The median household income in Ottawa rose by 0.8% in the first quarter of 2022. Home prices grew by 3.9%.

With stats like that, how do you enter the housing market?

We won’t lie, it’s not going to be easy.

Housing affordability has seen its worst decline in 27 years, in part because of increased mortgage rates. Reading statistics like this can be extremely disheartening for anyone who’s looking to enter the housing market. You may feel like it’s an impossible goal right now but there are ways to work toward homeownership.

Right now, the household annual income needed to afford a non-condo home in Ottawa is $136,580. With this income, saving at a rate of 10%, it would take approximately 59 months to save for a down payment.

Here’s what you need to know about the home buying process:

You can likely qualify for a mortgage 4-5x your annual income.

Individuals or couples with steady income & long-term employment can typically qualify for 4-5x their combined annual income. Of course, this is dependent upon many factors including your debt to income ratio.

When applying for a mortgage, working with a mortgage broker is highly recommended. Brokers can shop the market for you and find you the best rates. They will also do a one-time credit check that they will share with financial institutions to get you your pre-approval status. When you shop the market yourself, you risk having multiple hard credit checks which can reduce your credit score.

If you or your partner have debts such as credit cards, car loans, or student loans your borrowing power may be drastically reduced. In this scenario, student loans are the best debts to have, so we suggest prioritizing paying off all other debts first and, if possible, reducing your monthly payments to student loans to the minimum amount.

The minimum down payment amount starts at 5% but you’ll likely need more.

As first-time homebuyers, you are able to put a minimum down payment of 5% of your purchase price up to $500,000. Anything above that will require 10% down on the difference.

For example, if you’re looking to purchase a non-condo home in Ottawa, the median price is approximately $679,188. To purchase this home you will need to put 5% down on the first $500,000 which equals $25,000 PLUS 10% on the remaining $179,188 which equals $17,919; making your total down payment requirement just under $43,000.

If you decide to put down less than 20% you will be required to pay CMHC insurance premiums on top of your mortgage, which will be tacked onto your monthly amount. This often scares a lot of first-time buyers but in such a hot market, getting into the market is more important than saving that 20%.

Keep in mind that as housing prices continue to rise, that 20% you’re trying to save won’t hold its value and you could end up paying more for the same property and still not have enough for 20% down.

If you have the minimum down payment requirements, try to get into the market now.

Don’t be surprised by the additional closing costs.

Aside from your down payment, you will need to be prepared to pay lawyers’ fees, disbursements and land transfer tax upfront.

If you’re a first-time buyer, you are eligible for rebates on land transfer tax but you should still be prepared to pay upwards of a few thousand dollars.

Legal fees will also cost anywhere from $500 to $2000, including disbursements paid to the seller.

Also be aware of your annual property taxes, which as first-time buyers will be collected by your financial institution with your monthly mortgage payment. They will pay your property taxes on your behalf throughout the year.

Buying a home in 2022 is NOT impossible.

As scary or discouraging as the above information may seem, it’s important to understand that homeownership is still attainable – it just might look different than how your parents did it.

If you feel like homeownership is something you’d like to work toward, there are steps you can take to be better prepared for the process.

Take inventory of your finances including your debt to income ratio, and your lifestyle and spending habits. Properly budgeting and understanding how mortgage payments will affect your spending habits is very important. Entering into the marketing as prepared as possible will help you move through the process with less stress.

If you’re ready to take the leap and learn more about the possibility of buying your first home, contact us! We’d love to advise you on the process and give you personalized advice when it comes to budgeting and finding the right home for you.