If You’re One of These 4 Types of People, You Should Wait to Buy a Home

Who’s ready to buy a home? If you’re one of these four types of people, then it’s probably not you.

Human Hand Placing A Coin On Increasing Coin Stacks In Front Of House

Image source: Getty Images

If there’s one emotion to describe how homebuyers have felt this year, the proper word would be angst. Yes, whether its angst over short supplies or angst over potential mortgage rate hikes (which, yes, are coming), it seems like not owning a home has become an existential crisis, something that has catapulted many people, afraid of prices going up higher, into a housing market that’s on the brink of collapse.

Notwithstanding the many warnings from experts, including the Bank of Canada itself, that buying right now might not be the smartest financial decision you’ll ever make, homebuyers seem undeterred in their quest to secure a home before 2021 is over.

While some homebuyers probably shouldn’t be looking for a home right now, others definitely shouldn’t. Who are they? In short, if you fall into any (or all) of these categories, you should wait until the housing market is more opportune before house hunting.

1. Your job isn’t steady

Your home is likely going to be the most expensive thing you ever buy. Period. In order to make those mortgage payments, not to mention secure a mortgage in the first place, you’ll need a stable income. Perhaps even a job that’s employed you for a few years or more.

Now, of course, that doesn’t mean you can’t be self-employed or freelancing. It just means you have the bank statements proving you have a steady stream of income.

If you’re receiving a “gift” from your parents, like a substantial down payment, but you don’t have the income stream to back it up, you’re not in the position to buy a house. Stabilize your career first, before you launch yourself into home ownership.

2. You have only the minimum downpayment

Your downpayment must be at least 5% on homes that are valued at $500,000 or less, and another 10% on any value above $500,000 (but below $1 million). If you’re looking for a home that’s a million or more, you’ll need a full 20% down payment to even get your foot in the door.

For instance, if you’re looking to buy a $750,000 home, you’ll have to put at least 5% on the first $500,000 (or $25,000), with another 10% on the remaining $250,000 (another $25,000) for a total of $50,000.

But here’s the thing: if you just meet the legal minimum, you’re only putting down 6.6% of the $750,000 value. That will require you to buy mortgage default insurance, which can be around 2.8% to 4% of your mortgage amount. Depending on how much mortgage you’re borrowing, as well as the size of your down payment, that can get expensive fast.

So, if you have only the minimum downpayment, I would consider twice if you should buy a home right now. The more down payment you have, the less you’ll pay in CMHC insurance. With a full 20% down payment, you’ll avoid it altogether.

3. Your credit score is “meh”

When you apply for a mortgage, lenders will use your credit score to determine your risk. A high score means you pay your bills on time, and you’ll likely get a more favourable mortgage rate because of it. A low score, however, could mean you represent more risk, and you could pay more in mortgage payments or worse — get rejected.

While not every lender will look for the same minimum credit score, most of the time a minimum score of 600 to 650 will land you in the “good” range. But just know — the lower your score, the less likely you’ll get the best mortgage rates at the time. If your score is just above what a lender accepts, you’ll likely get a higher than average mortgage rate.

For those whose credit scores are suffering, consider getting a credit card that will help you strengthen your score. As long as you pay off what you charge, and you don’t make late payments or charge too much, you should see a steady increase in your score.

4. You have personal debt

Finally, you probably shouldn’t be looking for a home if you’re saddled with personal debt. Instead, you should use whatever money you’re saving for your downpayment to pay off what you owe, especially if it’s high-interest debt, like personal loans or credits cards. You’ll likely save more money in the long run by paying off your debts now, rather than taking out more debt and trying to pay them all off at once.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool has no position in any of the stocks mentioned. Fool contributor Steven Porrello has no position in any of the stocks mentioned. 

More on Personal Finance

Female hand holding piggy bank. Save money and financial investment
Personal Finance

Here’s Why a Big Emergency Fund Is a Terrible, Terrible Idea

Here's why saving more than six months' worth of expenses can be disadvantageous to your household.

Read more »

cup of cappuccino with a sad face
Personal Finance

5 Super-Simple Ways to Completely Ruin Your Credit Score

Building your credit score takes time, dedication, and smart decisions. Tearing your credit score apart — well, you could do…

Read more »

Young woman sat at laptop by a window
Personal Finance

5 High-Paying Side Hustles That Could Help You Save for Retirement in 2022

If you're struggling to save for retirement, here are five side gigs that could give your retirement fund a boost.

Read more »

Hour glass and calendar concept for time slipping away for important appointment date, schedule and deadline
Personal Finance

The Tax Deadline Is Almost Here! Here Are 5 Things You Need to Know if You Haven’t Filed Yet

The deadline to file your taxes is May 2. If you haven't started yet, here's what you should know.

Read more »

consider the options
Personal Finance

New to Investing? Be Sure You Avoid These 5 Newbie Mistakes

If you're new to investing, here are five big mistakes you should watch out for.

Read more »

Couple relaxing on a beach in front of a sunset
Personal Finance

Lazy Canadians: Here’s How You Can Make $200 Per Week in Passive Income

To earn $200 a week, invest money in high-quality stocks or ETFs.

Read more »

gas station, convenience store, gas pumps
Personal Finance

Costco vs. Canadian Tire: Which Rewards Card Will Save You More on Gas in 2022?

The CIBC Costco Mastercard earns 3% back at Costco Gas, and the Canadian Tire Mastercard earns 10 cents per litre.…

Read more »

young woman celebrating a victory while working with mobile phone in the office
Personal Finance

Finally! Apply for a CIBC Costco Mastercard Now to Get a Welcome Bonus!

From now until December 31, 2022, CIBC will give you a welcome bonus on the new CIBC Costco Mastercard.

Read more »