Buying a House on Your Own: Everything You Need to Know

16 January 2019 by National Bank
Buying a house single

More and more single people in Québec are purchasing homes alone. From 2001 to 2016, the number of single homeowners increased from 429,380 to 482,495 (according to Statistics Canada). Are you tempted to buy a home, but the financial responsibility of such a purchase makes you uneasy? Here are some tips to help you reach your goal.

The benefits of becoming a homeowner

Acquiring property helps build your wealth. For many buyers, a mortgage is also a form of forced savings—it’s easier than continuously setting money aside. That’s why many people prefer to buy rather than rent.  

Becoming a homeowner is also a lifestyle choice. For example, a single parent could buy a house with a big backyard for their children, a playroom and a basement bedroom for their young teenager. These characteristics are harder to find in rental properties.

Purchasing property allows you to take your personal taste and real needs into account when choosing a home. In the future, however, the house you have chosen as a single person may not work for you if your relationship status changes. You could then sell the property and profit from the increase in its value when closing the transaction.

The disadvantages of buying a house alone

Being a single homeowner also comes with certain challenges.

One challenge, among others, is that you will probably find it difficult to accumulate the down payment you need with a single income. The amount your financial institution is willing to lend you may also be lower. In case of difficulties or unforeseen problems, you would be unable to count on someone else to pay the mortgage.

You will also be the only person responsible for the upkeep and maintenance of the residence. This is why many single people prefer to buy a condo.

However, remember that this property will be all yours, and its value may increase over time. In the long term, you will definitely come out a winner.

Step 1: Determine how much you are able to pay

If you want to become a homeowner, the first thing you need to do is set a budget. You’ll need to take note of all your income and expenses, including debt repayment. You will then have a clear picture of your financial situation and how much you are able to save. This step will help you determine the maximum amount you can put toward your future home. Online calculators can help you determine your borrowing capacity.

When the time comes to plan your purchase, think about all the additional expenses: notary fees, municipal and school taxes, maintenance, renovations, etc. Do not underestimate these costs!

Step 2: Prepare your finances

After establishing your budget, you will be ready to prepare your finances to become a single homeowner. Here are a few aspects you should carefully consider.

Improve your credit

If your credit has been damaged by hard times, you will have the opportunity to try to improve it. You can do this by making your payments on time and avoiding maxing out your credit cards, for example.

You should be sure to check that your credit report does not contain errors that could negatively affect you. Perhaps your mailing address is not up-to-date, your personal information is incorrect or a payment made on time has been marked as late. Make sure that all the accounts on your file are actually yours. An account that shows up without your knowledge could signify identify theft.

Finally, young people without credit history could have trouble obtaining a loan. In this case, the help of a co-borrower is often required.

Repay your debts

Because they can damage your borrowing capacity, you must pay off your debts. If you buy a house alone, your finances will be less at-risk if you have less debt.

Save for your down payment

Before granting you a loan, your financial institution will require that you have saved at least 5% of the property’s purchase price. If you have less than 20% saved, you have to pay the insurance premium for the Canada Mortgage and Housing Corporation (CMHC). This price varies depending on the percentage of your down payment. The amount will be added to your mortgage loan.

If you have a Registered Retirement Savings Plan (RRSP), you could use it towards your down payment. The Home Buyers’ Plan (HBP) allows you to withdraw up to $35,000 without being taxed. You could also accumulate the necessary amount in a Tax-Free Savings Account (TFSA) where your savings can grow, tax-free.

Plan for other fees

Buying a home involves many one-time costs, such as transfer rights (welcome tax), notary, moving, landscaping and renovation projects, etc. It’s best to plan ahead.

Step 3: Start searching for your dream home

Think about your needs, interests and lifestyle. As a single person, you probably require less space. Do you want to live in a particular neighbourhood? Do you like the idea of renovating, or would you prefer a turnkey property? Do you want a yard? Are you planning to stay there for many years?

A real estate broker can help you in your search and in your discussions with the seller. If you have already obtained a pre-approved mortgage, this may be an asset in your negotiations.

Before buying, have the property inspected by a professional. For a few hundred dollars, this step will help you avoid any unpleasant surprises.

Choose an inspector who is a member of a professional association and ensure that they have liability insurance. They will help you figure out what major work needs to be done on the property.

Step 4: Choose your mortgage

When it comes time to choose your mortgage, your first instinct will probably be to find the best rate. This is important, but you should take other elements into consideration.

Fixed or variable rate

Because the responsibility of making payments falls squarely on your shoulders, you’d be better off with a fixed rate. With a single income, if rates go up, your financial wiggle room could become smaller.

Loan term

If you’re still looking for that special someone, it may be better to opt for a shorter duration. If you move or make changes to your mortgage, remember that you will have to pay a penalty if you break your contract.

Additional credit

If you are planning major renovations, apply for a line of credit.

An advisor can guide you towards the best product for you, based on your needs.

Step 5: Protect yourself!

As a single person, you cannot count on a partner in case of illness or job loss. It is therefore important to properly protect yourself.

Contingency fund

Experts generally recommend you set aside three months’ worth of your salary in a contingency fund. For self-employed individuals who may find themselves in more precarious situations, they recommend six months’ worth of your salary. This money can compensate for job loss or even pay for urgent repairs.

Disability and critical illness insurance

You may have disability insurance through your job, but it could be insufficient. Normally, collective insurance does not cover the entirety of your salary. You will have greater peace of mind if you have additional insurance to cover your mortgage during your invalidity.

As for critical illness insurance, the amount you receive after a diagnosis is helpful to compensate for a loss of income. It could also pay for expenses such as a wheelchair or the services of a home care nurse.

Buying a house alone has its own set of challenges, especially if it’s your first property. However, don’t see your single life as a barrier between you and your dream home—the most important thing is that you are prepared for this major transaction. If you still have doubts, consider discussing them with your advisor.

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