Has the high cost of real estate got you down? If you’re looking to buy in a big city like Calgary, Toronto or Vancouver, even buying on a shoestring five percent down payment budget can be challenging. (The new mortgage stress test and higher interest rates haven’ t made it any easier.)
But despite high home prices, the younger generation hasn’t given up on the dream of homeownership. In fact, it’s only made us that much more determined. Surveys consistently show that millennials still view owning a home as a good long-term investment.
So how do you afford to buy a home in those pricey markets? Here are 5 creative ways to get into the housing market in spite of high home prices.
1. Buy with Family and Friends
Are you having trouble qualifying for a mortgage on your own? Buying a home doesn’t have to be with a romantic partner. Homebuyers are increasingly turning to family and friends. If you know a family member or trusted friend who also aspires to own a home, why not pool your financial resources together? With two incomes and two down payments, it makes it a lot easier to qualify to buy a home in a decent neighbourhood. (But if you decided to go this route, just make sure you have a written agreement when someone wants to sell to avoid any hurt feelings or nasty surprises.)
Besides your income and down payment, lenders also care about your credit score. Building and maintaining a good credit score can go a long way. If you have a credit score of at least 700, it makes it a lot easier to shop around for a prime lender like the banks and credit unions and get a decent mortgage rate. This, in turn, can save you big bucks over the life of your mortgage and help you reach mortgage freedom years sooner.
2. Purchase a Home in a Satellite City and Rent in the Big City
Not too keen buying with your bestie? Another option is purchasing a home in a satellite city and renting in the big city. This is increasingly common in cities like Toronto and Vancouver, where buying just the average priced home can set you back some serious change. By buying in a more affordable market, you can get your foot in the door of the real estate market and start building up equity. Look for an area that has some room to grow in terms of price appreciation. And don’t just leave it vacant, consider renting it out (this ties into my next tip). That way when you’re ready to buy in the big city, hopefully, the equity in your rental property will be enough to cover your down payment there.
3. The Bank of Mom and Dad
The Bank of Mom and Dad is a third option worth considering. First-time homebuyers are increasingly turning to mom and dad for help with their down payment for a mortgage. Parents, in turn, are gifting their adult children money towards the purchase of a home. It’s often a win-win situation for parents and children: parents get to see their adult children more often since they live close by and the children are able to afford to buy a home in a decent neighbourhood.
4. Become a Landlord
Instead of using your basement or spare bedroom for storage, why not rent it out? The sharing economy has made making money from your home easier than ever. You can rent out part of it to long-term tenants or short-term through home-sharing websites (just make sure you check with your municipality’s bylaws to make sure it’s allowed). Becoming a landlord is a great way to subsidize the high cost of homeownership and pay off your mortgage in about half the time.
My best pieces of advice: treat your tenants well and take the time to properly screen them. If you’re respectful of your tenants, they’re more likely to take good care of your home. Also, by screening your tenants, you’re more likely to find a dream tenant and avoid the nightmare ones.
The fifth and final of my creative ways to get into the housing market is rent-to-own. With rent-to-own, you typically pay a small down payment and a slightly higher-than-average monthly rent. After two or three years, the forced savings from the above-market rent and can be used towards the purchase down payment of the unit you’re living in. The landlord makes money and you’re able to own the walls you live in – everyone wins!
I hope these creative ways to get into the housing market will help you get into the property game. Stay tuned for more housing and mortgage-focused blogs coming soon!
In the market for a mortgage? Get your credit score for free from Borrowell and instantly see what you qualify for!
About the Author
Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians. He bought his first house when he was only 27 in Toronto and paid off his mortgage in just 3 years by age 30. An in-demand Personal Finance Journalist, Money Coach and Speaker, his articles and blogs have been featured in publications such as the Toronto Star, Globe and Mail, Financial Post, Tangerine: Forward Thinking blog and MoneySense. Connect with Sean on LinkedIn, Twitter, Facebook and Instagram.