Many clients often ask me if they should wait and save up a larger down payment before they get into the market. This can work, but it often doesn’t work out, since you’re also paying rent and just saving a small amount. In the meantime, house prices are still rising, and interest rates could go up which can leave you farther behind by costing you more to buy the home and to carry it. As soon as you have an acceptable amount for a modest down payment, it will usually pay to get into a rising market right away.
Start building equity as soon as you can. Some buyers are discouraged by the prices for single-family detached homes and feel that homeownership is beyond their reach. I say, why not start with something more modest? Your first foray into real estate ownership could be a condo or townhouse, or it can be a single-family detached, but perhaps a two-bedroom instead of a more expensive three-bedroom. Get in at a level you can afford.
Many buyers that I work with try to get it all in their very first home, but in a market where prices are high, it really doesn’t make sense to buy too much house, that is, a home that can already accommodate future needs. You don’t need to be paying for extra bedrooms now if you plan on living there alone. Choosing a home that meets your current needs will keep the price down and allow you to build some equity quickly. Since Canadians tend to move often, when you are ready to upgrade you will have built up some equity to use for your next purchase, and don’t forget, in our beautiful country this is tax-free money!
You may have the option of co-ownership with a family member or friend to help you get into the market. This can be with an absent investor/owner or in a duplex where you both can live and enjoy your privacy. But remember, there’s nothing like money to cause relationship problems, so treat this like a business and be sure to hire a lawyer to draw up an agreement in advance detailing the buy-out conditions should one of the owners wish to sell. Often, one buyer will have more money to invest than the other and will need to ensure that this investment is protected in the future when it comes time to sell the property. Lawyers even give this advice to couples when one person has more invested than the other. In a divorce, your inheritance cannot be touched by your ex, unless you have taken your inheritance and used it to pay off the mortgage of the matrimonial home without separating it from the shared asset. It’s not going to jinx the relationship to have the agreement in place, so go ahead and protect yourself—just in case!