Buying a Starter Home

Buy a home that fits within your budget and is a good starter home.

Your dream home isn’t always within reach when it comes to buying a house for the first time. This can lead many first-time home buyers wanting to wait and hold off for another year before going forward and making an offer on a place. But will you be chasing a dream forever?

Should you wait and buy the home of your dreams?

Or should you buy a home that fits within your budget and is a good starter home?

New mortgage rules and restrictions are coming out each year that are making it harder to qualify for a mortgage. The rules are geared towards keeping Canadian household debt levels in check. A lot of consumers are holding off on purchasing a home because they don’t qualify for as much mortgage as they would like. This makes the dream of becoming a homeowner harder to reach.

We suggest buying an affordable starter home. There are many advantages to buying a cheaper home that you may not have considered. Here is a list:

Purchasing a more modest home will help increase your monthly cash flow and not leave you “house poor”. You save money on the cost of utilities, property taxes and mortgage interest. The savings can be used to pay off your mortgage sooner or saving a down payment for your dream home.

Smaller homes are easier to sell in a crunch. If a new job opportunity came up in a new area, or something unfortunate happened, smaller homes tend to sell quickly. Why? Just like you, more Canadians are settling on buying less expensive homes because new mortgage rules are making it harder to qualify.

It is easier to convert a starter home into a rental property. This will save money on fees associated with selling the house and can provide extra cash flow when the time comes to make a move into a bigger home.

With a smaller home, you will often find yourself with more spare time. Lawn maintenance and house cleaning don’t take up as much of your time.

In 2016 Canadians were hit with a reality when new qualifying mortgage rules came into effect. The rules decreased buying power by approximately 20 percent on mortgages that require default insurance. In 2018 a new round of rules came out that reduced buying power by roughly 20 percent or more on mortgages that do not require default insurance. The government over the past 10 years has been constantly tightening up lending rules and making it harder and harder to qualify for a mortgage.

As rates increase, a consumer’s maximum mortgage pre-approval is reduced. Canadians that apply for a default insured mortgage are required to qualify at the five-year benchmark rate published by the Bank of Canada on all mortgage terms. The qualifying mortgage payment is based on this higher rate. As the qualifying rate increases, the mortgage pre-approval amount decreases. The same rule applies to mortgages not insured by default, they have to qualify at the five-year benchmark rate or the contractual mortgage rate plus 2 percent.

Stop throwing your money away on rent. A starter home is a perfect home for first-time home buyers. If you are ready to buy a home, staying within your budget is important. Stop chasing a dream home and start living in a home.

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