Cost of Renting
Rent Vs Own
Did you know that every $1,000/ month paid in rent will total $60,000 over the next 5 years, and that's not accounting for rent increases. As a result, for every year you decide to rent not only will you miss out on $12,000 towards mortgage payments but also one year lost for having your mortgage paid off.
In addition, real-estate increases annually at an average of 5%. This means an additional $5,000 lost in appreciation for every $100,000. With the average home price just over $1mil in Metro Vancouver, that equates $50,000/ year of price increase.
Case Study: Rent Versus Own
Joe rents at $2,500/month and has budgeted to buy a brand new $700,000 condo .
But he decides to rent one more year.
12 month later his losses as a renter:
Rent: $30,000
5% Condo Appreciation: $35,000
Total: $65,000/ yr
12 month Gain as Buyer:
Had he purchased he would be one year closer to being mortgage free, rent payments would contribute mortgage paydown of about $12,000 ($30,000 less interest) and he would have received an appreciation of about $35,000, making him $48,000 wealthier than if he had rented.
Now of course this is oversimplifying home purchasing since there are many more variable, including down payments, repairs, insurance taxes, mortgage affordability etc. But on a high level it helps explain the importance of getting into the market and the cost of waiting too long. If this seems complicated, please know it's not. I would be happy to sit down and better explain it
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Cost of Buying versus Renting
8 Step Buying Process
1. Get Prequalified: Before beginning your search, find out what size loan you qualify for
I can't express enough how disappointing it is to find the perfect property only to learn you don't qualify for the necessary loan.
This is why it's best to know a price range before starting your search. Lending rules get tougher every year, and even cosigners are becoming of little help since banks require an income to support the debt. So even if your parents have paid off their $5m home, if they are retired and have no income, they may not be able to help. You will also want to understand what the 'stress test' is. This is the interest rate banks use to determine what you can afford.
You can use either your bank, Credit Union, Broker or Private Lender to help you arrange a mortgage. For first time buyers I recommend a broker because they will be your advocate, keep everything confidential, have relationships with lenders who may be best suited for your situation and will help you ingathering the hefty paperwork required for an application. Be prepared to spend several hours gathering the needed information, especially if you are self employed. At this phase you will have just a pre-approval". I can certainly recommend fantastic brokers I have worked with in the past if you need assistance.
As a first time homebuyer you'll qualify for a number of programs including a lower down-payment and reduced or no transfer tax; meaning you can buy with less money down. You can only do this once in your life for your primary residence, and if you are buying with someone who has already owned property, only your portion will qualify. There is also a new incentive shared equity program however there are some downfalls to this specific program which I would be happy to discuss. FIRST TIME BUYER PROGRAM
2. Refine your Search based on Budget and Area
Vancouver is expensive and financing is tough. So if you are not able to qualify for the home of your dreams yet, consider buying something in the interim as a stepping stone, so that you are not left out of the market. As shown above, rents can consume big chunks and prices can accelerate quickly, making it increasingly hard to afford your first purchase.
In this region a bit of strategic thinking is a must. You may need to start with a presale, small investment property or fixer upper as a stepping stone. We rented for several years, while owing several rental properties before finally being able to buy our dream home in North Vancouver. Or finding a home with an income helper will qualify you for a slightly larger mortgage.
There are many place to find listings, the most common is realtor.ca. There are also for sale by owners and off market opportunities, as well as door knocking . We can discuss your long term goals and find possible strategies to help get you there.
3. Make and Offer & Negotiate Terms
Don't be afraid to make an offer. What goes in your offer includes price, deposit, conditions, possession dates etc. that you are comfortable with. The seller will negotiate back until there is agreement or not.
It always surprises me how this is the most frightening part of the process for new buyer, when in fact it is the most crucial with minimal commitment, and it helps secure the property you want. This region is normally very active, so it's easy to miss out on a property to another buyer if you don't submit an offer. And if accepted you have successfully locked up the property until your conditions are met. Or at worst case, you have submitted an offer with your needs in mind that is not accepted.
Drafting a contract is always dependent on how hot a market is. The higher the buyer demand, the cleaner your conditions will need to be. This is why getting your pre-approval first is so important.