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Thursday, May 25th, 2017

To Buy or not to Buy, that’s a Pretty Big Question (part 1)

To Buy or not to Buy, that’s a Pretty Big Question (part 1)

This is part 1 of a 2 part series on down-payments for first-time buyers.

saving and spending

A recent survey from TD Canada Trust indicated that 60% of recent homebuyers were not pleased with their down payment.

A larger down-payment benefits the buyer in a number of ways including ease of refinancing, decreased insurance fees,  more equity incase prices fall, and lower interest. A trusted mortgage broker in Vancouver can give you additional information about the advantages of saving a larger downpayment for someone in your unique position.

But in a world of high (some might say ridiculous) home prices, the problem becomes saving that large deposit. As the process of saving a large down payment can be frustrating, many buyers would simply rather make a smaller down payment so that they can move into their homes more quickly (a trusted mortgage broker in Vancouver can advise on whether the payment size you have in mind will be adequate). According to a study from TD, 55% of those surveyed who were first-time buyers said they would have bought their home sooner if they could turn back time.

Saving a large down payment can be a big problem for the young (and often cash-strapped). Many a trusted mortgage broker in Vancouver is very familiar with this fact; they see it everyday due to the soaring prices ofVancouver homes.

Rare exceptions excluded, 5% is typically the minimum down-payment for anyone interested in purchasing a home.

Those surveyed by TD indicated an estimated time of “2 years or less” to save the minimum down payment of 5%, and “1 to 4” years to save a down payment of 10% to 20%. Though to many reading this now, this probably seems overly optimistic.

The uber-leveraged consumer of today has a much more difficult time saving a down payment than consumers in the 1980s when average rates of personal savings were greater than 20%.

The average price of a home for first-time home buyers in Canadais now approximately $295,000, according to an estimate from insurer Genworth Financial Canada. A quick calculation from a trusted mortgage broker in Vancouver will show you that the average buyer would then have to save up over $16,000 for the minimum down payment of 5% plus closing costs.

Closing costs plus a 10% down payment would require a party to save over $31,000. How realistic is that for a young couple with entry-level jobs and post-secondary debt asks a trusted mortgage broker in Vancouver? Fortunately, the average buyer is a little bit better off than the pessimistic scenario above.

According to BMO Capital Markets deputy chief economist, Doug Porter, the average savings rate for Canadian families (not 1st time buyers) is currently about 4%, with median income slightly less than $70,000. “The median family would, by this measure, be saving about $2,800 annually,” he adds.

As per CMHC, first-time buyers are on average about 34 years old. It’s also likely that their savings would be moderately less than the average Canadian family. It’s also not difficult to imagine that saving money for a down payment would be even more difficult for a single individual.

Consult a trusted mortgage broker in Vancouver if you are unsure how you will be able to save for a downpayment.

 

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