Yesterday I had an interesting conversation with a friend about our Vancouver real estate market and the state it is in. His comment to me was “how can anyone afford to buy their own home?” and I really had to think about the best answer to this.
You see, as an Accredited Mortgage Professional, many of the people I deal with that are first time home buyers have either $$ “help” from family, or have an RRSP that they are willing to use up to their $25,000 limit towards a down payment (keeping in mind that they do have to repay this RRSP $$ within 15 years regardless of their financial situation).
But what if you have neither option?
What if you, like many people of our city, are just thinking now about a home purchase and how to afford to do it?
Well, as a person who loves a challenge, I considered all the options I could suggest to my friend and came up with what I would consider to be the best plan (and really the most old fashioned too).
Saving the money.
Yep, the old school way of getting ahead.
Here in 6 steps is a breakdown for the average person to follow:
1. Create a personal budget. Start with your income and then subtract everything that is a current expense for you. (i.e. rent, phone, utilities, food, entertainment, vehicle/transit costs, clothing, child care, etc.) Keep adding to the budget for a few days to ensure that you have not forgotten anything.
If you are looking for online help, www.mint.com/canada is a great place to go for a free budget template that will also help you track expenses with far better accuracy. They even offer account trackers and credit report help.
2. Look for places in your budget to eliminate or reduce costs. Do you really need that fancy coffee every morning or can you brew some at home?
Consider a 2nd job or income source to increase your total $$ coming into the house and then use all or the majority of the money generated to put towards the down payment.
3. Open a separate account for savings only. Keep it separate from your regular use bank account so as not to make it too easy to dip into the savings and take away from your intended end goal.
Out of sight, out of mind…or at least until the statement comes anyway.
4. Create a “dream” list for your ideal home purchase. Write down property specifics such as neighborhood, # of bedrooms and bathrooms, yard or not, etc.
A great online property planner that can help is available through Canada Mortgage and Housing at www.cmhc-schl.gc.ca/en under “consumers” and “buying a home”.
5. Go online and research property prices in various neighborhoods. www.mls.ca
Think outside the box in relation to how you want to live. If you have kids, do you really need a detached home with a backyard OR to stay in a certain area/city would you consider a condo with 2 or 3 bedrooms that is close to a park?
Be realistic in regards to purchase price in relation to how much you are able to save monthly.
Keep in mind that you will need a minimum 5% down payment in order to qualify for a mortgage (according to current banking rules and regulations). So, if you are saving $300/month or $3,600/year, you will be looking to buy in the $200,000 price range in just a little over 2 ½ years!
6. Create an excel spreadsheet or visual chart with a “countdown to action” and make it a family affair.
Many people do not think to include their kids in this planning, but it can be made a fun and educational experience for everyone involved.
Remember: Buying your first property can be fun and a rewarding experience if you are able to plan and surround yourself with knowledgeable professionals that can make the process smooth.
“The art is not in making money, but in keeping it” ~ Proverb