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Financial discipline a key to obtaining down payment to buy that first home
Apr 25, 2013
From high property prices to tighter lending conditions, young first-time home buyers today say that they face challenges that their parents didn’t have to worry about, according to new research from TD Canada Trust.
Generation Y (or, Millennials) identify three main obstacles to homeownership that weren’t as much of an issue for Boomers: the ability to save for a down payment, housing prices and insufficient salaries.
“The path to homeownership can seem daunting at first, but with financial discipline and smart planning, it’s possible for young Canadians to realize their dreams of buying a home,” said Farhaneh Haque, director of mortgage advice for TD Canada Trust. 
“Before you take the leap into homeownership, crunch the numbers with an expert so you know exactly how much you can afford and what sacrifices you may need to make as a homeowner to live comfortably and continue to save for your future.”
The research revealed differences in the challenges Millennials say they face as first-time home buyers today and the challenges Boomers recall facing when they were first-time home buyers, and suggests that entering the real estate market today may be more difficult than it was 30 years ago. 
The top three obstacles for Millennials, as compared to Boomers, were:
• Saving a large enough down payment (57 per cent of Gen Y non-homeowners, versus 33 per cent of Boomer homeowners)
• Property prices are too high for first-time buyers (52 per cent of Gen Y non-homeowners, versus 16 per cent of Boomer homeowners)
• Not earning enough to afford monthly mortgage payments (48 per cent of Gen Y non-homeowners, versus 13 per cent of Boomer homeowners)
Half of Millennials think home prices will continue to increase over the next 12 months and more than half at 57 per cent feel that saving a big enough down payment is a concern. Haque advises potential buyers to make the largest down payment they possibly can, even if that means waiting longer to buy.
“While young people may be anxious to start building equity rather than paying rent, waiting until you have a larger down payment can save you thousands of dollars over the life of your mortgage,” said Haque. “First-time buyers can also consider the federal government's Home Buyers’ Plan, which lets you borrow up to $25,000 from your RSP for a down payment on your first home.”
In addition, Haque suggested future home buyers create a “down payment fund” by setting up automatic transfers each month into a TFSA or high interest savings account.
“For what you are paying in rent, you may be able to own your home so why not take a mortgage for a test run,” said Haque. “Crunch the numbers with a mortgage specialist and then test whether you can manage the costs. Set aside your expected mortgage payments plus all other home expenses for a few months, less your current rent, and see how you do. 
“Over this time, if you find that you are stretched too thin or run out of money before the end of the month, look for ways to cut back on other expenses and keep saving,” added Haque.
One-quarter of Millennials see the tighter lending conditions as a barrier to breaking into the housing market. Only six per cent of Boomers felt this was an obstacle when they purchased their first home. 
Haque said mortgage regulation changes introduced in 2012 were designed to help protect Canadians from taking on too much debt and not limit qualified buyers from their desire of homeownership. Haque suggested buyers seek pre-approval for a mortgage before house hunting, so they know exactly how much they can afford.
“Meet with a mortgage specialist who can walk you through the home buying process, assist in examining your affordability and help you find the mortgage that is right for you,” said Haque. “There are a variety of mortgage options such as fixed versus variable interest rate mortgages, short- and long-term mortgages and cash-back mortgages.
Millennials cite another barrier to homeownership: student loans. While only two per cent of Boomers saw that as a barrier to homeownership when they were first-time buyers, 23 per cent of Gen Y say they need to get their student debt under control.
“If you are working towards paying off student loans and wish to purchase a home, speak to your bank about how you can best pay down your loan faster and still save for a down payment,” said Haque. “A good first step is to set up a regular preauthorized transfer of a portion of your pay cheque onto your loan. Try to gradually increase your repayments over time. Every little bit helps and chances are you may not even miss that extra $5 or $10 a week.”