Don’t Just Wish to Own a Home – Alternatives to Make It Happen
by Scott Hannah
Q: I’m a single professional earning a good income and I’ve been careful with my money and my lifestyle in the hope that one day I’ll be able to afford a house. I’ve been maxing out my TFSA for the past seven years and saving additional funds on top of my TFSA contributions to use as a down payment on a house in the Lower Mainland. The thought of putting down over $100,000 on a house and then having a mortgage in excess of $1,000,000 is so frustrating. With mortgage rates increasing, I really wonder if home ownership is possible or just wishful thinking. What’s your opinion on this? ~ Valerie
A: On a very positive note, congratulations for sticking to your savings plan for seven years. It takes a lot of discipline and sacrifice to have accomplished this which is a great trait to have when you are looking to become a homeowner. Without question, traditional home ownership in the most expensive cities in Canada will be beyond the reach of many Canadians, especially single Canadians who don’t have a large down payment or sufficient income to manage all of the costs associated with owning a home. This doesn’t mean it’s impossible, it just means that you may need to rethink your vision of home ownership and explore alternate solutions.
While moving to a city with cheaper housing may be the right solution for some people, for most of us who have grown up in the city in which we live, surrounded by family and friends, the last thing we want to do is pack up and move somewhere else. So what can you do?
To help you, I’ve outlined some alternate home ownership options for you to consider that may help you accomplish your goal of owning a home:
Let your parents lend a hand (with a twist)
A high percentage of first-time home buyers are relying on their parents to help them enter the real estate market. While some parents may be in the position to help out their adult children purchase a home, others may not be able to do so. Instead of asking your parents to help you with a larger down payment, would they consider investing in a home with you?
Some future homeowners are buying a home with their parents’ help by having their parents invest in a property with them. The parents provide funds that will go towards the down payment of the home and their kid(s) look after the servicing of the mortgage payments and other housing costs. The funds would typically be repaid to your parents at a later agreed upon date, typically when you have built up sufficient equity in the home and be in the position to refinance your mortgage. Depending upon the arrangement you have with your parents the funds may be repaid with or without interest. Formalizing this arrangement with a legal agreement protecting your parents’ investment is a prudent step to take.
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Shared home ownership
If the thought of having a huge mortgage is out of the question for you, consider buying a home with a friend or family member and having both of you live in the home. For this arrangement to work, both parties need to be crystal clear on their boundaries and expectations. Personalities or habits (sloppy vs. neat) that clash rarely work out in the long term so be extra careful with whom you choose to share a roof.
A legal agreement outlining what each person is responsible for financially is essential when entering into this type of ownership arrangement. Having a clause outlining the timelines when the house may be sold or when one of the parties may buy out the other owner of the property is also a good idea.
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The homeowner landlord
For many people the only way they can enter the housing market is to rent out a portion of their home, at least for a period of time (a rental suite is also called a mortgage helper). Whether you are renting out rooms in your house or the upstairs/downstairs of your home, you’ll need to completely familiarize yourself with the regulations and responsibilities of being a landlord.
This is a great solution when you have great tenants who are responsible, quiet and pay their rent on time. It can also be a terrible and costly experience if you end up with irresponsible tenants who don’t respect you, your home or pay their rent late. Fortunately, there are services available to help you screen prospective tenants, as well information online to help you find good tenants. Keep in mind that good tenants are happy to provide you with proof to validate that they are responsible; bad tenants typically provide excuses why they can’t.
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Home ownership is an important goal for many people but it shouldn’t be your only goal. With people living longer today, many people are in danger of running out of money during their retirement. The two biggest culprits preventing people from accumulating sufficient retirement savings are not starting to save for retirement at an early enough age, and debt. Purchasing a home and then not having the ability to save (enough) for retirement and other financial goals, will likely require you to continue working for an extended period of time in your later years or force you to sell your home.
The other consideration is how will owning a home impact your lifestyle. We only get one shot at life and if home ownership means sacrificing a lot of your future lifestyle the price may be too steep to pay.
The bottom line on owning your own home
Owning your own home can be a reality but our parents’ vision of buying a single detached home with a white picket fence is fading away, particularly in the larger more expensive cities. If home ownership is important to you, I encourage you to be flexible in your vision of what that looks like. You have options, and in light of the challenging circumstances facing would-be homeowners today, don’t be afraid to use them to get a solid foot in the door.
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- How to Tell If You’re Ready for a Mortgage