In 2022, buying your first home is a daunting goal.
To start, while home sales were down 38.8%, the price of those sales was still up 9.4% at an average price of $1,212,806*. That means there is less available on the market, and with rising interest rates and inflation, your purchase power goes down.
There is a minimum downpayment required of 5% for a home valued at $500,000. If a home is valued at $1,000,000, you will need a 10% downpayment for the portion of the purchase price over $500,000. Finally, if your home is valued at over $2,000,000, you will need a downpayment of 20% in order to qualify for a mortgage on the home.
Down Payment Required
Finally, if your down payment is less than 20% of the purchase price, you will be required to purchase mortgage default insurance. This is to ensure the bank gets paid if you default on your mortgage payments. All of this and closing costs need to be taken into account when you calculate how much home you can afford.
Prioritize your goal
If you want to go on a trip or buy a rare collectible, you need to save up for the purchase. A property is a much larger goal, and you need to make it a priority if you want to sign a deed one day.
When we are used to instant gratification and tend to make decisions on impulse. Focusing on a long-term, greater reward takes a lot of impulse control to avoid any spontaneous purchases.
Pay off major debts
Focus on large amounts and high-interest debt, these will cost you the most in the long term. Banks want to see that your mortgage is a high priority, and if your income slows down, it will be a priority to be paid.
Cut down your costs
Limit eating out
Change your transit: if you drive less, you save on gas and insurance. If you live in an urban area, you can switch over to public transit to save cash and the environment.
Review your automatic charges: review regular payments on your debit and credit cards, and eliminate any charges that you do not need or use.
Pay yourself first
Setup deposits to your savings account automatically on your payday.
Add any additional income and bonuses directly into your savings account.
Take advantage of your RRSP and TFSA
Registered accounts allow you to save on tax.
You can borrow from your RRSP for the down payment on your home, but you will need to pay it back to that account later on.
*According to the Toronto Regional Real Estate Board Market Watch for May 2022