A house is one of the biggest investments of our life. It is a common dream for most of us to buy a house. In fact, even those people I helped to solve their financial difficulties asked this question: "Can I still buy a house after I completed this process?" The process is either bankruptcy or consumer proposal.
Prior to the tightening of credit by the government just recently to prevent housing bubble as in the United States which triggered worldwide recession which we are still recovering, there were thousands of Canadian who were able to purchase houses without down payment.
It was easy to qualify for a mortgage approval for the amortization period was up to for forty years coupled with lowest interest rates in decades. Buyers opted variable rates for a term of six months or for one year term to meet banks' minimum credit requirements.
The problem with a variable rate is when interest rates go up your variable mortgage rate would also go up as it is not fixed. As interest rates go up, your mortgage payments would also go up. Thus, those who barely met the banks' requirements in getting their mortgage would have difficulty paying their mortgage payments. The consequence would be defaults on mortgage payments which lead to power of sale action by a lender to take over the property.
Considering the risk of losing your dream house should you buy a house now without down payment and barely meet minimum bank credit requirements, or wait and save more money for a decent down payment?
Some of you who are risk takers may argue that buying a house now is a good idea because to buy later house prices may go up.
That is a valid argument for house prices going up is a distinct possibility.
Some of you who are conservative may argue that it is better to save first for a down payment and build up equity of the house at the outset, rather than facing the possibility of losing the house down the road.
It is also a valid argument for the down payment could reduce the mortgage principal and in effect the mortgage payment would be lower than buying without a down payment, assuming on both scenarios house prices were the same.
The question is which way you have to go, buy now or save first? If you are a risk taker you have to minimize the risk by looking at your possible financial back -up should the above problem arise. Otherwise, you may defer your purchase. On the other hand if you are conservative, it is good to remain conservative rather than be sorry later.