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Top 5 Myths About Canadian Home Ownership, Debunked
First time home ownership is confusing. Let's explore some of the most common myths that new homebuyers might fall for when looking for their first home.
Niamh GyulayContent Marketing Specialist @ Pine
5 min read
First time home ownership is intimidating. We get it. The organization, the stress of making a massive purchase, and learning about a whole new payment system you’ve likely never used before… there can be a lot to figure out. Don’t let these myths stop you from confidently shopping for a home, making the purchase, and finding the right mortgage for you. We’ve debunked the most common misunderstandings we encounter, so that you can move forward confidently in your homeownership journey.
Myth 1: You must have a 20% down payment to buy a home
This is one of the most pervasive myths in the Canadian homebuying world. Of course, having a larger down payment saved is always ideal, as it will reduce your monthly mortgage payments, and thus reduce the amount of interest that you’ll pay (saving you money in the long run). However, only 5% down payment is required for homes $500K and under. For homes between $500K and $1M, 5% is required on the first $500K, and then 10% on the remainder. Anything over $1.5M requires a 20% down payment.
You can enter the market with a smaller down payment through programs like the First-Time Home Buyer incentive. However, remember that you will be required to pay for your mortgage default insurance if your down payment is less than 20%, which generally is added to your mortgage amount.
Myth 2: Renting is always cheaper than owning a home
If you look at only the upfront and immediate costs of renting vs. owning a home, often you will come up with the answer that renting is cheaper. Although it may look that way at face value, renting will inevitably cost more in the long run. You just have to think differently about your home being more than that. It’s also an investment.
When you own, some of your monthly mortgage payment goes towards building equity in an appreciating asset. Rent payments rarely build credit of any kind, and the equity in the property that your monthly payments are building is for your landlord. Direct comparisons between monthly costs miss the benefit of building wealth while paying down home debt.
Myth 3: You shouldn’t buy a home until you are completely debt-free.
This myth often postpones potential homeowners’ timelines of when they think they can own a home. Of course, any debt one has must be manageable and allow your finances to pass the mortgage stress test. However, many Canadian homeowners have debt that they manage to pay down, alongside their mortgage payments. Debt like student loans, car payments, and credit card debt should be paid down as much as possible before applying for a mortgage, to give yourself a better chance of passing the mortgage stress test. But owning a home with other debt is possible.
The key factor here is your debt-to-income ratio, not just having debt. Reasonable, extremely common types of loans, like car loans and student loans, don’t automatically disqualify you from a mortgage. In fact, paying down debt consistently can improve your credit score, which actually makes you a more attractive candidate to mortgage lenders. Balance is the operable word; you must make sure your debt falls within acceptable limits.
Myth 4: Pre-approval guarantees you a mortgage.
Getting pre-approved for a mortgage is a necessary step in the homebuying process. It will provide you with a clear idea of what you can and can’t afford. However, always remember that pre-approval is conditional.
Mortgage pre-approval means that a lender will probably lend you up to the amount outlined in the pre-approval, based on the initial assessment of your finances. Pre-approval never guarantees final approval. The formal mortgage application involves more information about your financial past, and many factors within that new information could prevent a lender from lending to you, even if they issued a pre-approval initially. Drastic changes to factors like your credit score, employment status, or even changes in the property you plan on purchasing, can all lead to a denied formal mortgage application.
Myth 5: Home inspections on newer builds are optional.
If you’re looking at a property that is relatively new, you might think you can skip the cost of a home inspection, especially when you’re trying to save money to buy a home. It’s important to remember that homes built at any time can have problems. Anything from hidden construction defects, to foundational issues, can be an avoidable future cost for you if you catch it with a home inspection before closing.
A professional home inspection is non-negotiable. New builds are not immune to issues that can cause major problems in the future. Furthermore, home inspectors know what to look for, more than the average person can observe with an untrained eye. Problems like foundational issues, roofing, electrical systems, and plumbing, can all arise in a home inspection. A passing inspection report can offer peace of mind, while identifying issues provides you with leverage to negotiate repairs or a price reduction before closing the deal.
The homebuying process can be confusing and complicated, but with Pine, we’ve streamlined the complicated stuff, and make sure all processes are crystal clear, with all the heavy lifting done by Pine. All you have to do is decide what’s right for you. Visit our mortgage product page today to see which is right for you.