5 Considerations for Single Person Households Who Want to Get Their First Mortgage (and how we can help)
We’ve covered getting a mortgage as a young couple, as a senior household, and as a single parent, but many Penticton area residents are flying solo. In fact, as a single person household you make up over 17 percent of the city’s population, next only to two-person homes.
Being independent may have its perks (no arguments over what to watch on Netflix, etc.) but can it be a problem when it comes to buying a home? Not at all. That said, there are a few key things to consider. Let’s review.
I. Coming Up With a Down-Payment
One of the primary home-buying concerns for a single person is coming up with a significant down-payment, especially if you can’t go to your parents for an assist. The issue, is that many lenders demand a sizable down-payment (20% or greater) to reduce the risk of lending to a buyer with a single salary and credit profile.
If you can come up with a 20% (or more) down-payment you’ll apply for what is considered a conventional mortgage. But in the likely scenario that your down-payment is less than 20%, you’ll get a high-ratio mortgage which typically requires mortgage default insurance. Premiums on the insurance will depend upon the amount you’re borrowing and the percentage of your down-payment. You will want to factor this this into your ongoing payment schedule.
While it is ideal to shoot for the conventional 20% it is not required. It also doesn’t mean that you have to make concessions on the type of property you’re looking for. With Carloni Mortgage Brokers, you’ll gain access to a variety of financiers that only ask for 10 or even just 5-percent. Let us know how much you can come up with and we’ll show you options that you never knew you had!.
II. Representing Your Income
Even with a sizable down-payment, lenders still consider income prospects when assessing risk. A buyer that has a long standing track record with the same employer that includes a history of promotions and/or income increases over the most recent two or three years will be deemed more favorable. Essentially, if you can demonstrate a pattern that indicates a consistent and sustainable income that also considers cost of living increases you’ll fall in good graces with lenders. Simply put, if you plan on buying a home soon don’t make any career changes quite yet.
Of course, these days individuals have other sources of income, and we’re not just talking about commissions and bonuses from your primary place of employment. Through 2020-21 many professionals have outsourced their talents to pick up contracting gigs on the side. While you may not want your main employer to know about this, be upfront with lenders about all sources of income as this will reflect more favorably on your risk profile. This is just one example, as there are other forms of income you may not have considered, be it from other investments, a living trust, or other source. Carloni Mortgage Brokers will help you identify and best represent your income to lenders. Just pick up the phone and give us a ring to learn more.
III. Fixed or Variable When Solo?
Should a single person household with a single income get a fixed or variable rate mortgage? Does your status even make a difference? It may.
Variable rate mortgages are favored by those who don’t mind a little risk. Single person households are often more willing to accept risk when the prospect of reward (a lower variable rate) is on the horizon. Without dependents (spouse and/or children) they can better adapt to change, even if that means breaking a mortgage due to unfortunate financial circumstances. While you should never enter into a mortgage if there is any expectation of this happening, a variable mortgage comes with less of a consequence. The financial penalties associated with fixed rate loans are much more significant – often equivalent to a full year’s worth of monthly payments. This scenario is just an example of one consideration. The point here, is that as a single person you can better pivot when the Bank of Canada makes a move that impacts variable rates. 5-year fixed rates are most commonly preferred by family households who prefer a consistent payment structure. The latter is something to consider should there be a change in relationship status (more on this below) in your near future.
The good news, is that both variable and fixed rates are at historic lows at the moment. There could not be a better time to make your pick. And as always, we’re here to help you deliberate between the two to determine which option/s work best for you. Let’s chat.
IV. A Change in Relationship Status?
You may report as being “single” on your community census (etc.) but if you have a romantic partner of any sort you will want to assess where the relationship is going. Yikes, right?
Don’t worry, you don’t have to have that conversation with your companion yet, but some inner-dialogue with yourself should occur. If you buy a home right now, could you end up in a common law situation should your partner move in with you in a year or two down the road? The implications of common law status and your mortgage can become very complicated should things not pan out as planned. At the same time, a budding romantic union can be seen as a bonus. If you get married your household income (and perhaps down-payment) increases significantly, and lenders will deem you to be a more favorable investment. You’ll also want to factor in the potential for children in the future. Mortgage terms today as a single person may make sense, but will you be able to afford the same payments 5-years from now should you become a parent? Or, will the property no longer be suitable for a family household? There are indeed a few things to consider here.
While we’re not matchmakers (well, not professionally) we can most certainly discuss the implications of getting a mortgage today, and how a change in relationship status may impact what that looks like tomorrow.
5. An Investment In Future YOU
Beyond a place to call home, a mortgage should be looked at as a VERY wise investment for an individual. This is especially true in Penticton and the BC Southern Interior where home values are rising. The long-term forecast expects this to be a sustainable trend as people are leaving large metropolises for rural and resort-type of communities where quality of life is at a premium. “Future you” will enjoy a rise in equity, which you can leverage to secure a second home, which then presents you with the opportunity to earn monthly income on the long or short term rental market. But we do encourage you to act now while housing prices in the Penticton area remain favorable, and while borrowing rates are at all-time lows.
As a single individual with minimal dependencies you have a lot of opportunity in the BC Southern Interior real estate market. We encourage you to make your move quickly however, as demand is increasing with the economic recovery. Be the one to decided to take action today, and not the one kicking themselves in five or just two-years from now who looks back at a missed opportunity. Call 250.493.9111 to stake your claim
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