The real estate market is a daunting place to be for the first time, especially in big cities. It’s no secret that buying a home in Toronto and Vancouver can be expensive. The average price for a detached home is over $1 million in both big cities. Skyrocketing home prices and bidding wars make the dream of homeownership seem out of reach for some first-timers – mostly millennials. So, what’s still motivating property virgins to take the home-owning plunge?
A recent TD survey says that one in five current homeowners in Toronto and Vancouver said “fear of missing out” (or FOMO for short) was their main motivation for buying a home for the first time. For prospective homebuyers, 20 per cent were worried about rushing the process to avoid missing an opportunity.
Property virgins also fear losing out to other homebuyers. Eighteen per cent are concerned about buying too fast in order to win a bidding war.
“The busy spring home-buying season can create competitive bidding wars, and research suggests that prospective buyers are already worried about rushing the process,” says Marc Kulak, associate vice president, Real Estate Secured Lending, TD Canada Trust.
Avoid Being “House Rich” and “Cash Poor”
In pricey, competitive real estate markets like Toronto and Vancouver, it can be tough to find your dream home at a price you can afford. With that being said, it’s important to understand the difference between your maximum purchase price and how much you can truly afford. Buying a home is much more than just the down payment, monthly mortgage payment, and the interest rate.
“It’s essential that buyers leave enough time to do their homework – especially considering, 40 per cent of prospective first-time buyers are worried they don’t understand the full cost of ownership,” says Kulak.
You could find yourself “house rich and cash poor” if you don’t leave yourself some breathing room for other expenses. While it’s a good idea to get pre-approved for a mortgage, take the time to crunch the numbers and make a mock budget to see how much you can afford on a monthly basis while factoring in other costs of living like utilities, transportation, and groceries.
“We recommend that first-time homebuyers save for the largest down payment they can afford, even if that means waiting a bit longer to buy,” says Kulak. “The larger the down payment, the less you will need to borrow, which ultimately saves you money in interest payments long term. With a down payment of at least 20 per cent, buyers can also save on mortgage insurance premiums upfront.”
- Related Read: Where to Save Your Home Down Payment
Consider Your Down Payment Options
Saving for a home can be challenging, especially when home prices are going up so quickly. The good news is first-time homebuyers can take advantage of the RRSP Home Buyers’ Plan to maximize on their down payment. The Home Buyers’ Plan allows one to withdraw up to $25,000 from their RRSP to use towards the down payment of their first home.
If you’re lucky enough to have access to the bank of mom and dad, this could be another option to boost your down payment. It was recently reported that 42 per cent of first-time buyers in Toronto expect their parents or relatives to help pay up to 10 per cent of the down payment. This could mean the difference between buying a shoebox condo and affording your dream home.