Why You Should Stop Renting and Buy
Steps For Taking The Next Step
Many people continue to rent well into their twenties due to the perceived cost of real estate, but in the long term, renting may actually cost more. Homeownership builds credit and equity and is a good investment for the future, but understandably, many people are on the fence about the rent vs. buy debate.
So to help you decide whether it’s a good time to stop renting, here’s a look at when it’s a good time to consider buying a home.
Is it Better to Rent or Buy?
With renting a place, you have the freedom to move around and explore new places. On the other hand, you are pretty dependent on your landlord’s rule and will never see your rent money again, in any form. Buying a home is a good investment since the value of real estate tends to increase a considerable amount each year. So what you pay for your home should provide a good return on investment over time.
Consider the following benefits of homeownership if you’re on the fence about buying a home.
The Benefits of Home Ownership
A Place to Call Your Own
Owning your home means having a place to call your own, and the freedom to do what you please with the property. If you want to paint and make upgrades to your home, your hard work will pay off because you are increasing the value of your home, not the value of your landlord’s property.
And once you pay off your mortgage, you can live in your home mortgage-free, which will be especially beneficial in retirement when you are living on a fixed income.
When you pay rent, you are helping to build your landlord’s equity. But when you pay monthly mortgage payments on your own home, you are building your own equity in your home. And your equity will provide a large payout when you’re ready to use it.
Whether you use that equity while still living in your home, or you reap its benefits when you sell, the money you pay each month toward your mortgage will end up back in your pocket when you need it.
Making regular monthly mortgage payments on time helps build credit because it shows that you are low-risk to mortgage lenders. And having good credit is vital for employment, reference checks, and having access to low-interest loans, such as future low-interest mortgage rates.
Canada has many tax incentives for homeowners.
- First-Time Homebuyer Tax Credit—A non-refundable tax credit to help first-time homebuyers recoup some of the closing costs associated with buying a home.
- Home Accessibility Tax Credit—A non-refundable tax credit to help seniors and those with mobility issues recover costs for making their homes safe and easily accessible.
- Medical Expenses Tax Credit—A refundable tax credit to help recover costs for making a home more easily accessible for those with mobility issues.
- GST/HST New Housing Rebate—Homebuyers can claim the amount paid for GST/HST on a newly-constructed home.
- Rental Income—Those who own rental properties can claim their rental income and certain expenses.
- Home Office—If you work from home, you can claim home office expenses, such as a percentage of your property insurance, office furniture and equipment, cleaning materials, utilities, internet, and phone bills.
Space For Family
Most affordable rentals are not as spacious as single-family homes. So if you want to rent a house to have enough space for your family, you should consider buying instead since the cost of house rentals is often much higher than the cost of owning a home
Why People Still Rent
Some people still rent because they are not ready to buy a home. Some people simply don’t make enough money to apply for a loan. The current housing situation doesn’t help either. Here are a few other common reasons why people still rent instead of buying homes.
They Carry High-Interest Debt
People who carry plenty of high-interest debt should focus on paying that debt off first before borrowing a substantial amount for a mortgage.
Renting allows more flexibility financially and regarding where and how people live. For example, if you move around often for work, you get a job offer in another city, or you plan to go back to school and live in a cheaper apartment for a couple of years, then all you have to do is give your landlord 60 days’ notice before you move.
You will likely also have fewer responsibilities and more cash flow when renting, so you can put that money towards other investments, trips, and expenses instead of most if not all of your income going toward owning a home.
Not Ready to Settle Down
There are many costs associated with buying a home. So if you move around often, are not sure what your future plans are, and are not ready to settle down in one home or location, then you might be better off renting instead of paying for the extra costs of buying and selling a home every few years
The Risks Of Waiting Too Long To Buy
Buyer Paralysis is real – and it makes sense. Buying a home is a big decision because you never know what the future holds. But, that doesn’t mean everything is bad.
One of the biggest risks is – the price. They aren’t getting any lower, and it might be less affordable to buy a house in the future. Cold feet are normal, but if you have done your research and have a clear plan, there will probably be no problems.
