Putting Yourself in Debt by Saving for a Down Payment in Victoria

August 14, 2021 12:06 am Published by Leave your thoughts

People are concerned about declaring bankruptcy or filing a proposal, as they don’t want to “wreck their credit”. Upon further questioning, people are often under the mistaken belief that the worst thing that can happen to them is that they have a poor credit score.  We often talk to people who are living paycheque to paycheque paying off the minimum balance of their credit card each month. This creates situations where people are thousands of dollars in debt, with no hope of ever paying it off, but still have a good credit score. They believe that a positive credit score is all they need to buy a house.  But this is a false belief, especially if the intent is to purchase a home on southern Vancouver Island. Based on a a recent National Bank of Canada report from August 2021, buying a home in Victoria will require more than just a good credit rating.

 

According to the report,  if you are the top 10% of all earners and make an annual income of $176, 000 a year, and saved 10% per month, it would take you 28 years to save up enough to for a 20% down payment to purchase an average house in Victoria. If you only wanted to put an initial 5% down, therefore incurring big CMHC (Canada Mortgage and Housing Corporation) insurance fees, that would only take you 7 years to save up the down payment.  But at an interest rate of 3%, your mortgage payments alone would be $3800 per month, which would not include property tax, insurance, utilities and other costs associated with owing your own home.  The report indicates that in Victoria, on average, mortgage payments absorbed 65.1% of the median pre-tax household income in the second quarter of 2021, making Victoria one of the least affordable cities in Canada.

 

But, there is still may be a path to home ownership, but you must first start with eliminating all other sources of debt in order to start saving for the a down payment.  When people are concerned about their credit rating and possible consequences on qualifying for a mortgage, the best advice to them is to focus on eliminating the debt as quickly as possible (going through a bankruptcy or consumer proposal, to speed up the process) and focus on saving the down payment.  By the time the down payment has been saved, as long as you have not incurred other types of consumer debt and  completed the CP or bankruptcy, then your credit score will have fixed itself.

 

See Also:

 

Personal Consumer Proposals

 

Personal Bankruptcy

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