Can You Afford a House?

Can you afford a house? You would be surprised how many people assume the answer to this question is “no” without even a pause for breath.

There are a great many people who can't afford to buy property — we all know that, and the last few years have not been kind to anyone below a certain income threshold — mortgage rules in Canada have tightened and CMHC is making it harder to get mortgage insurance even if you do qualify at the bank for a mortgage. But, there are those who can afford to get on the property ladder but do not realize it, or do not have the help they need to make it a reality.

If you're daydreaming about buying, you're already taking the first step: considering the options out there. A real estate agent can help you see what properties of different types and sizes are available in your area and potential price range. You just need to break those amounts down into both monthly mortgage figures and extra costs (such as land transfer tax, legal fees, homeowner insurances and saving for the rainy day emergency funds) to get a rough idea of where you stand while staring at the property ladder.

One thing I would encourage you to do is consider your current costs. If you don't put your head in the sand, like some people I know, you probably already have rough or specific monthly budgets. If you're renting, look at the direct and associated costs and transfer that to what you would spend with a mortgage and its associated costs. Some will tell you there's no point renting because it's money in someone else's pockets. That's sort of true, but it isn't a direct like-for-like comparison with owning. Do some calculations. In general, your monthly housing costs (mortgage payments, property taxes and heating expenses) should be no more than 32 per cent of your gross average monthly income. Secondly, your entire monthly debt load (including housing costs, debt payments, lines of credit etc.) should not be more than 40 per cent of your gross monthly income.

For many people, the hardest part of buying a home is simply saving enough money for a down payment.

There are many financial factors to consider with a possible home purchase. As well as the monthly mortgage payments and bills associated with the home, what cushions will you have if something goes wrong or if you fall on financially harder times? Will you be better off paying a larger down payment on a property or saving a portion for rainy day emergencies? Do you have that flexibility?

Another strategy is to consider a different kind of home ownership. There are a few out there with alternatives that might better suit your financial means, and the kind of property you are looking for, such as a cooperative, strata title, leasehold estate or a rent-to-own option. Most people will assume they're going for a freehold — the most common type of ownership. But you shouldn't limit your options, especially when you might worry you have none. Ask your real estate agent or property lawyer to explain the differences in property ownership to you as each province and territory can have different rules and definitions for the terms.

I know how stressful money is to so many readers out there, even those who already own property. It is the world we live in, of financial pressures from all sides. And it is easy to think of owning property as a type of debt — that is what a mortgage is. But the right property will be an investment, either in medium term, or the long term. And with the right advice from real estate professionals, we can find something to fit many financial means. It is worth asking the question, “What's possible?” before you give the answer, “no”.