Here’s what you need to know

One of the fastest growing trends in Canada is single people buying their first home on their own, rather than waiting for a partner.  According to CMHC, in 2011 a full 42% of owner-occupied condos housed singletons, and single person households are expected to continue growing. Are you wondering if this is for you, but you’re worried about the unknowns of being a single first home buyer?

Here are 9 tips to help you buy your first home solo

I’ve worked with a number of single people to arrange mortgages for their first place, and I’ve found that there are certain things that are super-helpful in making the process smooth and comfortable.

Tip # 1 – decide if you’re ready

The number one thing you need to ask yourself is, how stable is your job?  Have you been working for several years in the same industry? Working in a salaried job and in a secure position?  As well, how much have you saved up for your down payment?  Have you been able to get a good nest egg built up, to cover both your down payment and closing costs?  

One great idea is to spend a few months before starting to seriously house hunt, putting money aside into a separate account, as if you had a mortgage and home expenses.  It’s an exercise that will help you decide whether you really can live on what’s left over after you pay a mortgage and property taxes and utilities (plus condo / maintenance fees if you’re buying a condo or townhouse).

Tip # 2 – get an experienced mortgage pro in your corner

Invest the time to figure out how everything will work.  Meeting with a good mortgage broker early in the process is a good way to get informed about everything you need to know.  I sometimes see people as much as a year or two before they actually buy their first home! An experienced mortgage pro will review all your documents – for your income, down payment, and credit history – to make sure all’s good.  As well, they should put together a well-thought-out mortgage plan will enable you to see how all your options look, help you get comfortable with the process, and minimize surprises later.

Tip # 3 – get a mortgage pre-approval

A mortgage pre-approval by itself is not the be-all and end-all,but what it does do is give you a rate lock, to protect you against rising rates.  As well, if you work with a mortgage broker, he or she can get you pre-approvals from a few different lenders, so that these lenders get a look at your financial picture.  If they raise questions or red flags, you can address them now, rather than in the thick of the actual purchase of your home.  Much less stressful!

Tip # 4 – team up with a really good real estate professional

I’ve posted elsewhere in this site about the value of a good real estate agent.  If you’re buying a home by yourself, it’s critical.  You want someone who will help you fine-tune the places you’re looking at to specifically suit your unique needs.  Plus, you need someone to be an objective, helpful sounding board in making your home buying decision.  Don’t just pick the first person you meet at an open house (especially if you’re thinking of making an offer on the place; get someone else to represent your interests only!), or the “friend of a friend”.  Interview them about their opinions on what a single first home buyer should be looking for, based on their experience.  And make sure you “click”.  They’ll be standing in for your partner, so it needs to be someone you like and whose opinion you respect.

Tip # 5 – make a bigger down payment

The more you put toward your property purchase, the easier it will be for a mortgage lender to give you an approval.  Putting down 5% may be fine, if you have a very stable, secure job and great credit. If you can, putting down 10% – or more – may give you more options and make the lenders feel more comfortable.  And of course, it makes your mortgage payments a bit smaller, which is nice for your monthly cash flow.

Tip # 6 – pay special attention to pre-payment penalties

Most of us go into a mortgage expecting not to change anything for about 5 years, which is the typical length of a mortgage term or contract.  But in fact, Canadians keep their mortgages for an average of just over 3 years. If you’re a single buyer, you want to make extra sure that you have an “out” if you decide you want to break your mortgage contract early.

You might change your mind and decide you don’t want to own a place after all, or maybe you take a great job somewhere else in the city, and you want to sell because your place is less convenient.  Or perhaps you end up finding someone you want to move in with, and don’t want to keep your abode.  Whatever the reason, if you decide to pay out your mortgage early, and you don’t “port” the mortgage to a new home, pre-payment penalties apply.   How lenders calculate these varies widely!  All else being equal, pick the lenders who are most fair in their penalty calculations.  For all the nerdy detail, click here for my rant on pre-payment penalties.  You don’t want to be stuck with a bigger penalty than you have to.

Tip # 7 – consider a longer amortization

If you’re putting a down payment of more than 20% toward the purchase of your new place, you can get an amortization that’s longer than 25 years.   When I’m working with first-time homebuyers, I always explore the 30 year amortization with them if it’s an option.  The reason for this?   The longer the amortization, the lower the monthly payment.  Does it mean you pay more interest to the lender?  Yes, if you don’t make any extra payments.  My suggestion is to plan on making extra payments whenever possible, but this way, you control when you make them, rather than being committed to an ongoing larger payment, which might not always be convenient.  (For a deeper dive into tips to save money on mortgage interest, and to pay your mortgage off quicker, see my post here.)

Tip # 8 – build up an emergency fund

If you’re a single first home buyer, building up a financial buffer is especially important.  You want to have a fund to dip into, if you encounter an unexpected expense, or something happens with your job.  Getsmarteraboutmoney.ca has a great post to help you calculate how much you should set aside for an emergency.

Tip # 9 – don’t neglect your insurance

Typically, you will be offered mortgage insurance at the time you arrange your mortgage.  Don’t skip this. I’m not suggesting that one specific kind of mortgage life insurance is necessarily the best product for you.  However, I do strongly recommend that you evaluate your overall insurance needs with a reputable insurance professional.  Your mortgage broker or realtor should be able to recommend someone good.

Making sure that you have sufficient disability insurance and critical illness insurance to protect you if you get sick and can’t work is extremely important.  My clients will often say that they have this coverage through work.  The only catch you need to consider is: what happens with your insurance, if you no longer have that job?

Let me know what you think!  Are you ready to buy your first home? Or do you think you’d rather wait to buy with a romantic partner? Why or why not? Let’s chat about your plans!

And in the meantime, here are some more posts you might like:

• buying your first home by 29
• saving up for that down payment
• strategies for using your RRSP in the home buying process
• variable or fixed rate mortgage – which is better?
• what’s a collateral charge mortgage?

Happy homebuying!

Photo credit: [c] nuttawan jayawan for vecteezy.com