Is It Time To Go From Renting To Buying? What You Should Know Before Taking The Plunge

Thinking about going from renting to buying a home? You're not alone. Lots of young Canadians are scratching their heads over this one. Most people think buying is always better, but it's not that simple. There's more to it than meets the eye.

Right now, mortgage rates are low and house prices are dropping in many areas. This might make you think it's a great time to buy. But hold on - let's look at both options before you make a decision. This way, you can figure out what makes the most sense for you. And, if you’re not sure, as a professional mortgage broker and financial advisor, I can give you the advice you need to work out the best financial plan.

When Is The Best Time To Go From Renting To Buying?

If you fall into one, or most, of these categories, it’s time to go from renting to buying:

• You plan on staying in the home for 5 or more years. This amount of time increases the likelihood that your home’s appreciation in value will offset the costs related to purchasing and financing the home.
• Your employment and income are stable. This makes it easier to qualify for a mortgage and get the lowest interest rates.?
• You want a consistent monthly payment. With a fixed-rate mortgage, your monthly payments should remain consistent. When you rent, you will face annual rent increases.?
• Mortgage rates are favourable. Now that mortgage rates have dropped and it’s a buyer’s market, you may want to take advantage.

Once you've thought about these situations, you'll have a better idea if it's the right time for you to buy a house. If you’re not sure of the answers, talk to a mortgage broker who can help you figure out what you’d need for a down payment and a mortgage, and help you make a financial plan.

When Is The Best Time To Rent Instead Of Buying?

Do any of the scenarios below sound like you? Maybe you should continue renting.

• You can’t afford a down payment. A down payment for a house will cost at least 5% of its purchase price, so if you can’t afford this plus closing costs, you may be better off renting.?
• You prefer not to do any maintenance. If you don’t have the time or the money for these kinds of responsibilities, you may prefer to rent a home.?
• Your living situation is flexible. People who move around a lot, frequently change careers, or are in school don’t need permanent housing.

Home Ownership - Is This The Right Time For You?

Thinking seriously about giving up renting to buy a house? Start by getting pre-approved for a mortgage. This tells you if you can actually get a loan and how much you can borrow before you start house hunting. Try using my mortgage calculator to get a rough idea of what you can afford.

Next, look at how much you're spending on your accommodations now. If you live in a pricey area like Toronto, renting might actually be cheaper than buying. Do the math - if your rent would be less than a mortgage payment, it might be smarter to keep renting and put your money into other investments instead.

Benefits and Downsides of Owning

Buying a house costs more and is more complicated than renting, but it has some perks worth thinking about. When you pay your mortgage, you're not just giving money to the bank - you're also slowly buying more of your house. If house prices go up, that's good news for you, not your landlord. Plus, when you own the place, you can do what you want with it. Want to paint the walls bright purple or put in fancy new floors? Go for it - no need to ask anyone's permission.?

Of course, you have to do all the maintenance if you buy a house, or pay a maintenance fee if you invest in a condo. And, if you don’t like the neighbours, you’ll probably be stuck with them for a while. And, like any investment, the market may be up or down when you’re thinking about selling.

Will You Qualify For A Mortgage?

Banks look at your "debt service ratio" to decide if they'll lend you money. This calculates how much of your yearly income goes to things like housing costs, property taxes, car payments, credit card bills, and other loans.

The rule of thumb is that no more than 40% of your income should go to these fixed costs. Why? You need money left over for things like buying food, clothes, and taking vacations. Working with a mortgage broker can help you find lenders who will be more flexible if your credit situation isn’t perfect.?

The Upfront Costs Of Buying A House

There are a number of upfront fees you’ll need to cover when you buy a home. The biggest expense is the down payment.? In Canada, it is possible to purchase a property with as little as 5% for a down payment but bigger lenders prefer at least 10%. A low down payment may seem like a windfall but the less you put down, the higher the amount you will be paying for your mortgage.? You will also need to get mortgage loan insurance which is charged to anyone with less than a 20% down payment.

You will also need to budget for closing costs. This includes land transfer taxes, appraisal fees, home inspection fees, property tax adjustments, legal fees, and moving expenses. If you are struggling just to make the down payment, it might be better to wait a bit for your finances to improve.

Are You Better Off Renting Right Now?

Other than the rent, and possibly maintenance fees if you’re renting a condo, costs are a lot less than buying a home. Some rentals also require you to pay for utilities like electricity and water.?

Renting also has fewer upfront expenses. Generally, you will pay a security deposit, first month’s rent, renter’s insurance, and any extra services you require like internet or phone. Other one-time expenses include moving costs, furniture, and decor.

Benefits and Downsides of Renting

It’s easy to see that renting is much easier than buying a house which is why some people stick with it for so long.? It is also very convenient since you don’t have to worry about the upkeep of the house or apartment and only need to call the landlord when things go wrong. However, sometimes getting issues fixed can be difficult if your landlord isn’t readily available.

One of the biggest downsides when you’re renting is instability. You can usually count on a rent increase at least once a year. And, if your landlord decides to renovate or sell the property, you may be left looking for a new place to call home.?

You’ll often hear people tell you when you’re renting that you’re throwing away your money or making your landlord rich. When you own a home, you build equity as you pay down your mortgage. Equity represents the value of your home minus what you still owe on the mortgage. Plus, you may be able to eventually sell your home for more than you bought it for.?

If it makes sense to rent based on your personal circumstances, you can still come ahead by putting aside your savings in an RRSP or TFSA so you’ll have that down payment later. Working with a financial advisor can help you make the most of your available cash.

Comparing Monthly Rent To Mortgage Payments

Let’s look at an example of monthly costs. A 2-bedroom rental unit in Barrie has an average rent of $2,323. For the average 2-bedroom $750,000 home in Barrie, at an interest rate of 4.4% with a $50,000 down payment, the monthly mortgage payment would be $3,288. At the end of 5 years, you would have paid $139,380 in rent to your landlord, or $197,280 on your mortgage which is an investment in the equity of your home. This is assuming there are no rent increases.

Considering the hefty expenses related to the purchase of a home, the majority of young people start by renting. As their careers blossom and they are able to put money into savings, they then decide to buy a house. Although rent is cheaper as a monthly expense, buying a house tends to be more affordable the longer you live in it, and the money you’ve paid into a mortgage becomes equity in your home.

Are You Ready To Go From Renter To Buyer? Then Give Me A Call!

Is it time to make that big move into adulting? If the time is right to go from renting to buying and your savings are in order, contact me to find the best mortgage at the lowest interest rate. Or, if you’re considering becoming a homebuyer but your finances aren’t quite there yet, I can help you work out a budget. Then, when you’re ready, I’ll find you that perfect mortgage that will fit your financial situation. Contact me today at 705-315-0516, or book a consultation. Buying a home can be a great investment and a rewarding purchase. Let’s make that work for you.