The Markham real estate market has gone wild, with home prices going up literally by the day. The average price of a detached home in Markham has gone to above $1 million, which makes it really difficult for young, first-time homebuyers to enter the real estate market in Markham and the rest of the GTA. There are a number of houses that aren’t above the one million dollar mark though, but the next issue is that of down payment.
Saving up at least 5% of your purchase price, plus another 1% to 3% for closing costs can be a daunting task for those young people who’ve just graduated, are still paying student loans, rent, car payments on an entry-level salary. The good news is that many of these young person’s parents have built enormous equity in their homes due to the increase in home prices and will often help out their kids or grandkids. A survey done by the Canadian Association of Accredited Mortgage Professionals found that a number of young people got help by a gift or loan for their down payment and that number could be up to 40% of new homebuyers. But, is this a good thing?
If the bills you already have restrict you from saving up the thousands of dollars you have for a down payment, borrowing or getting a gift from mom and dad might be worthwhile. The same study above found that one in four renters have saved less than $5,000 for a down payment. Considering they need upwards of $20,000, it might never happen for them if they can’t get money from an alternative source and the best time to buy is now. You’ll stop wasting money on rent, grow your net worth and of course, get into your own home. If you are still living at home, your parents might be throwing money at you just to get you out.
There are a number of cons to getting money from a relative for a down payment. While it might get you into the housing market, borrowing money when you are already financially strapped might get you into more hot water. The thinking goes that if you can’t afford to save while already paying bills, you might not be able to pay for the added costs of home ownership (like property taxes, maintenance, unforeseen repairs).
As well, borrowing money from a relative could put a definite strain on the relationship, as they may need the money paid back sooner than you can do it in order to fund their retirement or other goals. Ensuring you have a solid relationship and even put the loan into contractual terms will make sure that all party’s needs are met.
Borrowing money for your down payment is allowed in Canada, but lenders will look at this as existing debt and it could affect what you get approved for.
If you want any more information about borrowing for your downpayment to buy a home in Markham, let me know.