First Time Buyers
The owning advantage (and some added incentive)
Two out of three Canadian families own a house – that's one of the highest rates of home ownership in the world. And for good reason.
Real estate is a great investment. And with increasing housing prices, it's all the more important for first-time buyers to get a foot on the first rung of the property ladder.
Financial advantage of home ownership
- Homeownership is the single largest source of savings for Canadian households.
- Your payments build equity (as opposed to renting, where your money goes to the building owner).
- Unlike other investments that can be volatile, when you buy a home the increase in its value is relatively steady. The average price of a house for sale on the Canadian real estate market has increased every year since 1998.
- The return on investment for a house can be substantial. In 2004, the average house price in Canada rose by 9% in just one year. It also experienced a 27% increase over four years.
- Homeowners can use the equity in their homes as security for other loans.
- Buying a home and building equity is the first step on the property ladder. It gets you into the housing market, keeps you in touch with increasing house prices, and puts you in a good position to trade up to bigger and better homes as your circumstances allow.
How much can I afford?
So how do you get from here to there? Bridging the gap between dreaming and owning can be costly.
Most lenders say that your monthly housing expenses (principal, interest and taxes) should not exceed 30% of your family income (before personal income tax). This is called your gross debt service ratio (GDS).
Lenders may also look at your total debt service ratio (TDS). Your TDS takes into account monthly housing expenses, plus other debts and loans you may have.
To calculate your TDS:
1. Multiply your monthly gross (before tax) income by the maximum TDS ratio of 40%.
2. Subtract your regular monthly costs (e.g. credit cards, car payments, personal loans).
The figure you are left with represents the maximum amount available for your mortgage payment, property taxes and 50% of condo fees (if applicable).