Is Your Consumer Debt Standing in Your Way?Apr 24, 2019
Is your debt load affecting your dream of buying a home? While you still can apply for a mortgage while carrying consumer debt, let’s talk about the reasons you should take steps to deal with those student loans, credit card balances or bank loans. Too much debt can actually burst your bubble of homeownership.
Canadian millennials want in on the Canadian dream, but home prices in BC can require some serious sacrifice. On top of that, personal debt can be a real roadblock when it comes to qualifying or affording a home. Here are three things to consider before you consider buying.
- Your debt-to-income ratio matters
Buying a home in Kamloops isn’t as pricey as the Vancouver market, but prices have been steadily climbing. Right now, average home prices sit at around $455,000. To qualify for a mortgage, you would need to earn at least $93,000, put 20 per cent down and ensure your Total Debt Service ratio is less than 40 per cent. This means that your debts, including loans, consumer debt, rent or car payments can’t exceed 40 per cent of your income per month. Otherwise, you’ll be denied for the amount you’re looking for, and with good reason. These new mortgage rules are in place to keep you from taking on more home than you can afford.
Use this mortgage qualifier tool from the Financial Consumer Agency of Canada to see where you stand.
- Your debt won’t disappear on its own
In fact, jumping into home ownership with consumer debt can make it much harder to afford even basic necessities. Now is the time to start aggressively attacking your debt balances so you can save up for the right home, and get the best mortgage rate. Debt solutions you may want to consider include transferring high-interest balances to a lower interest credit card or speaking to a bank lender about rolling your debt balances into a consolidation loan. If you’re unsure which is the right option, schedule a free consultation with a Licensed Insolvency Trustee who can also explain your debt options and answer your questions.
Plug your numbers into our debt options calculator to compare different debt solutions.
- The more you save, the less you owe
Seems simple, right? Honestly though, saving up for a down payment can be challenging, especially when housing prices are high. The good thing is that once you take control of your consumer debt, you’ll likely be able to save a lot more money without debt standing in your way. You’ll also be able to reduce the amount of mortgage you take on by saving up a higher down payment.
Another important savings goal when you’re making your first home purchase is an emergency fund. Having money set aside for any unexpected repairs or necessary upgrades is important. The point of an emergency fund is to cover you when you need it, without turning to debt.
Are you move-in ready but your consumer debt is standing in your way? Check out these five things Michelle wished she knew before buying her first home, over at The Classy Simple Life.
If you want more debt advice, follow the conversation over on Twitter #LeaveDebtBehind #FirstTimeBuyer #DebtAdvice