Quelques mythes à déconstruire sur l’achat d’une première maisonOctober 5, 2016

Some Myths about the Purchase of a First Home

The range of information on the Internet concerning the myths and realities of the real-estate market can be difficult to navigate. When the time comes to invest in your first home, it is normal to want to seek advice from a friend or relative who knows the subject better than you do. However, to distinguish between real, anecdotal, and outright false information, it is important to understand some concepts. So before you get caught up in what your friend tells you about what happened to “one of his friends,” here are three of the most common cliches.

The Location of the House Makes All the Difference

One of the most enduring myths is that the location of the house is the main determinant of its quality and its price. Let's be clear: what many mean by location is actually a matter of status. However, according to economics experts Spencer Rascoff and Stan Humphries (authors of the book The New Rules of Real Estate, regarding the American real-estate market), it would be much better to choose a home based on what will happen in the next 10 to 20 years in the neighbourhood in which it is located.

Likewise, if you have a poor home in an upper-class neighbourhood, you shouldn't rely on the reputation of the district to raise the resale value of your home. A bad house remains a bad house, whatever its neighbourhood!

Interest Rates

Some people put their relatives on their guard against interest rates that fluctuate wildly, forcing young owners to become indebted up to their necks, even at the risk of not being able to pay. That's wrong. According to Bank of Canada statistics, interest rates have never exceeded 10% since 1992. While interest-rate hikes of 20% (as in the early 1980s) are not impossible, they remain very unlikely.

Down-Payment and Mortgage Determinants

Many rumours circulate regarding the down payment required or preferable to get a better mortgage. However, remember that, generally, the minimum down payment for the first $500,000 of the price of the home is 5%, and it rises to 10% for everything in excess of $ 500,000. After that, you must demonstrate the ability to repay the various costs related to the purchase, representing 1.5% of the price of the property.

Your mortgage will be determined by five factors: your credit rating, your sources of income, your employment history, your savings, and your down payment. The down payment is not the only factor that will determine your flexibility when negotiating your mortgage.

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