Whether it's a conscious choice to live without a partner or simply a desire to protect one's financial commitments, many home buyers these days are considering buying a home on their own.
Fifty years ago, most homes were bought by couples right after they got married. But in these modern times, there's a growing segment of Canadian society following a different path, buying their own homes without the need of a co-signor or two incomes.
The good news is, banks and other lenders have responded to this growing segment of the market, making it very feasible for individuals to obtain a mortgage and buy a home without involving anyone else.
In other words, it's definitely possible to buy a house with a single income.
Canadian law requires a minimum down payment of 5% of the purchase price. For down payments less than 20% of the purchase price, purchasing mortgage insurance is mandatory.
But for prospective budgeting for a mortgage financed by a single income, it's generally a good idea to protect yourself with more savings. By committing to buying a house only when you can save for a down payment that's 25% of the purchase price, you'll both ensure you won't have to buy mortgage insurance as well as give yourself enough leeway towards making your future payments.
Keep in mind, you'll also be committing to taxes, home insurance, utilities, maintenance of your new home, and other costs of buying a new home. Canadian law requires that your total commitment towards housing costs (including your mortgage payment) not exceed 39% of your income. For added protection, experts recommend you commit to a total monthly housing cost of 25% of your income or less.
You can use online mortgage payment calculators to get an idea of how much you can afford to borrow as well as estimate your monthly payments. A very general rule of thumb is to never buy a home that costs more than two and a half times your yearly income.
The single most important factor that will determine whether you can qualify for an affordable mortgage is your credit score.
In Canada, there are two credit reporting agencies, Equifax (Canada) and TransUnion (Canada). By law, both of these agencies are required to provide you with a yearly copy of your credit report for free. It takes a few weeks for your free report to be sent to you through the mail, but both TransUnion and Equifax also offer instant credit reports online for a small fee.
Remember, your credit report is NOT your credit score. Your credit report is a history of all of your financial activities. It is essential you review your credit report to make sure it's accurate. An error or incomplete piece of information can negatively damage your credit.
It is your credit score that matters to lenders, though. This three-digit number from 300-900 is a "snapshot" of what's on your credit report. If you want to see your credit score, you'll have to pay the credit rating agencies.
Note: The higher your credit score, the better.
Besides your credit score, the other key factor banks will look at when determining your eligibility for a mortgage is your income.
If you're a regular salaried employee, you'll just need to provide a standard tax statement or pay cheque. But if you're a freelancer, work multiple jobs, work a seasonal job, or have a variable income, you'll need to provide a variety of documents to establish your income over the previous two to three years.
Income can also come in the form of rents you collect, money from a business you own, gifts from family members or friends, dividends, bond payments, odd jobs and more. Keep in mind, you'll need to provide documentation on all of these income sources.
Note: If your income comes from a source outside of Canada, it'll need to be deposited into a Canadian bank account for at least 30 days for it to be eligible for consideration by a mortgage lender.
If you're buying your first home, there are some special schemes that can help save you money. For instance, the national government offers three programs:
In addition, the provincial government of Alberta has several initiatives to help people buy homes.
Even though buying a home on a single income provides some unique challenges, it's definitely possible to buy a home on your own. Because you're going to be solely responsible for making your regular payments, make sure you don't commit to a loan too large for you to continue to be able to afford down the road.
Take your time, speak to several lenders, and don't sign until you're confident you've found the right mortgage for your needs and budget.