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Should Renters become Homeowners?


Why not?  Anytime the money you pay in rent can go towards building equity is a good time.  If it means stretching yourself financially, or buying in the wrong neighbourhood just to achieve homeownership, then it’s probably not such a good time.  This business of buying with 5% down is a great opportunity to enter the market, especially with the current mortgage rates, but not if it means that whatever gains you would make by becoming a homeowner are eaten up by the CMHC insurance premium and the failure of the value of your home to appreciate within a certain time period.   Not all neighbourhoods are created equal, and a good salesperson can guide you towards the ones that have the most potential of maintaining or increasing the value of your investment.  

Unless you win the lottery, chances are you will have to do like all of us:  start small and move-up. This will require getting your finances in order, setting achievable goals of homeownership, studying the market and the areas, finding a good salesperson or broker you can trust, get them in your corner, and listen to their advice.  

There is a useful calculator tool on my site under the buyer section that can help you determine whether buying is better than renting right now.  Beware of the numbers you plug into the calculator: chances are it would be very difficult to get a 4% return on a GIC right now, and chances are that a house will not increase in value by 10% a year.  It is safe to say that rents will likely increase by 2.0 % this year, as it is the allowable increase for Ontario tenants for 2016.  Chances are that you won’t want to live in that house 10 years, so 5 or 7 years might be a better figure for the time frame.  Play around with the figures till you get familiar with what the calculator can tell you.  If you do it right, you can come to your own conclusions based on the rent you pay and what down payment you have accumulated so far.  Have fun, and don’t get discouraged: it will all come together in the end.


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