Buying a property in today’s market is not an easy decision to make.
With fewer homes on the market and a growing population, demand is pushing home prices out of reach for many of us.
So in a market like this one, renting is definitely an attractive option.
But there's a certain pride that comes with owning property and putting down roots. And there's also some freedom in being able to lease, renovate or decorate your property without having to ask for permission.
Are those enough reasons to lean you towards homeownership? Ok, I can see that you're still on the fence. Let me show you how buying a home could work for you and your family.
Programs available to help first-time Buyers
When buying a home, you're required to make a down payment of between 5% and 20% of the home's sale price. (The rest of the sale price is covered by your mortgage.)
Twenty percent is a lot of money considering the price of homes today. If you don't have the down payment saved, here's a way that you can borrow money from yourself, interest-free.
When you're a first-time home buyer, the Government of Canada allows you to withdraw up to $25, 000 from your Registered Retirement Savings Fund (RRSP), without penalty, for the down payment.
After withdrawing the funds, you will have 15 years to pay it back without interest. This program is the Home Buyers Plan.
In addition to the First-Time Homebuyers Plan, you may also be eligible for the First-time Home Buyers credit.
This credit is offered by the Government of Canada to help first-time buyers with the costs associated with buying a home.
Equity Can Provide Financial Freedom
One of the best things about owning a home is the ability to build equity.
Building equity is the process of gaining more shares in an investment.
When buying a home, your share in the investment is your down payment. The financial institution (FI) who gives you a mortgage to buy the property has the rest of shares in the investment.
For example, if you buy the property for $500, 000, and you put down $100, 000, then the shares are as follows:
- Your share = $100,000
- FI’s share = $400,000
Now as you pay your monthly mortgage payments, each year you will see that your share increases. So after 2 years, the split might look like this:
- Your share = $140,000
- FI’s share = $360,000
Your equity can grow due to the value of your home increasing.
After 5 years, similar local homes might be selling for $560,000. That means if you sell after 5 years, shares could look like this:
- Your share = $200,000
- FI’s share = $360,000
If you do see an increase in the value of your home, you can gain access to the equity with a home equity loan without having to sell.
A home equity loan allows you to borrow against the equity in your home so can pay for things like:
- Home improvements
- Your child's education
- Medical bills
- Starting your own business
In contrast, if you were renting over the same 2 year period, you would not have the same opportunity to grow and take advantage of equity.
A home is a positive investment
In Toronto’s real estate market, buying property is generally a safe and smart investment because prices continue to increase every year.
As I explained above, you can reasonably expect the equity in your home to increase over time as your mortgage is paid down. That, combined with regular appreciation in property values, can be a rapid and rewarding way to increase your net worth.
There are many factors that go along with selecting the right property to make sure that your investment does increase in value.
As with everything, there are exceptions to every rule. This where working with a knowledgeable real estate agent becomes an advantage.
Ownership can be better than renting
In Toronto, as home prices have increased and made it harder for some to buy, rental prices have also increased.
Often, owning a home can be cheaper than paying for rent.
The key is to stay within your budget when buying.
This means that you probably will not be getting most the items on your wish list when you buy your first home.
However, once you’ve built some equity, you can add features through renovations or sell the home and buy a home with all the features that you want.
So what do you think?
Are you convinced that homeownership is right for you? Let me know your thoughts in the comments below.