In the last post, part 1 Becoming a Single Homeowner-The Plan I talked about how Single people are looking to become homeowners and the preliminary step in making a plan and the aspects to consider with your credit. Once these are in place – it is time to look at how to come up with your down payment and the type of property you are eligible to purchase.
Down Payment Considerations
This is an area where my Single clients are usually deficient. The demands of a Single person’s budget can be unrelenting and there are always important areas that your dollars are required. This is another reason why planning and budgeting are going to be the cornerstone of your Home Purchase plan. There are essentially four ways to achieve the down payment and they are to get it gifted, save it, borrow it, or qualify for a forgiveable loan.
- Get a gift – well we would all like to have a well endowed benefactor in our corner however the reality is that unless our parents or grandparents are looking to help us make the jump to becoming Homeowners – this one is a pipe dream.
- Save it – the minimum down payment as stipulated by the government for Home Purchases is 5% of the final negotiated price of the property. On a 250K home, this will end up being 12.5K and can be saved either as cash or your personal RSPs. Unless you have this already saved up in RSPs – this can be a long road in saving after tax on a single income.
- Borrow it – although frowned upon by the new conservative media on prudent mortgage borrowing – if your purchase is made in an economically growing area of Canada then borrowing your down payment can still make sense. This mortgage product is only be offered by Provincially regulated financial institutions and the lender’s requirements are quite strict so ensure your credit and employment status are strong before inquiring.
- Forgiveable loan – the federal and various provincial governments have also instituted programs in select municipalities where down payment loans of up to 10% of the purchase price is made available towards the purchase of a principle residence of lower to middle-income families. This loan is forgiveable after 20 years and if you were to sell prior to this time – the gain or loss is split proportionally with the government making this a fair program. Check with your local municipality to see if they have a program like this available.
An area where my Single clientele have been found to be savvy is in weighing their property options. A surprising number have explained to me that having an investment portion of the property – ie. in-law suite or a basement apartment for income was a high priority. Although there are again additional concerns with security – if done right this can be a profitable idea.
- Single family home – this is the obvious choice although it may be a detached home all the way to a 50 storey condo on the Vancouver skyline.
- Investment property – if you are looking to occupy a portion of the home then you are still able to treat a two family dwelling as a single family home for all intents and purposes. The only other consideration is – are you going to need the rental income to qualify for the mortgage and if so how does the lender view this income. Some will consider a percentage of the market rent and others will not at all.
- In Law Suite – another option of increasing popularity is the legal in law suite where you can either bring your family with you to live or derive additional income as well. As a single person – ensure the units are completely separate for security and privacy reasons without violating any local fire codes.
- Fixer Upper home – the final consideration is to find a property that is under the current market value for the area and purchase it with the intention of doing some improvements. The main distinction with the majority of my Single purchasers is that you want to look for a property with cosmetic improvements vs. major damage (ie. structural, major home systems) as lenders are hesitant to provide a mortgage on a property that is not in a somewhat marketable condition
In our next and final part – I will be explaining your mortgage options and how to determine what the best mortgage is for you as a potential Single homeowner.
About The Author: Michael Smele: I am a passionate educator about mortgage and finance. I also am an investor in asset backed and real estate based investments. My wife and three boys live with me on a 30 acre horse farm up in Barrie, Ontario where we enjoy all four seasons. Find me at www.mortgagetruth.ca
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