How to Afford a Mortgage When Interest Rates are High

The pandemic spawned creative home ownership options, worth considering if shopping for a mortgage.

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Q: ​During COVID our young adult son moved home. His roommate situation dissolved and it just made sense for him to come back. It was a blessing in disguise, but it’s time he gets back out on his own. He was able to keep working throughout the pandemic, helped his dad with a renovation project, and we got to have some quality time with him before he embarks on the next stage of his life. He contributed toward groceries but we didn’t charge him rent, with the agreement that he use the opportunity to save toward long-term goals. His savings account is now in great shape and we’re helping him consider his options for buying a place of his own. We definitely don’t want him to get in over his head though. What can you suggest? ~Petra 

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A: Many parents appreciated the bonus time the pandemic gave them with their young adult children. Whether kids moved home when their post-secondary studies went online or because remote work arrangements allowed them to do so, it gave many families opportunities they wouldn’t otherwise have had. However, all good things must eventually come to an end so that each generation of your family can move on with their respective goals. 

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If you’ve got an adult child working and living at home who wants a place of their own, here are some key points. 

Let the numbers do the talking 

Despite higher interest rates, mortgage payments can still be affordable if you’re flexible and plan ahead for the expense. For example, if someone can adjust their expectations to spend less on a home than they are pre-approved for and make as large a down payment as reasonably possible, they will have a lower, more affordable monthly mortgage payment. Contributions from family can also make a difference but shouldn’t come at too great a cost for the giver. 

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Encourage your child to outline their current budget and then look at what their future budget as a homeowner would include. There are many online resources that explain what a first-time homebuyer in Canada needs to consider. If you’d like to help your child buy their first place, carefully outline your budget as well. Be sure to consider your future goals as you look at your current obligations and retirement plans.  

Adult Kids on a Spending Spree? Four Reasons Why Not to Bail Them Out Financially 

Creative home ownership options 

The first step in the buying process is always speaking with mortgage lenders to obtain a pre-approval. Shop around and find a lender or broker that offers what you need. Getting pre-approved first allows someone to know the maximum amount of financing they’ll be approved for, which in turn, determines the price range in which they can shop. With the current uncertainty surrounding our economy, lenders are erring on the side of caution and buyers are wise do the same.  

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Beyond the various types of shared ownership arrangements, multi-generational homes with separate living spaces, using portions of a home or property to offset mortgage payments, and purchasing a rental home with no plan to occupy it in the near future, comes a unique option that has, in part, arisen due to the pandemic; buying a smaller space and commuting back home to work.  

How to Help Adult Children Move Out on Their Own 

What does ‘commuting home’ to work mean? 

Buying a home large enough to separate living and working can be a challenge. However, if family support allows someone to use or rent a small work space at their family’s home, buying a smaller living space of their own may suit everyone’s budget better. This arrangement might also work if someone has a hobby or second job that requires more space than they can afford to buy.  

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Some alternative financing or home buying options won’t be attractive, however, so it’s worth keeping an open mind to come up with one that will work. 

Options When It Feels Like Home Ownership Is Out of Reach 

Consider personal and professional goals 

Buying a first home is a big decision and leads to a significant transition in someone’s life. For more than the obvious financial considerations, it’s wise to have a plan for personal and professional goals if you want to buy a place of your own. The type of work someone does or the expectations of an employer, may limit or influence where someone chooses to live. The same may hold true with a future romantic partner if either their work or personal preferences impact where they would like to live. 

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What Millennials Can Do to Realize Their Dream of Homeownership 

Look for home ownership options with flexibility  

If determining long-term future goals proves challenging, look for home ownership arrangements that allow for a lot of flexibility. While someone may buy a place with the intention of living in it, their home ownership goal can still be met if they end up not living in the place they own for lifestyle or practical reasons.  

In B.C., new legislation removes rental restrictions on strata condos and complexes. However, the legislation won’t impact short-term accommodation, such as vacation rentals, and those restrictions may still be in place either within a strata or municipality. Rules in other provinces vary. Do your homework if this is something you’re thinking about. 

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6 Things No One Tells You When Buying a Home 

When considering a specific home, look for floor plans that are conducive to various secondary income options, such as roommates, boarders, whole-home rentals, mortgage helper suites, or renting parts of the house, garage, or yard for storage space. Research what to consider through online discussion forums and ads. For instance, a single person buying their first home may fall in love with a gorgeous walk-in shower, not realizing that they or a tenant might need at least one bathtub in the house for bathing future children. Similarly, walking up three flights of stairs in an older condo building may not suit everyone’s lifestyle or physical abilities.  

The bottom line on moving out and buying a first home 

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Families where adult kids could move home during the pandemic gained a lot of togetherness they wouldn’t otherwise have had. Despite some of the benefits that may have come along with that, it’s vital that working, adult children have their own living arrangements so that they can become financially independent. The best time to buy is when you can afford it. No one knows what will happen with interest rates and the cost of living, so avoid putting all goals on the backburner. A suitable opportunity will come your way when you work with what you have. 

Related reading: 

When Financial Incentives Aren’t a Big Enough Hook 

Cutting the Purse Strings: Solutions to Stop Paying for Adult Kids Living at Home 

Planning for Home Ownership When Inflation is High 

Scott Hannah is president of the Credit Counselling Society, a non-profit organization. For more information about managing your money or debt, contact Scott by email, check nomoredebts.org or call 1-888-527-8999.  

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