I’m no stranger to the ridiculousness that has become the Canadian housing market. Not too long ago, I imagined one day buying my own little piece of single family detached paradise, with three bedrooms and a backyard for the dog. I knew vaguely that I’d have to save money for a downpayment on my little piece of land, but I figured that would be achievable easily enough, maybe it would take a few years of saving, but no biggie.
5% is Not So Easy to Come By
Flash forward to post-personal finance revolution, and I’ve paid off my debt and become a lot more skeptical about entering the housing market. I’ve mused about it fairly frequently on the blog, and most recently I’ve come to the conclusion that homeownership probably isn’t in the cards for me within the next ten years.
Because houses are too expensive here in Canada. That is, the traditional single family detached home in a reasonably populated area is too expensive. Sure, I could get a 500 square foot condo in a city or a house out here in hickville for a decent price, but that’s not what I want. The type of place that I would want, runs closer to the $300,000-$400,000 range in my nearest large city. I don’t know about you, but for me, a mortgage that size is out of my price range, and one of the biggest reasons for that is the downpayment.
In Canada you need to put at least 5% down on your home, or 20% if you want to avoid paying CMHC insurance premiums (which protects the lender, not you, in case of default). For a $300,000-$400,000 house, that means my husband and I would need to save a bare minimum of $20,800 – $27,400 once closing costs are factored in. I didn’t even calculate how much we’d have to save for 20% down, because I know the figure will just be ridiculous.
That means that if we started saving tomorrow, we might be ready to buy in 25 to 34 months, and even then, just barely, by the skin of our teeth. That also means no travelling during the time and probably for several years afterwards, all for just for the bare minimum down payment.
I like to think I’m pretty good with delayed gratification, but even to me, that seems like a lot of saving to do. No wonder ads like this are starting to pop up in some of the more expensive areas of the country:
I don’t think I have the patience to diligently save my 5% downpayment (let’s ignore for the moment that I should be putting down even more). But I really want to become a homeowner. I’ve wanted to own a house for a long long time. Does that mean I’m entitled to one or that putting down only 2.5% as a down payment (as in the commercial above) is a good idea?
If I can’t even save up 5% of the value of a home, how the hell can I assume that I’ll have the funds available to pay down the other 95%? Houses are freaking expensive, so if I can’t scrape together 5%, how am I going to afford to repair the roof or replace the furnace?
Answer: I wouldn’t be able to.
The 5% down payment rule is a weak litmus test to determine if you are ready for homeownership. I actually think it should be a lot higher than that, but I’m not the one making the rules. Since I’m clearly not ready for home ownership, I would venture to guess that neither are the people who are taking advantage of those crazy ass offers. They just want to get into the housing market at any cost.
Newsflash people: Wanting something doesn’t mean you deserve it.
I can’t afford a house right now, so I’m not getting one, and I won’t get one for a long long time because even I can see that I don’t have the financial wherewithal to handle a house purchase.
If you can’t save 5%, you don’t deserve to borrow the other 95%.