Many young Canadians associate home ownership with their inevitable coming of age, but first-time buyers flocking to the housing market should be armed with knowledge.
As home-ownership rates for those in their twenties have been steadily climbing over recent decades in all but the lowest category of income earners, many of these young people are entering the market without knowing much about buying their first home.
Combined with the fact that buying a home is such a huge financial commitment, inexperienced young home buyers need to be very careful before signing on the dotted line.
It’s easy for young people to forget about additional costs of home ownership — things they never had to worry about while renting. These include ongoing maintenance costs, home insurance, and building up an emergency fund earmarked for surprise special assessments if they purchase a condo.
Young people are often attracted to condos because of their size and proximity to downtown, but condos are among the most complicated properties to buy because you’ve got to factor in costs such as condo fees, which condo unit owners can’t control.
Even if young people factor in home insurance, they might not consider that they’ll be paying additional insurance for their mortgage if they can’t afford a minimum 20% down payment. Mortgage loan insurance can add 4.75% to the value of the mortgage.
Renting until you can afford a sizeable down payment can avoid that cost, but there is huge appeal — financial and otherwise — to home ownership. Once you rent, the money is gone forever. It doesn’t contribute to anything in the future.
Despite indications that many young people may be delaying settling down until later in their life, data indicate the trend toward home ownership among young Canadians is building. Statistics Canada research released in January shows nearly three-quarters of top-earning twenty somethings owned a home in 2006, the latest year for which there are data, up from 60% in 1981.
However if you’re not ready to settle down, locking yourself into home ownership might not be a smart decision. It depends on your individual needs. Buying and selling within a short period of time means the transaction costs might exceed any gain you might make on your investment.
Because of all the upfront costs to buying, plan for at least a five-year timeline in your first home. That means thinking about where you’ll be in your personal life that far down the road.
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