First of all, you may be wondering who millennials are. Millennials are the generation born between the years of 1981 - 1995 and are currently the largest generation in history with approximately 90 million members. Some refer to millennials as Generation Y and their home buying habits have been unpredictable at the best of times. This can be attributed to rising home prices as well as crippling student-loan debts. Your typical millennial is waiting longer to buy a home because rent and commodities have increased in price, while wages have levelled or are lower due to a lack of workplace experience. If you fall into this category, you might have a grim outlook on purchasing a home. Don’t sweat it, there is still hope.
Get in the habit of saving money
This sounds like a no brainer, but saving money is the key to working towards a new home purchase. This can sound like a difficult hurdle, but with a tight budget and accountability, this task easily becomes habit. Some millennials have even hired a financial coach, which will cost money, but save you more over the long run. You will also want to create a separate savings account allocated for a down payment. Keep a separate bank account for emergencies so that you will never have to touch the valuable savings you have accumulated.
Be prepared for extras
Knowing the hidden costs associated with purchasing a home will better prepare you when the time comes. Whether you buy a pre-owned home or a new home build, there are always hidden costs, including taxes, HOA fees, utility bills, movers, and home maintenance (ex. lawn mower, furnace filters). You will need to include these hidden costs into your budget.
Take advantage of new home buyers' programs
Do your research and find out what is available to you. One such program is the “RRSP Home Buyers’ Plan” which allows you to withdraw up to $35,000 (bolstered from $25,000 to $35,000 in March 2019) in a calendar year from your registered retirement savings plans (RRSPs) to buy or build a qualifying home for yourself. You can also double this if there are two of you making the purchase. There is also a “First time home buyers’ tax credit” which is a rebate on your following year’s federal tax return. If you as well as your home qualify, you could receive up to $750 back on your tax payment. An upcoming initiative is Canada Mortgage and Housing Corporation’s (CMHC) “First-Time Home Buyer Incentive”, which enables home buyers to reduce the amount of money paid for an insured mortgage without increasing the amount they must save for a down payment. Exploring the options available to first-time home buyers might give you the final nudge towards home ownership.
Shop around for the best mortgage rate
With many mortgage pitfalls, do not feel pressured to accept the first mortgage you are shown. Mortgage rates can vary widely between different lenders, and shopping around can literally save you thousands of dollars. The daunting task of going to financial institutions and listening to pitches is enough to make one’s eyes glaze over, but listening to these pitches and doing the math can lead to big savings. These savings can then be used to pay down the principle or to furnish your new home. Also make sure you give yourself the time needed to check out these varying options, as you will not want to make a rushed decision which might cost you in the long run. Another consideration to be aware of is hidden fees and costs. It is best to get all the details in order to make an informed decision, rather than just looking at interest rates alone.
When talking with lending institutions, come with a plan including a price range that works for you. Other points to consider are how much you are bringing as a down payment, how much you will be borrowing, your closing date, and your credit score. This will help the lender know what type of loans are going to work for you, narrowing down the options you will have to compare.
Think about a secondary suite
Creating a secondary suite in the basement will cost you up front, but it is an effective way to offset mortgage costs. The CMHC recognizes that secondary suites help create affordable housing in Canada and have recently made new regulations which make it easier and more affordable for homeowners, allowing 100 per cent of the rental income to be factored into a mortgage qualification. Taking on the role of landlord also has its drawbacks so make sure that your suite is legal and know what your legal responsibilities include. Secondary suites can create extra income, allowing you to pay off your mortgage faster.
So, if you’re a millennial looking to buy a home, doing a bit of number crunching and sticking to a budget will help make the dream of ownership a reality. It is time to put economic barometers and other people’s opinions aside and see what is possible. Homeownership for millennials is attainable!