Becoming a Single Homeowner – Part 1 “The Plan”
I’ve noticed a trend lately. The usual client that darkens my door is changing. There is a marked increase in Single person – home purchase applicants. And this trend is being led by the ladies. And I’m not the only one noticing this. Single ladies hooking up with homes is coming to a neighbourhood near you.
Mr. CBB asked me to share the experiences of the unique requirements of how the Single person approaches purchasing a home. He was very emphatic in ensuring this covers single women, men, and single parents. As there are potential additional risks and vulnerabilities with a single income and/or dependents – I submit this information to you with great respect and full gravity.
With this said – I am very excited at what is transpiring here! Making the move from renting to home ownership carries a direct historical correlation to wealth accumulation and an increased net worth. And one thing all of my single clients are in agreement on is having an opportunity to increase their financial position. So with this in mind – here are some simple steps to increase your shot at owning your home.
It All Starts With A Budget – And A Plan
There are always two aspects of every plan – what do I want and what do I have to work with? As a Single person (and potentially with kids) sometimes what we want and what we have seem farther apart than the opposite Poles. This should never stop you from creating your home ownership plan. Even the greatest journey begins with taking the first step. So what do we need to consider.
a. Mortgage Costs – this is the largest item to budget for and will consist of the principle and interest components making up your periodic mortgage payment.
b. Property Taxes – another cost to be budgeted for and one that will never go down – only up. A rough rule of thumb is to take the price of the property you are budgeting for and multiply by 1.25% to get an idea of how much this will cost.
c. Utilities – if you are currently renting you may or may not already be responsible for your own utilities. If you are not – just add a minimum of another $100/month as this is the industry standard in qualifying as part of GDS or the gross debt service towards the mortgage.
d. Maintenance/Appliances – the transition to home ownership brings some additional costs as well from the lawnmower to paying for a new dryer when the drum burns out. Making a budgetary entry for this is a prudent way to ensure this never creeps up on you when something breaks down unexpectedly. Some may choose a leasehold property where some to all maintenance is covered by a condo corp. or a co-operative. This cost varies again from property to property so verify and add room in the budget.
Pulling Your Credit – The Tricks and Tips
The next step to moving closer to your goal of homeownership is to pull your credit rating. Single people are empowered and ask a lot of questions as a demographic. It came as no surprise to me then when I was peppered with a barrage from my latest client “Cassidy”.
In our initial conversation, we covered off the basics and got right into this critical step. I showed her that for $24 + tax you can pull your own Equifax Credit Report complete with beacon score. With this in hand – she learned that the five areas that affect her credit were (a)paying her accounts on time, (b) account balances to high credit limits, (c) credit history, (d) account types, and (e) new credit. With this information Cassidy now knew that she had to use the system to her advantage in order to position herself in a positive light with the banks.
What is less apparent to my Single home buyer (and Cassidy was not immune here) is the new Federal Mortgage rules implemented and how they affect all Canadians but especially those who are looking to enter the housing market as a single income earner. Here is what you need to know.
i) Credit Score needs to be 680 or higher – this enables the maximum debt service ratio of 39% of your gross annual income to be able to go towards your housing costs effectively giving you more room on the purchase price.
ii) Amortizations are maximum 25 years – some single income earners need an extended amortization to ensure the mortgage is affordable. To remedy this, it is prudent to just reduce your purchase price although in some metropolitan markets this may price you out of the market.
iii) Self Employed – if you are a self-employed single then you will need to take special care with your credit as if your credit score is below 680 – you will be forced to utilize your taxable income and this is where you will suffer as the advantages of the write-offs you enjoy will not help you in the home purchase process.
iv) Credit Accounts – your credit account needs a minimum three trade lines with a solid two-year history without blemish for access to the best mortgage products available today. Look at a high credit limit of a minimum $2,500 on the first with minimums of $1,000 on the other two accounts to be safe and do not use them above 30% of their available high balance each month before paying them off to zero.
In the next post I will cover off other areas to consider as a potential Single homeowner in the property and the mortgage itself.
Guest Post By: 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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Interesting Canadian trend. Not sure whether this is happening in America but perhaps it is and not a lot of people are talking about it. The real estate market in Philadelphia has been pretty bad over the last few years so this may be a big help if it swells the pool of buyers.
As a single guy with a respectably large six figure salary, home ownership (at least in my location) doesn’t seem like a good idea. It’s way more expensive per month, by at least 2X, to buy a starter home or even a condo here than it is to rent a one-bedroom apartment. Then there’s the joys of home ownership, increased utility bills and unending maintenance.
