, and:
- More than half (57 per cent) have taken care to avoid taking on additional debt since buying their home.
- More than one-third (36 per cent) have doubled-up or increased their bi-weekly mortgage payments, or made a larger, one-time lump sum payment
- First-time home buyers are making a median down payment of 12 per cent, ranging from 8 per cent in Atlantic Canada up to 21 per cent in Toronto.
Jeffrey Schwartz, executive director of Consolidated Credit Counseling Services of Canada, is encouraged by the results.
“With the stakes this high, I’m glad to see that young Canadians are employing some sober second thought,” says Schwartz. “This helps quell the idea that millennials are sacrificing their financial security just to get into the housing market.”
However, the survey also shows that this batch of first-time home buyers is enjoying advantages far greater than the general population. They earn a high income, with 31 per cent with household incomes over $100,000; 81 per cent are working full-time; and 89 per cent hold a post-secondary education.
With BMO’s Household Savings Report showing that nearly one in five Canadians failed to save a dime in 2014, Schwartz worries that too many people are being shut out from the housing market.
“There are plenty of would-be home buyers who simply don’t have the luxury of getting into the market,” adds Schwartz. “Building a 20 per cent down payment is impossible if you are barely making it from paycheque-to-paycheque.”
With that in mind, Consolidated Credit offers the following tips to help prospective home buyers strengthen their finances to help move them along to home ownership.
Get ahold of your spending – It doesn’t really matter how much you’re earning, if you’re spending most of your money without realizing where it’s going, give yourself an audit. It’s as easy as downloading last month’s bank and credit statements and tallying up what’s going where. You will probably be surprised at least a few times on where your money goes.. Try using our free budgeting app to help track spending on-the-go.
Automate your savings – Don’t join the 19 per cent of Canadians who failed to save last year. Sure, many people are living paycheque-to-paycheque and it can be hard to eek out significant savings. But you don’t have to start with “significant savings.” After analyzing your budget, see if you can make adjustments to allow you to set up a specific amount to be automatically directed to your savings account. Start small and try to increase the amount over time.
Check your credit – Your credit score will have a significant impact on the amount of money a lender will be willing to give you, and at what interest rate. Get familiar with your credit profile long before you start house hunting, so that you have enough time to correct errors or focus on areas that need to be rebuilt.
Go on a debt diet – Aside from improving your credit score, cutting down on debt will also indirectly increase your ability to save for a down payment. By attacking your debt, you will cut down on the overall amount of interest you will have to pay. In particular, focus on eliminating credit card debt and the hefty interest that comes with it. Try out our credit card debt calculator and see exactly how much potential savings you are wasting on interest.
About Consolidated Credit Counseling Services of Canada, Inc.:
Consolidated Credit Counseling Services of Canada is a national non-profit credit counselling organization that teaches consumers about personal finance.
For more information or to request an interview with Jeffrey Schwartz, please contact: