Thinking of becoming a single homeowner? Discover crucial budgeting tips and down payment strategies to navigate your home purchase.
In the last post, part 1 Becoming a Single Homeowner-The Plan, I talked about how Single people are looking to become homeowners, 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 determine 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 where your dollars are required.
This is another reason why planning and budgeting will be the cornerstone of your Home Purchase plan.
There are four ways to achieve the down payment: to get gifted, save it, borrow it, or qualify for a forgivable 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 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 as cash or your RSPs.
Unless you have this already saved up in RSPs, saving after tax on a single income can be a long road.
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 for your down payment can still make sense.
This mortgage product is only offered by Provincially regulated financial institutions, and the lender’s requirements are pretty 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 are made available towards purchasing a principal residence for lower to middle-income families.
This loan is forgivable after 20 years, and if you were to sell before 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 a program like this is available.
Property Options For Single Homeowners
An area where my Single clientele are savvy is in weighing their property options.
A surprising number have explained that having an investment portion of the property – ie, an in-law suite or a basement apartment for income was a high priority.
Although there are additional security concerns, this can be a profitable idea if done right.
Single-Family Home
is the apparent choice, although it may be a detached home to a 50-home in a 50-story tower in the Vancouver skyline.
Investment Property
If you are looking for a portion of the home, you can still treat a two-family dwelling as a single-family home.
The only other consideration is whether you will 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.
In-Law Suite
Another popular option is the legal in-law suite, where you can bring your family to live or derive additional income.
As a single person, ensure the units are separate for security and privacy without violating local fire codes.
Fixer-Upper Home
The final consideration is to find a property under the current market value for the area and purchase it to make 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. significant 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.
Determining The Best Mortgage
In our next and final part, I will explain your mortgage options and how to determine the best mortgage for you as a potential Single homeowner.
About the Author: Michael Smele: I am a passionate educator about mortgages and finance. I am also an investor in asset-backed and real estate-based investments. My wife and three boys live with me on a 30-acre horse farm in Barrie, Ontario, where we enjoy all four seasons. Find me at www.mortgagetruth.ca
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My father in law purchased a duplex for his first home. He said that might have been the best financial move he made. The extra money from the 2nd property gave him the financial security to leverage bigger investments more quickly.
The wife has a mate who did the same years ago in his 20’s and he still owns it.
My first purchase was a single family home where I lived in the basement and fixed up the upper level. Rented out the rooms to 3 single guys who paid my mortgage plus for the first 3 years. Worked great but you have to treat it like a business or you will run into problems.
I think life in general should be treated as a business when it comes to finances or we will run into problems. When money is involved it’s worth the effort though. Cheers!
Good caveat – if done right this can be a profitable idea – always have to be careful when getting into renting out, etc..
Yes I agree with the renting out.. I’ve never done it myself but lots of people do with basement apartments and in-law suites. I think I would be nervous not knowing what’s going on below or above.. especially for fires.. etc.. giving up that control is hard and a risk at the same time. .If it was a duplex or a home I was renting out and I wasn’t living in.. I wouldn’t worry as much.
If it wasn’t for my parents “Lending” (gifting as it turns out) the money from my first home It would have been much later in life before I owned a home. I realize this is not a possibility for everyone but if your parents have the means, a personal loan that isn’t recorded can be a big help in getting your first home.
Good post! I know here in the States they (at least five years ago) had charities who would possibly match the amount you had saved for a down payment for a first time home buyer. We did not get to benefit from this, but knew several families that did.
That’s interesting, never heard of that before. I wonder how much they would match?
Good post, be careful when buying a fixer upper though. Even if it seems the renovations are only cosmetic, there can be some hidden problems lurking under all that old decor!
Oh I’ve seen that on the tele before mate and some of the houses we looked at here were some thought DIY meant reading a book or watching You Tube for instructions was good enough… crazy.
I love the idea of a fixer upper if you have the time and money to actually fix it up. As a single person, I guess you might have more time as you might not have as many family obligations, but you’d also lose out on that other person to help with repairs.
That’s true and that’s true haha… you have 2 valid points although if the second person is rubbish with renos it really wouldn’t matter than lol..
I’ve been thinking about going down the investment property route. Although, I’m not sure that I’d want to live in close proximity to my tenants.
TFP – you still have some things to consider then if you are considering the investment property route. Note that there are some great options available for those who are not interested in being in close proximity (or even being a direct landlord at all). The returns of investment real estate are available in many forms – REITs, land banking, syndicated mortgages, and private mortgage investment are all great ways to earn the returns of real estate without having to deal with tenants in close proximity (or at all). Once again – it all starts with a plan. http://goo.gl/3VovN
I wish I would have been smart enough to look at purchasing property when I was single. It would have set me far ahead of where I am now. Alas, I didn’t have enough foresight and spent my money on other things.
It’s hard to look back, but at least you are moving forward with your PF.. CHeers mate