Overview and Tips on Getting Pre-approved for a Mortgage
My goal is to help you realize your dream of owning a home! This is a decision that requires a lot of research and insight, and I am here to provide you with the right tools to succeed.
This is Part 9 of an 11 part series that I will share with you weekly. If you want to read the previous step, please click here.
9. Move to a smaller community
While living in a city or a major urban center is a priority for a lot of people, that’s not true for everyone. If your career allows you to be flexible in terms of where you live and you don’t mind (or actually prefer) living in a smaller community or more rural area, this option can save you a ton of money in terms of both downpayment and mortgage. Alternatively, if you can afford to live in the city but would prefer to get more for your money (i.e. a nicer house, bigger property, etc.) this is a good option to get a deal. This option is especially accessible among retirees and the growing trend of people who work primarily or completely from home. Let’s look at a few examples. Based on the current Statistics in March 2022, the difference between buying a single family detached house in Greater Victoria ($1,141,300) and the Westshore communities ($1,001,400) is an impressive $139,900! Alternatively, if you were to leave Victoria for the Cowichan valley ($843,000) you could save a massive $298,300. Finally, let’s say that you’re currently living in Vancouver ($2,118,600) and Victoria is the smaller community you're considering moving to. In that case you could save an incredible $977,300. Aside from being able to afford the sticker price, let’s consider how this affects you on a monthly basis. If your plan is to move from Greater Victoria to the Westshore communities, your monthly mortgage could drop from $3866 down to $3392*, and your down payment could drop from $228,260 down to $200,280. These numbers aren’t earth shattering, but for a lot of people, $27,980 off of your down payment and an extra $474 in your pocket each month is worth considering for an extra 20 minute drive into downtown Victoria. Now, let’s look at what this means if you're a Victorian looking to move out to the Cowichan valley. That massive drop in sticker price from $1,141,300 (Victoria) down to $843,000 (Cowichan Valley) means your down payment could drop from $228,260 down to $168,600 and your monthly mortgage payment could drop from $3,866, down to $2,856. In other words, you’re saving $59,660 off of your down payment, and $1010 off of your monthly mortgage payments!
* In these examples I’m using an assumption of a 20% down payment and 2% interest. For your own example, adjust as you see fit.
Of course, if you’re a first time buyer, unless you have some help odds are you’re not buying a single family detached house as a starter home in either Victoria or Vancouver. However, this may become an option if you’re looking at one of the smaller island communities. For example Sooke, the Malahat, or the Westshore communities which are within 20-30 minutes commute from Victoria. Or if you’re flexible to move a little further out, say the Cowichan valley or Nanaimo area, this can be the difference between being able to afford an ordinary condo in Victoria and a large house in one of the surrounding communities.
You might also already own a home and maybe you’re now thinking about upgrading. This is where the move to a smaller community can really pay off in spades. Let’s say you were able to buy a house in Greater Vancouver 5 years ago when detached single family homes were averaging $1,605,800. At that time 5-year fixed rates were just under 5%, meaning that if you happened to be in this fortunate position, with 20% down you would have built up $84,383 in equity over the last 5 years. Now, today if you decide to sell your home in Vancouver for the average market rate ($2,118,600) and then buy in Victoria, also at the average market rate ($1,141,300). In this case you’ve just opened up a bunch of options. First off, at these prices, you’ll be able to free up a bunch of cash. With 20% down ($228,260) for your new house in Victoria, your original down payment ($321,160), combined with your built up equity ($147,637) and your capital appreciation over 5 years ($512,800) means that before expenses you’ll have a cash surplus of $981,597* to work with when buying your next home.With one simple move, this net gain can free you up to do a few different things both in terms of improving your finances and improving your quality of life. If you’re more interested in the financial side of things, an easy first step could be to bump up your down payment which would reduce your monthly expenses. If, for example, you were to double your new down payment to 40%, your new monthly mortgage could drop from $4,527 to $2,900 with $879,723 in cash to spare. Alternatively, if you were more interested in investing this new inflow of cash, you could take that same down payment and purchase a second house as a rental property and also still have $879,723 in cash to spare.
*(Down payment) $321,160 + (equity gain) $147,637 + (capital gain) $512,800
On the other hand, if you happen to be moving from Vancouver, and you’re more interested in upgrading to a nicer home, this is another option available to you. Let’s assume that the average home in Vancouver is equal in quality to the average home in Victoria. This may be a tall claim given the high price of land in Vancouver, and higher number of foreign investors in the Metro Vancouver area, but let’s say this is true for argument’s sake. Given the substantial price difference, that means that in most cases a Vancouverite will actually be able to buy a much nicer house for the same price in Victoria as what they can afford in Vancouver. This is more than just an argument; if you compare properties and prices between Victoria and Vancouver as I have, you’ll find that moving to the island, just like moving to a smaller community, actually gets you a lot more for your money. As you can see, if you’re currently a buyer in a similar situation to the example above, moving to the island opens up a variety of options that can be combined to serve your unique wants and needs. So, if you are a retiree or someone with a flexible career that will allow you to move out of town and you’re currently living in Vancouver, moving to the island might be a very attractive option that’s worth considering.
Since this is a guide for first time home buyers, the above may not feel applicable to you, but it’s actually worthwhile thinking about even if you’re just starting out. This is because if you are a first time home buyer today, you could be in a similar situation as the example above in just 5 year’s time. As you know from earlier, following historical trends, property prices tend to rise over time and in some cases may outpace our individual ability to save. This means that by getting into the market sooner rather than later, odds are that you’ll probably be doing yourself a huge favour, as now you’re letting the market do a lot of the heavy lifting in building toward your financial goals. However, even if the market goes against you, you still stand to gain from building up equity over time, rather than simply paying rent and watching all that money disappear. For savvy investors, affording property is not just about what you can buy today, but how that will help you build wealth and be able to afford more well into the future.
Stay tuned for part 10!
I am a Victoria based local realtor with eXp Kiteke. My commitment to honesty, integrity, loyalty and hard work have been important pillars for me because they drive a high standard of excellent service for my clients. Helping you realize your dream is my goal!
I service Vancouver Island, but my focus is on: Victoria, Sooke, Saanich, Malahat, Shawnigan Lake, Cobble Hill, Duncan, and the rest of the Cowichan Valley.