The Current State Of Ottawa’s Real Estate Market
Ottawa’s Real Estate Market has become concerning to many first time home buyers, that is true. Even in a pandemic, the market hasn’t slowed down. Nonetheless, the situation has gone above and beyond what we’re used to. The average price for a single-family home is more than $700,000, which is a 19% increase from 2020. If predictions are true, housing prices in Ottawa will rise five per cent in 2022.
How Much Does It Cost To Buy A Home In Ottawa?
Of course, this depends a lot on the overall price of the house you’re buying, your mortgage rate and lawyers or brokers. If you combine the cost of home inspection, and legal fees, it can add up to $2500 or more, plus the down payment and the rest of the home price.
According to the research conducted by the National Bank of Canada, a qualifying household income for a home in Ottawa is more than $110, 500 while for condos, that amount shrinks to around $70,000.
Steps to Take to Prepare For This Next Step
To help you figure out when you’ll be ready to buy a home, start planning with these tips.
Determine How Much You Can Afford
A mortgage broker can help you figure out how high of a mortgage you can afford. They will consider all the costs of homeownership, including monthly mortgage payments, property taxes, and utilities.
These expenses cannot be more than 39% of your income. And with your monthly debt expenses, the ratio cannot be more than 44% of your income.
When figuring out how much you can afford, your mortgage broker will also consider the amount you plan to put towards a down payment.
Make a Budget and Save
Once you know how much you can afford for a home, you can start looking at houses on the market to see what’s available in your price range. Based on the real estate market, you may wonder, should you buy a starter home or continue renting? You may need to adjust your expectations for the type of home you want to buy.
Exploring the market will give you an idea of what you can get and how much you need to save for a down payment. While you might not be able to afford your dream home just yet, remember that first-time homebuyers often buy a starter home first and a forever home later on.
If you plan to buy a home for less than $500,000, you can put as little as 5% down. You’ll also need to save 1.5% of the price for closing costs and moving expenses.
Along with figuring out how much you need to save for a down payment, you should also make a budget for your monthly expenses as a homeowner. So research the average costs for utilities in your desired neighbourhood and include them with your expected monthly mortgage payments and property taxes.
Your budget should include:
- Property taxes
Compare the monthly costs of homeownership with the amounts you currently pay for rent and utilities and figure out the difference. If you can afford to save the difference each month, then you are in good shape to buy a house. But if the budget is too tight, you’ll need to adjust your plan.
The amount you have saved for a down payment will affect your monthly mortgage payments. So the more you save, the better.
There are savings programs available to help people save for a home, such as the RRSP Home Buyer’s Plan. This plan allows you to save up to $35,000 in an RRSP and withdraw the money tax-free to buy a home.
Another option is to save money in a high-interest savings account so that you can have easy access to some of your savings for expenses early on.
Work With a Broker and Get Pre-Approved
Once you have enough saved for a down payment and you’re ready to start shopping for a new home, visit a mortgage broker to get pre-approved for a mortgage.
A mortgage pre-approval will give you an idea of how much you can afford and qualify for. Mortgage pre-approvals also lock in mortgage rates for up to 120 days, giving you enough time to search for a new home.
Whether you’re ready to buy a home or you’re still undecided, consider these tips and the benefits of homeownership. And talk with a mortgage broker to start planning. It’s never too early to plan for buying a home. Once you are ready to buy, you’ll be more prepared to find the first place you can truly call your own.
At this point, your dream house might seem unattainable. It’s no surprise you would think in that way considering the current housing market situation. But, if you follow these tips and decisively move forward, the dream house could be yours soon. Plus, there are plenty of programs you can apply for as a first home buyer, so have faith!
If you need help, don’t hesitate to reach out. We can help!
Chris Allard’s experience in the field means he can get you offers with over 50 financial institutions lending in Ottawa. Every lender has many mortgage products they offer, which means Chris and his team will make sure a mortgage caters to your needs while also ensuring you get a competitive rate. Chris Allard is a proud mortgage broker of Smart Debt Mortgages, independently owned and operated. Smart Debt broker #12236.