4 major hurdles for first-time buyers and how to get over them

When it comes to buying your first home, there are many hurdles to leap. The high prices in the Greater Toronto Area (GTA) add to the intimidation factor if you’ve never gone through the homebuying process before.

With that in mind, we list a few major obstacles standing in your way of buying your first home and how to get around them.  

Big downpayment

Let’s get the obvious one out of the way. Your first home will be the largest purchase you’ve ever made. The average condo in the GTA costs more than $740,000. If you were to put 20% down on that condo unit, you’d need to save $148,000. If you’re living downtown Toronto, you’re likely paying pretty high rent, eating out too much, and spending your money on all the other great stuff there is to do downtown.

Solution: Some developers, like Daniels, have first-time buyer programs that require a smaller downpayment and some offer downpayment assistance with payment-free loans. You can also consider moving into a rental space with multiple people or even moving back home to save money.

It’s also important to remember that the average price of $740,000 is based on the average price per square foot and the average unit size, which is 900 square feet. You likely don’t need 900 square feet of living space. If you’re looking for a new one-bedroom condo unit in the GTA, you should expect prices in the $400,000s.

One other thing is that when you buy new construction, the downpayment is usually spaced out over months. If you’re putting 20% down on a $450,000 unit, that’s $90,000, but spread over a wide timeframe. A common structure is 5% at a time, which would be $22,500 per payment.

Ideal location is too expensive

Let us guess, you want to live in the heart of the Entertainment District in downtown Toronto, but your budget is only $350,000. At this point in time, it’s just unrealistic. Think of all the reasons you want to live there. Those are all the reasons thousands of other people want to live there, too. When the demand is high and supply is limited, prices go up.

Solution: Be a trendsetter. Attempt to discover the next up-and-coming spot. This is easier said than done. One trick is to look at the where the artists are congregating. Have you noticed any neighbourhoods where art galleries and new artist studios and collectives are opening?

Think about it – Yorkville was a bohemian oasis where Margaret Atwood, Neil Young, Leonard Cohen, Gordon Lightfoot, and other famous Canadian artists used to hang out. Now it’s one of the most expensive neighbourhoods in the country. Queen West is another example. You have to be a big box to afford rent on the Queen St. strip west of University. It won’t be long before the western wave hits Parkdale.

You’re alone

Potentially one of the saddest hurdles – your single-income just isn’t enough to qualify for a mortgage, even if you did save a bunch for the downpayment.

Solution: There are a couple things you can do; you can partner up with a friend to make an investment, or you can ask a family member who loves you dearly to go on the title with you.

If you’re buying with a friend, chances are you’re going to keep renting, but you’ll be generating rental income from the property you own. Hopefully it’s enough to cover the mortgage payments and a bit of your monthly rent. Ideally, you and your friend would eventually sell for a gain and put the money towards your own home.  

If you’re asking a parent or another family member to purchase with you, it’s important to iron out the details. Technically, your family member would also own the property. Will they be making payments with you? Will they expect to have access to the unit? Agree on all these things before making it official.

Bad credit  

Some people don’t understand what impacts your credit score. You can have a lot of debt and have a bad rating. You can also have a high income, no debt, and still have a bad rating. Then you can have debt, be making payments, and have a good rating. It can be confusing.  

Why would someone with high income and no debt have a bad credit score? Banks like to see proof that you can pay off debt. If there is no debt history, then how does the bank know you can handle making the payments? If you don’t have a credit card, you’re still on your family’s phone plan, and don’t have any school debt, you’re an enigma to the bank.

Solution: Get a credit card and never spend more than you can afford; fully pay off your statement every month. Try not to succumb to the high limit – that’s how people end up in debt forever.

If you have a history of credit and you just have a bad credit score, then you have to focus all your savings on paying off debt. There’s no point of having money in a savings account if you’re being charged interest on your credit card. The interest you’re gaining in the savings account is nothing compared to the whopping interest charges on your credit statement.

We hope these hurdles didn’t scare you away from attempting to buying your first home. After you actually go through the process of buying, all these rules still apply. It’s all a part of becoming more involved and calculated when it comes to your personal finances.