Buying a home undoubtedly is one of the biggest decisions and purchases that most people ever make in their lives.
According to a poll this summer sponsored by Genworth Financial Mortgage Insurance Company and the Canadian Association of Credit Counselling Services, there has been a significant increase in the number of people in Canada planning to buy their first home this year — 11 per cent in 2011 as compared with six per cent in 2010.
The debate about whether it is better to buy a home or rent has been around for a long time, and a detailed analysis of the pros and cons for each argument is well beyond the scope of a column of this length. However, in the current low-interest-rate environment in this country, it’s interesting to look at some of the issues and factors that can go into making that important decision.
The first obviously is how much you can afford to pay. To answer this, you need to prepare a detailed monthly household budget. Some of the regular housing costs include mortgage payments, property taxes, utilities such as heat, hydro and water, condominium fees if applicable, and insurance.
Most banks have easy-to-use mortgage tools to help you establish your financial situation and determine how much house you can afford and the maximum price you should be considering. You should do this research before you start house-hunting because you don’t want to fall in love with a home and end up purchasing one that you can’t afford.
As a rule, most mortgage companies will only allow your housing costs to equal a third of your gross income, and if your total debt servicing costs (housing costs plus all of your other monthly debt payments) exceed 40 per cent of your gross income, you may not qualify for a mortgage.
How important is it for you to own a home? Some people might argue this is the most important question to ask yourself.
Like many other things in life, home ownership is a matter of choice. If it is important to you, you may want to have another look at your budget and re-prioritize your spending. If you really want a home, you may have to give up going to movies, dining out, vacations or other discretionary spending for a few years to afford it.
You also need to look at your employment situation. If your employment is not stable, you probably shouldn’t be considering buying your own home because home ownership requires the regular payments listed above, and missing them can result in some dire consequences.
How often you expect to move is another consideration. If you expect to be moving every few years, then purchasing might not be the best option for you.
Buying and selling a home is expensive. It involves real estate commissions and legal fees, not to mention costs to move furniture and redecorate your new abode. By moving, you might end up actually losing the money you may have made on your purchase.
If you decide to buy a home, are you still able to save some money each month? It’s a good idea to tuck some money away for unknown emergency costs that can hit homeowners that normally renters would not face — such as furnace and roof repairs or purchases.
You need to have some wiggle room in your budget. If you’re stretched so tight that there’s no room for any savings, you’re probably stretching your budget too far and should reconsider the decision to purchase.
New home owners can take advantage of some government programs to help them.
The home buyers plan (HBP), for example, allows you to withdraw $25,000 from your registered retirement savings plan (RRSP) to put toward the purchase of a home. When you withdraw the money, your RRSP issuer will not withhold tax on the amount you take out.
However, if you are considering purchasing a home this year, make sure your RRSP contributions have been in your RRSP account for at least 90 days before you withdraw them under the HBP.
There are many factors that go into the decision to purchase a home instead of renting one. As with most things, doing your homework and seeking professional advice can help you make the decision that is right for you.
Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.