Exactly How Much Money You Need To Buy A House

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Home buying is a daunting task to take on. It might seem impossible to get all your financial ducks in a row to embark on this journey, but really, all you need to do is consider a few essential things and you’ll be on the right track! You want to buy a house? Well, you can start here and plan out the skeleton of your savings plan before you find the place that’s right for you.

How much money do you need to buy a house?

The average price of a house in Canada is $500,000. In the USA, it’s $300,000. According to the Canadian Real Estate Association, home sales and listings in Canada are increasing rapidly in the past months. As more people are looking into buying houses, it’s important to consider how to plan for your own home-buying.

The house you can afford will depend on your income and downpayment. You can use Ratehub’s mortgage affordability calculator to see what you can afford when it comes to buying a home. This calculation is based on your current debt, income, and living expenses.

You need to have a downpayment of at least 5% of the home’s value

But, you should have a downpayment of at least 10%. If you can only afford to put down 5%, chances are you’re not ready to become a homeowner. In order to maintain some extra cash in your monthly budget and prepare for volatility in the real estate market, putting at least 10% down on your first home is essential. This extra 5% will ultimately protect you and your money.

You may want to consider using your RRSP to fund your downpayment. The First Time Home Buyers Plan lets you withdraw up to $35,000 from your RRSP to use for a downpayment. Your downpayment is about savings. So, be consistent and eventually the right moment will come for you to buy a house!

RELATED: Everything You Need to Know About The RRSP

Don’t forget closing costs

A big mistake people often make when saving for a home is forgetting about the extra costs that come along with it. You can’t just save for a downpayment. You have to keep closing costs in mind as well! Here are a few examples and approximate costs to keep in mind while you save:
  • Home inspection-$150-$300
  • Realtor fees- $7,000 (approx 3% of sale price)
  • Land transfer taxes-$2,500
  • Appraisal- $200-$400
  • Credit report- $0 from Borrowell ($30 to $50 otherwise)
  • Owner’s title insurance- $500
  • Property taxes- $1,000
  • Homeowner’s insurance- $2,000

You should aim to save for these costs alongside your downpayment. A high interest savings account will help you save fast!

What kind of credit score do you need to buy a house?

A good credit score is very important in qualifying for a mortgage. Your credit score provides lenders with an idea of how you manage financial responsibilities. They don’t want to take a risk in aiding you with your home-buying, and your credit score will indicate whether there is a risk. The minimum credit score required is 680, but having one that is higher than that is better.
You can get your free credit score and report with Borrowell and use this guide to hack your credit score. Things like your payment history, credit utilization, credit inquiries, and types of credit, all impact your score. So, make sure you are keeping an eye on these things if you want to seriously consider buying a house.

What happens if I don’t have a downpayment for a house?

To put it simply: you can’t buy a house without a downpayment! This may not be the biggest financial burden that comes along with home ownership, but it is essential. Generally, it takes 2-5 years to save a downpayment for a house. However it can even take up to 9 years to do so depending on your personal finances.
You can save a downpayment fast by using a high-interest savings account like EQ Bank. Even better, EQ Bank is a no fee account!

RELATED: How To Save A Downpayment     

So, are you ready to save?

Buying a house is a huge step for you and your finances! And if you want to take this new part of your life seriously, you must be prepared. It is essential to do the research, consider how much a house will cost you, and make a plan for saving that works for you and will ensure you can reach your intended home-buying goal.

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