4 steps for young Canadians to take toward homeownership

First, it’s never too early to connect with an expert advisor, she says.

“Even if you don’t buy a property for six months or a year, it’s great to enlist the expertise of an advisor or a real estate agent, because if you engage early you’ll be able to take your time, get comfortable with the process, ask lots and lots of questions and not rush,” she says.

Research advisors and real estate agents online, but also ask family and friends for referrals, she suggests. And interview potential candidates.

“When it comes to either an advisor or a real estate agent, make sure that you connect with that individual and you have good up-front conversations before making the decision to start working with them.”

Buyers need to save for a down payment of 5% to 20% of the purchase price. The down payment varies depending on the purchase price of the home. An advisor can help potential homebuyers set up an appropriate savings plan.

“Start saving early,” Ms. Lucreziano says. “We can all be surprised at how much we can trim off on a monthly basis — $50, $100, everything counts towards planning for that future down payment.”

Financial institutions, such as CIBC, have automatic savings plans to funnel funds into separate down-payment accounts. Also, first-time buyers can use the First-Time Home Buyers Tax Credit. Up to $60,000 can be withdrawn from registered retirement savings plans (RRSPs) through the federal Home Buyers' Plan.

A home purchase can be a key element in a person’s long-term financial picture, Ms. Lucreziano emphasizes. That’s why consulting an advisor about how to make homeownership work within the scope of your finances is such a key step in the buying process.

“It’s critical to understand what you can afford and then to stick to your budget,” she says. “It’s really easy to get excited when you’re shopping for a home, but knowing how much you can afford is really important.”

Budgeting for a home purchase goes beyond just a mortgage, Ms. Lucreziano says.

Buyers now need to pass the “stress test” and prove they can afford their potential mortgage in the event of a period of financial turmoil or a hike in interest rates, so that needs to factor into how much you can put toward a mortgage, she says.

Also, there are closing costs that can be 3% to 4% of the purchase price, as well as the up-front costs of furnishing a new home, buying appliances or appraisal fees. There are also ongoing costs involved with owning a home.

“You want to include these in a monthly or yearly cash-flow budget that encompasses all of the increased costs — for example, property taxes,” she says. “What insurance do you need for your home? What are the hydro and internet fees, cable costs, as well as any repairs or replacements? Are there condo fees?”

Potential buyers should start by getting a formal mortgage pre-approval. Online calculators can help set a target, but it’s important to have that pre-approval from a lender before starting house shopping.

“Although it’s not a formal mortgage application, you will have confidence and understand how much purchasing power you have,” Ms. Lucreziano says.

It’s also important to work through with an expert what kind of mortgage is right for you, she says, whether it’s a fixed- or variable-rate mortgage.

A red-hot real estate market doesn’t mean it’s a market out of reach for younger or first-time buyers, Ms. Lucreziano says. It does mean buyers have to be realistic about the decisions they will have to make.

“What are your must-haves, in terms of property, and what are your nice-to-haves? Is this your forever home? What are your short- and long-term goals? Is it about work? Is it more convenient from a commute perspective? What is important to you in terms of a neighbourhood? Leisure activity? Schools? It really comes down to the unique needs of the individual.”

Homeownership is still a great way to build wealth for long-term financial goals, she adds.

“It’s the biggest purchase that you’ll probably ever make, and it’s a part of an overall plan,” Ms. Lucreziano says.

Originally published in the Globe and Mail, May 2021.