Buying your first home, an accessible dream?

House prices have gone up, now it’s the turn of interest rates. For future buyers, 2022 is (perhaps) the end of the dream of home ownership, even if it’s what they want the most in the world. But is this really the case? This is what we asked ourselves, with four potential buyers, who came to The Press an evening of first snow. Two personal finance specialists answered their questions and gave them sound advice. Summary of this inspiring evening.

Four early buyers and their aspirations

Josephine

Joséphine is 27 years old, lives in Montreal and has just finished her studies. She is a lawyer, a tenant with two friends and wants to buy a house with her lover, but does not know where to start. For her, being an owner is synonymous with freedom. Why not a duplex with a couple of friends? Or a condo?

Zao

Zao began his career as a professional dancer, alongside his projects as a musician. He is 21 years old, self-employed and lives with his parents. He is not ready to move, but already aspires to become a landlord. He would like to buy a residence early, even if it means living there only when he devotes himself to music full-time, because he will probably have to move a few times to carry out his dance projects.

Genevieve

Early quarantine, Geneviève has to leave her 4 and a half and wonders if it’s the right time to buy, rather than rent. She has no debt, has a stable job and has already accumulated a good down payment. With the current market, she doesn’t see how she could buy something that would meet her criteria. She thinks of moving to the countryside.

Natalia

Natalia has a good salary, but can’t save. All the money that passes through his hands disappears. Surely a prerogative of his past, she said. In her early fifties, she wants to break this cycle by becoming a homeowner. She is lucid, has a good knowledge of personal finances and wants to leave the city to settle in the woods.

Do you really want to become an owner?

Before even talking about figures and savings strategies, Audréanne Leblanc, tax specialist and financial planner at Desjardins, offers future buyers a little exercise in introspection: why do you want to become a homeowner?

“We have a model of society where we succeed when we become an owner, when we have two children and a small dog”, launches this behavioral finance specialist who puts a stop to this tenacious myth. According to her, the era of the American (or Quebec!) dream is over. We must remove this pressure to buy at all costs. Especially right now.

“We’ve all heard it said: renting is throwing your money away,” says Audréanne Leblanc. This is a false premise. Renting is a much better option for many, for financial reasons, convenience or both.

Another tenacious myth: buying a property is a good investment.

If you want to invest, buying a property is definitely not the best option right now, says Annick Kwetcheu Gamo, founder and CEO of Code F, a financial education organization.

That being clear, the two finance specialists agree on one point: there are also excellent reasons for wanting a home. The call of nature or renovations, the need to regain control over one’s home, to access a certain form of security.

Once you know why you want your house, you have to take action. And there are as many plans as there are owners!

Define your goal

The difference between a dream and a goal is the means we give ourselves to achieve it, explains Annick Kwetcheu Gamo, founder of Code F.

“To say ‘I want a house’ is a dream,” she explains. But to say “I need $10,000 to make my down payment in five years to have my house in the woods”, that’s an objective. »

Annick advises Zao to specify his project: does he want a loft in town to build a studio or a house in Sutton? For the moment, his heart swings between the two, and the costs are not the same.

Annick also suggests that Zao browse the Centris site, which lists properties for sale by real estate agencies. “Go ahead, have fun! This will give you an idea of ​​the style of house that matches your abilities. »

Advice from our specialists: make an accurate assessment of your current expenses and then start making a budget that will optimize savings, without falling into drastic or overly restrictive behavior.

“Making a budget allows you to better determine your savings capacity,” says Annick.

See the help available to you

The eyes of our future buyers lit up when Audréanne Leblanc broached this subject: yes, there is a way to get help with buying. And several.

First, there are the provincial tax credits for the purchase of the first residence. Municipalities, who want to attract new buyers, also offer a myriad of assistance programs: deferral of transfer duties, school tax holiday, purchase rebate. And also, the first-time home buyer’s incentive, which is a loan of 5% to 10% of the value of the property for buyers who earn less than $120,000, offered by the Canadian mortgages and housing (CMHC).

That’s the simple part of the equation…

Now, what is the best strategy for raising the down payment?

There is no single recipe and our specialists recommend obtaining personalized, knowledgeable advice and, above all, credible financial professionals.

You will then see whether it is possible to use your RRSPs with the Home Buyers’ Plan, the famous RAP, or rather to consider the new TFSAAPP intended for the purchase of the first property.

“It’s very interesting,” says Audréanne, with great enthusiasm. It’s a mix of TFSA and RRSP. You can take your money and put it directly on your house. »

This assistance will not be available until later in 2023. It remains to be seen whether the CELIAPP can be used with the RAP.

The importance of making a realistic budget

Once we have realistically assessed the approximate value of your typical property and your means, we must calculate how much its acquisition would cost.

You can add the purchase price to the other expenses related to the acquisition of the house, from moving to transfer taxes and notary fees.

“We estimate the acquisition costs at 3% to 5% of the property,” says Audréanne Leblanc, financial planner at Desjardins.

Once the acquisition budget has been calculated, the same exercise must be done with the current expenses of the owner’s life: evaluate the school and municipal taxes, the condominium charges, if any, the electricity and heating, insurance, even transport if you go away from your job.

Another expense that is often overlooked is the “maintenance fund”. One should not enter the house with empty pockets. Even more so if it is an old house which will inevitably show signs of its age. You need to plan for maintenance (have you thought about snow removal?) and renovations.

Audréanne Leblanc calculates between 1% and 3% of the value of the house for this contingency fund, the equivalent, neither more nor less, of the condominium fees. Because the roof always ends up needing to be changed…

Start living “as if”

Once the evaluation of the acquisition has been made, the specialists recommend starting to save the required amounts. If you’re spending $1,200 in rent a month overall now, and when you’ve done your math, you estimate that homeownership will increase that expense to $2,200, save the difference.

“From now on, you have to see if you are able to put aside the difference, says Audréanne Leblanc. Doing it for a year or two lets see if you have the capacity to do it. »

This specialist in behavioral finance warns that one must be able to maintain an “interesting” lifestyle by being an owner. ” It’s the fun to have a house, but if it keeps you from going to restaurants and makes you anxious all night, I’m not sure you’re going to be happy in your house. »

At the same time as establishing a new rhythm of life, it is necessary to save the down payment which represents 20% of the value of the house.

CMHC allows a minimum payment of 5%. “On the other hand, when you buy at 5%, you have to pay the premium,” recalls Audréanne Leblanc. “It allows you to have a residence more quickly with less money, says the financial planner, but you have to take into consideration that it will increase your mortgage payments. Sometimes waiting a year or two allows us to avoid that premium. And to make a more informed, better prepared purchase!