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It’s tough to be a millennial right now.
Millennial pink is no longer the colour of the year. Our near-obsessive relationship with social media means we’re scrolling well into the night and losing sleep. And we can’t afford a house because we’ve spent too much money on avocado toast.
Reality check: obtaining a mortgage isn’t as hard as millennials think it is. But it is confusing, especially with the new mortgage rules in effect this January.
And while it’s true that we as a generation like to spend a bonkers amount of money on items like avocado toast, smartphones and organic, gluten-free and vegan everything, on the top of 86 percent of Canadian millennials’ wish lists is the desire for their own white picket fences.
It’s certainly a tough market out there, and there’s a lot to consider. And that’s where our friends at TD Canada Trust can help — navigating us through the scary journey of adulting. Because as it turns out, of the varied challenges that millennials face when it comes to home buying in a heated market, getting a mortgage doesn’t have to be so confusing.
Below are four things millennials need to know when it comes to home ownership.
1. Your down payment can be less than 20 percent
The number one psychological factor freaking millennials out when it comes to purchasing their first home is the myth that they need to present a minimum of 20 percent upfront.
While it’s popular practice to save at least 20 percent, you’re only required to put down a minimum of five percent. The rationale behind putting down a down payment of 20 percent is that it makes purchasing a home more affordable, as less debt means a decrease in your monthly payments and less interest payments over the life of the mortgage.
Come January 1, 2018, no matter the size of your down payment, every home buyer will need to qualify based on the greater of their mortgage interest rate plus two percentage points, or the Bank of Canada posted five-year rate. This is a kind of “stress test” to show whether home buyers can withstand higher interest rates, should interest rates rise in the future.
Want to know which mortgage will work for you? Check out the handy TD mortgage calculator tools to see.
2. You may still be able to buy with a less than perfect credit score
Poor credit isn’t fun, but it happens. We get caught up in the minefield of life and suddenly we can’t pay all the bills on time. In other words, we fall behind and make late payments (or no payments at all).
Your credit score takes a hit. And somewhere along the line, you begin to believe that your weak credit score means you can’t have nice things.
Having a good score helps lenders decide whether you will repay a loan. But it’s not a line in the sand. In fact, there are mortgage options out there from some lenders that are quite flexible and forgiving to borrowers who’ve been hit a few times under the belt by life. So while you’re working on building up that credit score and buying the generic brand of mac and cheese, you can still look into mortgage options that are friendly to those who’ve fallen on hard times.
3. You can qualify if you have student debt
Tell us if this scenario sounds familiar: you graduate school with grandiose ideas of changing the world.
And then you enter the real world, steeped with competitive job markets, people who don’t walk fast enough on sidewalks and crippling student debt.
Don’t despair. You can still live out your hopes and dreams without having to live in your parent’s basement for years. For example, consolidation loans offered by TD provide borrowers options when it comes to repayment. You might also need to consider re-adjusting your budget to save for a larger down payment. It’s not about giving up on home ownership, but making sure you’re prepared for what comes next. Talk to a TD advisor today to see what options you have.
4. It’s not always cheaper to rent than it is to buy
Renting is convenient, especially if you’re anything like the stereotypical millennial who has wanderlust and the idea that you can pick up and go at a moment’s notice.
But while it may feel like you’re saving money in the short term — especially if you’re paying rent in one of these cities — in the long haul, all that money is going towards something that isn’t an investment.
Building capital is still important to our generation. In fact, 63 percent of Canadian millennials believe that owning property is a wise financial decision.
While we as a generation are consumed with living our best life, there is still the knowledge that at some point, we’ll have to put away our suitcases to secure a future that is more concrete than a good photo at Machu Picchu.
The bottom line? While we have a different pattern of buying behaviors and a completely unique set of experiences from our parents, buying a home is still a dream of ours. We just need to get caught up on the new rules and do our homework.
Ready to take the plunge? Get in touch with a TD advisor today to see what options are available — it shouldn’t mean compromising your avocado toast.