Buying your first home can be a challenge for just about anybody, but in an expensive housing market like that in Toronto, your purchasing power doesn’t go very far. The inclination is to focus on doing what you have to just to get in to the market today, even if it means maxing out your mortgage and shortchanging your future financial goals.
According to a new study from real estate broker, Royal Lepage:
- In addition to rising costs of living and rising costs of real estate, the survey found that the introduction of the new mortgage stress test eroded Millennial’s purchasing power by 16.5% on average.
- Millennials are having to get more creative to get into the housing market, with many indicating that they are saving more, trying to pool money with their partners and taking money from the Bank of Mom and Dad
- Many Millennials are able to make mortgage payments, but are challenged to come up with the required down payment to buy a home and see that as their biggest hurdle
Think about the down payment
According to the survey, many people seem ok with budgeting for high mortgage payments in the future, but find it hard to put the money aside for a down payment today.
“This should serve as a bit of a wake-up call for prospective homeowners. Your costs as a homeowner are only going to increase with home maintenance and home repair, as well as the potential for rising interest rates. Similarly, your ability to put away savings while simultaneously managing mortgage payments is only going to be even more important to avoid overloading yourself with debt,” says Jeff Schwartz, Executive Director, Consolidated Credit Counseling Services of Canada.
Consider this a preview to homeownership. Perhaps you need to reduce your household budget and reallocate your spending to be able to support mortgage payments and other financial goals more comfortably. It’s about establishing good savings habits while you don’t have the pressure of mortgage payments.
Make the right compromise
In Toronto, with high housing prices, low inventory and lots of first time buyers competing for entry-level housing inventory, prospective buyers often have to make compromises and veer from their initial plans during their house hunt, just to stretch purchasing power.
Make sure that the compromise that you make isn’t to veer from your budget. It can seem reasonable in the moment to go beyond your budget, just to secure the property you desire, but there are long term implications. You could be backing yourself into a financial corner or delaying other financial goals such as saving for retirement.
“Make smart compromises in your house hunt that are budget-friendly and also increase your purchasing power, like adjusting expectations around size and type of dwelling. Consider moving out of the urban core where housing is less expensive,” says Schwartz.
With Toronto housing affordability being an ongoing challenge, first time homebuyers must be proactive in managing housing costs. Do you need help to reduce your debt to make this dream a reality? Call us at 1-888-294-3130 or get started with our free online debt analysis.