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For many young Canadians, buying a first home can feel like a distant dream, and it is not surprising. The average Canadian buys their first home at the age of thirty-six. Meanwhile, countless people in their mid to late twenties are looking to get into the real estate market, but have no idea how to get in.
While it is true that the price of living is rising drastically, there are still plenty of affordable options out there if you know where to look and are ready to tackle the opportunity to buy your first home the moment it arises. So, what can you do to get into the market before you turn thirty? (Aside from the stereotypical “Cancel Your Netflix Subscription” advice that only saves you $10-$20 a month.) There are plenty of tried-and-true techniques to save money and buy your first house earlier. (Of course, these tips can assist people of all ages.)
However, before we dive into the process of buying your first home, if you want to see how much you can qualify for right now, click the link below for a free strategy call to discuss getting a pre-approval today.
Start Saving For Your First Home Early
This can sound like a given, but you want to start saving up your down payment to buy your first home as early as possible. The down payment is frequently the largest obstacle to home ownership, and while it is possible to buy a home below $500,000 with 5% down, it is typically recommended you pay 20% down to avoid paying more in interest and mortgage insurance further down the line.
Even if you are not planning to buy your first home for a few years, setting aside money wherever possible allows for you to accumulate the funds you need much faster. Some ways you can begin saving include:
Saving a Percentage of Your Income
When you decide to begin saving, it can be beneficial to dedicate a specific percentage of your income to go into your savings each time you get paid. Whether this is 5%, 30%, or 50%, any amount you are able to set aside will accumulate over time, allowing you to afford your down payment much sooner.
Saving a Set Amount
Instead of saving a specific percentage of your income, you can take the option of setting aside a specific amount of money each time you get paid. Not only does this help you determine a clear timeline as to when you can afford to buy a home, but most banks allow for you to set up regular deposits into a savings account. (Ideally, you would set this to occur each time you get paid as to ensure you have the funds available each time it auto-deposits.)
On top of setting money aside from your income, you can save for a down payment much faster by researching short-term investment options. This allows the money you set aside to earn interest and grow, making your down payment much more affordable in the long run.
Discover How To Apply For An Investment Property Mortgages With This Step By Step Guide
Reduce Your Debts
One of the biggest mistakes people make when trying to buy their first home is taking on too much debt before buying. While life has its expenses, these things can severely damage your ability to get approved for a mortgage or reduce the amount you qualify for upon approval.
Some ways to reduce and avoid collecting too much debt include:
Scholarships and Bursaries
Many young prospective homebuyers are students or have recently graduated. However, the student debt they accrue is often so high that it tanks their credit score for years to come while they pay it off. So, one of the best ways to kill that debt is to reduce the amount you owe in the first place. By applying for as many scholarships and bursaries as possible, students stand to potentially cut hundreds, or even thousands of dollars off their student debt. This improves their debt-to-income ratios, as well as creates room to save more, and pay off their debts faster.
Buy Used Cars Over New Ones
While another dream many people share is the experience of buying a shiny, brand-new car off the lot, that is another way to build up a ton of debt very quickly. The average price of a brand-new car in Canada is $45,000 – enough to afford a 20% down payment on a $225,000 home. Most people do not have the money to outright buy a vehicle at that price, especially at such an early age, meaning they will be required to finance the car, turning your new asset into a massive debt.
However, used cars on a commercial lot average only $25,000, and privately sold pre-owned vehicles often go for much lower than that. There is also the option of buying a car from an auction lot, which is drastically cheaper than buying it brand-new. While some of these options require a larger initial payment, they save thousands of dollars in the long run, making homeownership a much more realistic dream.
Avoid Overusing Credit
Another common mistake people make while saving, is relying too heavily on their credit to fund their lifestyle while setting aside a down payment. While yes, it can make saving the cash feel easier, it also creates a massive trail of debt that will drastically harm your potential to secure a good mortgage.
Whenever possible, you should avoid using credit that you do not have the funds to repay and should strive to pay off your lines of credit in-full and on-time. If you do have to gradually pay off credit card debt for whatever reason, be sure to pay your minimum payments on-time and consistently to avoid paying excessive amounts of interest.
Do Not Be Afraid to Buy
While your perfect dream house may not be available in your price range, there may still be homes available that suit your needs. By compromising some of your wants for now, you can get into a first home that is likely to appreciate and give you more buying power down the line to buy a home you genuinely want.
Get Pre-Approved For Your First Home
Once you have your down payment saved and your debts in order, seek a pre-approval from an experienced lender. This will allow your finances to be thoroughly inspected and determine how much you can afford to spend on your first home with your current debt-to-income ratios and savings, as well as give you the opportunity to secure a lower interest rate up for up to 90 days while you search for a home.
To book a consultation or start the pre-approval process, visit LendCity.ca
Alternatively, click the link below to book a free strategy call with our team at LendCity.