Turning Renter into Homeowners

Turning Renters Into Homeowners

by Darrin DeRoches April 29 - May 5, 2010

In previous articles I have mentioned government programs designed to turn renters into homeowners.  With the low interest rates coming to an end, a renter who is thinking of becoming a homeowner should jump in while they still can.    The biggest issue for most renters is the down payment.  Almost all banks allow for the down payment to be gifted.  This means if someone in your immediate family is willing to gift the down payment for a home, you can  qualify for a mortgage with their money.  Plus you can borrow up to $25,000 from your RRSP to buy a home – as long as you pay it back.  A more recent development is banks getting into the “no money down” mortgages.  They work on the basis that the bank will give you the money for the down payment for a higher rate on the mortgage, as long as you stay with them for the entire term, usually five years.  If you make a change in lenders you will have to pay the down payment.  So those renters with good credit and jobs can become  homeowners!    Some may wonder if it is worth it at all, so let’s look at the numbers.  If you pay $800 a month in rent you can qualify for $120,000 mortgage, including taxes.  At this level, your investment in real estate, at a mere 2 per cent increase, will net you $27,000 equity in your home over five years.  You can pay back the RRSP or you have paid back the “no down payment” in this term and you are up $27,000 – oh and you own your home.   The 2 per cent increase is low and there will be maintenance and other costs, but you are creating equity and building a future, and you may make even more money.  If you stay renting you have just increased your landlord’s equity by $35,000–plus since he did not have to pay back the down payment.    Sounds good – so why isn’t everyone lining up to do it?  Remember you have to have good credit, a good job and the balls to take a risk.  Everything has a little risk in it if you want the reward.  Before the rates start to rise and the scenario gets harder to do, a renter should really consider talking with a mortgage broker who can help, and see if they qualify for this.  The worst outcome is that the renter can find out what they would have to do to qualify for a mortgage; the best outcome is they are looking for their first home.  This window of opportunity will only be open for a little while longer, so if you are thinking of making the leap from renter to owner, jump in now while the time is right.  V