We make $60,000 a year. Is it possible to buy a home?

By Lindsay Smith/Columnist

I had an interesting meeting on the weekend. While so many people were on patios enjoying the 30 degree heat, I was sitting with a client starting the process of selling this home. I ended up listing the home for sale in the mid $300,000’s. This home, in Oshawa, was detached with two bathrooms and a single garage. As I was doing the research on pricing, I found something fascinating – there were quite a few properties that had sold and several available below $450,000. To add context, the average price for a detached home in town is $665,000. In fact, over the past two months, there have been 41 detached homes that have sold under $400,000 and currently 13 homes for sale in this range.

What does $400,000 buy you in Oshawa? A recent sale in the Ritson and Olive area for $400,000 was a two-storey, one-bath home with three bedrooms, a garage, and appeared to be completely renovated. A perfect start for a single buyer or a young couple doing their best to get their foot in the door to home ownership.

Let’s dig into what it takes to purchase a home locally in this price range. The smallest down payment allowable is 5 per cent or $20,000. This would leave a mortgage of $380,000. This is considered a high-ratio mortgage, meaning the buyer needs to pay for insurance to secure the mortgage. This insurance is in favour of the lender and is required to protect their investment in case of default. The insurance premium is added to the mortgage and is not required to be paid by the buyer up front prior to closing.

The payment for a mortgage of $395,200 (including the insurance) would be $1,673 per month to carry. Add to that payment the property taxes the total payment would be $1,911 per month.

To qualify for this mortgage, a buyer would need to have a yearly income of around $60,000. This would also be the combined income needed if two buyers were purchasing the home. If the buyer has some personal debt, there is a separate process to follow to qualify for a mortgage.

So, we have learned that to qualify, a buyer would need a single or combined income of $60,000, have a down payment of $20,000, and would end with a monthly payment less than it would be if they rented a detached home.

When you are a first time buyer, it is easy to become overwhelmed with all of the moving parts in a real estate transaction and what it takes to enter the market. The prices have been rising, multiple bids are driving prices up, and we hear how few homes are on the market.

Here is my advice:

1) Focus on what you can control. The amount of money you have in reserve that is available as a down payment and a savings program to build that “nest-egg.”

2) Work on paying down any debts you have, starting with the ones that have the highest interest rates.

3) Determine what your credit score is currently. This is the rating any lender will use when they qualify you for a mortgage. It is a rating that reflects what your payment history has been on any debts you have incurred. (this will also show any bad debts you many have.) This rating can be altered by working with a professional and having a plan to build your credit worthiness.

4) Meet with and choose a full time realtor. Even if you are one or two years out, a qualified professional can help direct you and work with you to keep you moving toward a savings plan and credit plan to increase your options when you become an active buyer.

We hear and read stories about how challenging it is to become a homeowner.

There is no question that the values have been rising over the past decade.

However, homes in Oshawa are still affordable. If we have learned anything from history, it is that real estate will continue to increase in value over time.

The best time to buy a home is today, the second best time to buy is “as soon as you can.”

If you have any questions about the above information, or see a real estate emergency on the horizon I can be reached at lindsay@buyselllove.ca

Lindsay Smith
Keller Williams Energy Brokerage

(The above qualifying ratios are based on Genworth Capital guidelines. The stated mortgage assumes a rate of 2% and a buyer with no debts. All situations are different, please speak with a qualified professional to determine how these guidelines apply to your situation.)