Am I Ready to Buy A House: 5 Things to Consider Before Entering the Real Estate Market

Trying to decide if it’s time to enter the real estate market is like trying to decide if you’re ready to have kids; you’ll never really know until you’re in it. However, just like starting a family, there are a few telltale signs that you’ll be just fine.

Keep reading for our top 5 things to consider before entering the real estate market!

Do you have a stable lifestyle?

Stability is a huge factor when it comes to buying a home (and having kids, if you’re wondering). Homeownership comes with a lot of responsibilities, so when we talk about stability we’re not just talking about financial stability.

Take a look at your career and your goals for the future. Are you secure in your current job? Will your job require you to move in the near future? Do you have a steady stream of income? All of these are important questions to ask. If you’re feeling confident in your career trajectory and your job doesn’t take you away from where you’d like to buy a home, it could be a good time for you to look at buying a home. Alternatively, if you’re not happy with your job or you have to travel a lot, you may want to pause and reevaluate.

Remember, that once you have a mortgage and home to take care of, it’s harder to make career changes. Before you tie yourself down with financial responsibility, make sure you’re happy with your life.

Speaking of happiness, take a look at your relationships. Many people plan to buy real estate with romantic partners, so making sure you and your partner are in a good place financially and emotionally is important. When you buy a home with someone, you’re essentially entering into a business relationship. You need to make sure you trust them, which means knowing the ins and outs of their financial situation. You need to have tough discussions about debts, spending habits, budgets, etc. If you’re not ready for those discussions, you’re not ready to buy a home with them.

Lastly, financial stability is also a huge factor in deciding whether it’s time to buy a house and unfortunately, it’s not always left up to you to decide. Mortgage lenders, specifically prime lenders, will look in depth at your finances to determine if you’re qualified for a mortgage. This means looking at your credit score, debts and income. In most cases, mortgage brokers require 3-years of steady income to qualify for a mortgage.

Can you afford the costs associated with the purchase of a home?

There are a lot of fees associated with buying a home that may not be obvious for first time buyers. It’s more than just affording your monthly mortgage payment.

The biggest upfront cost of buying a home is your down payment. First time home buyers struggle with this the most because they don’t have built up equity in a previous property to pull from. While the minimum down payment is 5% for anything under $500,000, any down payment under 20% requires mortgage insurance.

You’ll also have closing costs including lawyers fees, inspections, land transfer taxes and more. Check out one of our previous blogs on what closing costs to expect here.

Is your rent or current housing costs rising?

Another key indicator that it might be time to enter the housing market is if the cost of your current housing is rising. Obviously, this is just one factor and just because your rent is rising doesn’t mean you have the ability to buy. However, if you do have the ability to buy a home, taking a look at your current housing expenses is a good idea.

In most cases, you won’t save money by buying a house. In most cities in Canada, homeownership costs more than renting. However, you’ll be building equity as a homeowner and will get a return on your investment. When you’re renting, you’re building someone else’s equity.

Do you have a good credit score and manageable debt?

Like we said under our section on lifestyle, your mortgage lender will look at your credit history and debts. A-Lenders, most major banks, are looking for credit scores of at least 680. For those with lower credit scores, you may need to look at B-Lenders, which usually come with higher interest rates. 

As for debts, your mortgage lender will look at your total debt to income ratio to ensure you can carry the additional debt of your mortgage. If you do have debt, don’t worry there are such things as “good debt” and “bad debt”. A good debt is something like student loans, which usually have lower interest rates and indicate the potential for increased income. Bad debts, on the other hand, are things like credit card debt and car loans. Bad debts will have more of a negative impact on your borrowing power.

You can work with your mortgage broker or lender to work out a plan to get you on track for mortgage approval. Some lenders will help you create a plan to get you from a B-Lender to an A-Lender.

If you’re looking for a mortgage professional, reach out to our team. We will put you in touch with some of the best in the business. 

Are you able to play the long game?

While all of the above sections of this blog have been about the present, you also need to think long-term.

Investing in real estate, especially as of late, is about playing the long game. You need to be willing and able to sit on this investment for the next 5 to 10 years in order to see a good return on investment.

Yes, the market is somewhat unpredictable and we’ve seen instances where real estate prices skyrocket in a short period of time (during COVID, for example). However, that’s the exception, not the rule. Be prepared to hold onto your property for the foreseeable future in order to get the most out of your investment.

Deciding if you’re ready to buy a house is hard and can be extremely intimidating. While you should consider all of the above elements before jumping into the home buying process, it’s important to get personalized, professional advice to make the best decision for you.

Having all of the information is the best way to get started on the right foot. Talk to a mortgage broker and real estate professional in your area to understand the unique market conditions you’ll be facing.

If you’re a potential first time homebuyer in the Ottawa area, reach out to our team. We can help you understand the Ottawa market and options available to you and put you in touch with trusted mortgage professionals.

We’ll be here when you’re ready to get started!