As a young potential home buyer, you may be getting advice from all over – your parents, your grandparents, your friends and from what you read in the news. The older generation may be espousing the notion of saving up at least 20% of your purchase price as a down payment for your first home. This will save you money and ensure you get a good interest rate on your loan, as you won’t have to qualify for mortgage insurance. But, with house prices rising at a frenzied pace each year, is that really a smart move in the current market? Do you buy now or continue to save?

Do you have the minimum down payment needed?

In Canada, you need a minimum down payment of 5% of your purchase price to buy a home and be considered by A-lenders. If you don’t have this, the answer is going to be to keep saving. With home prices rising, how much you need to save may be a factor, but consider that you’ll still only be approved for what your income and debt levels will accommodate. So while you won’t get approved for a higher mortgage amount, if the prices rise, your dream home won’t be the same today as it could be tomorrow.

How much are you saving each month?

If you are able to save a generous amount each month, you may be better to keep saving. Consider that you need to save enough each month to surpass the amount that home prices are rising. Depending on where you want to live, this could be anywhere from 2% to 33%. If you are looking for Collingwood real estate, that number is expected to be 3% for 2017. This means that if you considering buying a home in Collingwood by the end of this year, you need to save more than $9000 on a $300,000 purchase price to make waiting worth it. If you plan on buying a home in Toronto, that number is going to be exponentially higher and not worth saving for at all.

Mortgage rates are rising too

Not only are home prices rising in the Collingwood real estate market and beyond, so too are interest rates. You should also consider what you’ll pay in interest over the term of your mortgage by waiting to buy and having an increased interest cost.

A home is an investment

Buying a Collingwood home now is going to be an investment in your future. If you already have 5% down, you should consider buying a home now so you can reap the benefits of the rising home prices in your home’s equity. Waiting a year or two not only means you’ll pay more for your home, it also means you’ll lose that time to build equity in your home.

If you need help deciding on whether to wait or buy a property in Collingwood, contact me for more information.