While you are building wealth in home ownership, if you have to move because of a layoff, you’re stuck with a relatively illiquid asset, that you may be hard to sell.
My opinions would be different if I had a family and was planning to stay here for decades, but absent those two things, renting seems like a better idea. Especially if you rent on the smaller, cheaper side like I do.
All the extra money that I’m not plowing into mortgage payments gets put into dividend growth stocks so that I can build up my passive income streams.
You know I’ve got a mate just like you. He’s been single ever since the day his last girlfriend walked out on him, makes great money, works out solid as a rock, no kids, paid cash for his car, good job and income and he rents. He has no inclination to own a home as he doesn’t want the hassle nor the bills. With his money he invests online and saves for his retirement which I presume will be somewhere hot where he can golf and workout until his hearts content. We all have choices in life and that was his choice and you know if it’s what makes him happy I support him. I say live life like the way we want and not by the way people “think” we should. Cheers mate! Happy Investing.
If I hadn’t met the bf, I had planned to buy a home by the time I turned thirty. Sure it’s a little more risky not to have two incomes to put towards the mortgage, but there’s always a possibility one of you will lose your job (sadly), so ideally both partners would be able to pay the mortgage on their own, or you’d have a big emergency fund.
I’ve coached a lot of people that have single incomes and it’s really hard to afford a house being single (assuming you don’t make a TON of money). If you’re going to do it then you really need to limit other monthly debt payments and likely have to settle on a fairly modest home.
Great post, Michael. It’s good to see singles taking the jump into home ownership when it’s the right move for them.
What an informative post CBB. I have purchased a few rental properties over time…and what I have learned is that the X factor is “monthly expenses”…different for each home for sure. Great post!
It’s good to see women taking the initiative toward home ownership. If you have income to support a purchase, buying beats renting in my book. When we bought our first home, my husband was a full time student,so it was solely in my name and I don’t think it was harder than applying for a joint mortgage.
Hey Mr. CPM – thanks for the input here.
The quote can be taken out of context. Over the last hundred years – even incorporating every major real estate crash – those who did not sell at the bottom have enjoyed a 5-7% annual appreciation on their property as an asset. I do thank you for highlighting this because we address it in more depth in the second part to this blog where we cover off the property options available to single people.
I have a concern with your last comment. A single person who has educated themselves on regional markets and has found one that is prospering (jobs, net positive migration, increasing rents etc.) despite ongoing challenges with the economy will be way ahead as far as net worth is concerned. Most importantly – if you are looking to buy a home as a single person primarily for your residence – you need not be overly concerned with the fluctuations in the real estate market.
That’s interesting to see that single women are buying more houses lately. I guess that makes a lot of sense because the first offer we got on our house last year was a single lady and what was more astounding was the fact that she was bank approved before she even looked at the house.
Great article. I worry about statements like this though…
“Making the move from renting to home ownership carries a direct historical correlation to wealth accumulation and an increased net worth.”
The idea that renting is a bad thing and buying is a good thing is just not always true. Home ownership is a great way to create wealth through forced savings and a great place to raise a family. There are also massive expenses that go along with purchasing, maintaining and selling a house that renters don’t incur. People who save money by renting and invest the difference often end up further ahead.
I have owned real estate and will do so again. But after the crash in the States and the current melt in Canada http://goo.gl/AT5xf I hope no one thinks buying a house with one income is the road to an increased net worth any time soon.
When purchasing a home I would recommend that you budget twice as much money to fix the up the property than you think. There’s always some project that will need doing.
Thanks John S – agreed here on the sensitivity in increased due diligence in qualifying a Single Borrower. As long as the investment makes sense as part of their overall plan – a home can be a great asset.
Because of my job history, there was no way any bank was going to approve me for a loan, so when we bought the mobile home, all of the paperwork was in my wife’s name.
Good post Michael! I have heard of this trend myself, and assuming it is a wise financial decision then I think it’s great to see. I think it’s great to see the diversification in terms of home ownership and helps bring the hopes of increased net worth to more individuals.
Hey Pauline, the interest rate is not the most critical factor. It is if the single person can service the mortgage debt with their income. If they can then they can still access today’s best interest rates.
I took a mortgage on my name alone and until now hadn’t thought about the added risk for a single income person to take a mortgage. Are rates higher? My mortgage is now 2.29% and I doubt many can beat that, even on two incomes and 50% LTV but it is variable so for further refi I guess that means a higher rate for singles…