Identify your ambitions and plans
For many people, buying a property is a life goal. It’s also often the biggest purchase they ever make. But because becoming a homeowner comes with many new responsibilities, it’s important not to take the plunge too quickly.
Thinking of buying a property? Start by asking yourself these questions about your situation:
- Are you prepared for the upkeep, potential renovations, emergency work and unforeseen expenses associated with owning a property?
- Is homeownership important to you?
- If you’re buying as a couple, is your relationship solid enough?
- Is your professional situation stable?
Consider what your plans are for the next five years. For example:
- Do you want to have children?
- Do you plan to move to another city or even another country?
- Do you plan to stay in the same job in the long term?
Your answers to these questions are a good starting point to help you make the right choice.
Further reading
Are you planning to move to Canada or just starting your
homeownership research? Here are some other articles that may be
helpful:
→ 6
questions to ask before buying your first home
→ A
guide to buying your first home in Canada
→ 7
steps to buying your first home
Take stock of your financial situation
Is buying a property the best option given your situation? If you decide that it is, make a budget to find out whether your current income (minus your expenses) is sufficient to absorb the cost of a property. Don’t forget to plan for a financial cushion to cover unexpected events.
Good to know : The 50-20-30 rule is very useful for budgeting. This means allocating :
- 50% of your net income for essential expenses (housing, food, electricity, etc.)
- 20% for savings and debt repayment
- 30% for non-essential expenses (leisure, sports, outings, travel, etc.)
Assess your borrowing capacity
The most realistic way to see if you can afford to buy a property is to estimate the mortgage amount you could obtain. You can use our simple tool to calculate your maximum loan amount.
When you take out a mortgage, financial institutions will typically calculate a higher mortgage rate than the one you’d actually be getting, which is known as the qualifying rate. This helps you determine whether you’ll be able to meet your mortgage payments if interest rates rise.
Pro tip : Let’s imagine that the monthly cost of the property you’re interested in is $1,800 a month and that you’re currently paying $1,300 a month in rent. To find out if you’d be able to pay that extra $500, you can start today by putting that amount aside each month. If you find this easy to do, you can rest assured that you have the capacity to make monthly mortgage payments of $1,800.
Consider all the costs involved in buying a home
Buying a property comes with many advantages. In a way, it’s a form of “forced savings” that helps you build your wealth. Owning your own home also gives you long-term stability as well as the freedom to decorate and renovate your home to suit your personal tastes.
However, this investment doesn’t come with guaranteed profits, and there can also be considerable financial and psychological burdens associated with maintaining a property. Here are the main costs to consider when making your decision.
Costs to consider when buying
To purchase a property, you need to make a minimum down payment of 5% of its value. There are also other costs to consider, such as appraisal and inspection fees. Plus, you need to include the legal fees of the person (notary, lawyer) who will be handling the transaction.
If your down payment is less than 20%, you’ll need to purchase mortgage insurance. In Quebec, Ontario and Saskatchewan, you must also pay a provincial sales tax on the insurance premium. This amount cannot be added to your loan amount.
Buying a property in a new development? In this case, tax will be added to the final purchase price. On the other hand, should you opt for an older property, there may be additional costs related to renovations. In either case, you’ll need to factor in welcome or transfer taxes as well as moving expenses.
→ Read our article on 9 fees to consider when buying a home
Annual property expenses
Being a homeowner comes at a cost: In addition to mortgage payments, you also have to cover several annual expenses, including municipal and school taxes and loan insurance. Buying a condominium? Don’t forget to factor in condo fees.
Coping with the unexpected
Unplanned renovations or repairs? Rising municipal taxes or mortgage rates? When you’re a homeowner, you need to be prepared for the unexpected. That’s why it’s important to have an emergency fund in your budget.
Good to know : Serveral
incentives
and grants are available to help you buy your first
property . Savings
vehicles such as the FHSA
and the HBP
through your RRSP
are also excellent tools for
becoming a homeowner. Another way to reduce costs is by buying a
property as a group – for example, by opting for a duplex or an
intergenerational property.
Save to build your wealth in other ways
Most experts agree that buying property isn’t for everyone. In addition to generally offering greater flexibility and peace of mind, renting an apartment can be a favourable option if your monthly rent is affordable. And depending on the amount of your down payment, the rent/space ratio is often more advantageous than the mortgage/space ratio.
That said, renting gives you less freedom. You’re dependent on your landlord’s availability and attentiveness when it comes to maintenance. You also need to find another way to build your wealth.
And how do you build wealth as a tenant? The key is to be disciplined and save as much as possible. Saving helps you build financial value for the future so you can enjoy a comfortable retirement.
Further reading
Want to learn more about saving and investing? Check out our
other tips:
→
What is a registered plan or account?
→
How to invest my money
→
Your guide to investments: read before investing
Still wondering whether you should buy or rent? Our calculator will help you determine whether or not it’s financially worthwhile for you. Take the test!
→ To watch de full episode: Buying or Renting? Important Questions to Ask
It’s important to remember that choosing to rent or buy isn’t only a question of money, it’s also a matter of lifestyle choices and emotional considerations. That’s why these factors need to be carefully weighed before making a decision.
Would you like to discuss this with us? Contact your National Bank
advisor or your wealth advisor at National Bank
Financial. Don't have an advisor?
Are you wondering whether or not you’re ready to buy a house?
I’ll explain in less time than it takes to build this furniture.
Why isn’t Dad doing this for us like he usually does?
At our age, I think it’s time to be a little more independent!
Before thinking about buying, make a list of your upcoming projects for the next five years.
Are you thinking of continuing your studies?
Going on a trip? Buying a car?
Starting a business?
The idea is to establish your priorities.
Becoming a homeowner is gratifying, but if you have other projects that are more important to you, it’s okay to keep renting a place!
Renting offers more flexibility.
If your income is stable, predictable and your savings are good, start by identifying your needs.
How many bedrooms do you want?
Do you need parking?
And would you rather have a house or a condo?
Is it a shelf or a table?
Get to know the market and learn about the prices!
This will allow you to see if the properties that fit your criteria also fit your budget.
To buy something, you also need a down payment.
That’s a minimum of 5% of the price of the property.
Think about putting aside another 2 to 3% of the property’s value for other expenses like the inspection, the notary or the welcome tax.
Before asking for a mortgage loan, you can consult an advisor or use an online calculator to show you your monthly payments.
That will help you to better evaluate your budget
The important thing is to ensure that you are ready, financially and mentally, to become a homeowner, and then…just follow the steps.
Tada!
Nice!
Wasn’t it supposed to be a chair?
Yep!
