Being a single parent is not easy, especially when it comes to financial planning for a home in Toronto. Even though single parents might have tighter resources, they want to provide the best possible standard of living for their families. Owning a home is a dream of the majority of Canadians, and single parents are no exception.
Many of them decide to make their homeownership dream come true even in expensive markets like Toronto. According to Statistics Canada, the number of single homebuyers (including single parent families) is increasing. More than 27% of all homes in Canada were occupied by single owners in 2012. Purchasing a home is one of the biggest financial decisions in our lives, and everyone who is thinking about buying a home must carefully analyze all the considerations of this transaction.
Our team has experience over many years helping single parents get their footing in the Toronto market.
For research for this article we have also interviewed our clients who lived through this experience, and bought with our team.
Overall, all parents have similar priorities when buying, such as school district, how much you can afford etc. We have dug a little deeper here and given suggestions that are particularly helpful to single parents.
Check Your Credit and Determine Your Budget
The complex process of homebuying does not start with hunting for the right home but with doing financial homework.
First of all, you will need to review your credit history and make sure that it is as clean as possible. Your credit score is an important factor that determines whether you'll get a good deal on your mortgage. It is a number between 300 and 900 that indicates the likelihood that you will repay your debts. The higher the score, the better your creditworthiness. If you have not had any delinquencies in the past, you should have a credit score of 680 and more, and should qualify for a prime interest loan. You can go through your credit history by either purchasing a report with your score from a credit bureau such as Equifax or TransUnion or by examining your credit history with your mortgage broker - a more preferred option which doesn't cost you anything. Working with a professional mortgage broker will help to translate what is on your bureau, what it means and why it is on your report. Make sure that all the facts are correct and that there aren't any problems.
Knowing how much you can afford is crucial before purchasing anything, but in the case of such a big investment as buying a home, you should double-check all your calculations. A fairly broad rule of thumb is that you can afford housing that costs 4 to 5 times your annual gross household income to qualify for pre-approval.
This is dependent on what liabilities/debt including other properties/mortgages, credit cards, secured/non secured lines of credit, student loans and car lease/loan payments. Also take into consideration whether this is conventional mortgage where you can increase the amortization to 30 years to qualify the deal (a great short term plan while getting financially secure) or insured where the maximum amortization is 25 years. Mortgage insurance might also be a good idea for a single parent. Please discuss with your mortgage professional.
There are lots of different online calculators available, we have one on our website here. These calculators can show you the impact of your income and expenses on what you can afford.
Mortgage Shop Around and Getting Pre-Approved
Shopping around different mortgage lenders and brokers can be exhausting, and it definitely takes some time. It can be even more difficult as a single parent, although it can save you thousands of dollars. We have wonderful mortgage brokers to recommend to you, to help take care of this for you.
Tax Benefits and Government Grants for Single Parents
The Canadian government recognizes the financial challenges of being a single parent and offers some options to help single parents ease their financial burden and hopefully help them to ensure long term home ownership.
The most important tax benefit for a single parent with primary custody of a dependant child is the eligible dependant credit, also known as the "equivalent to spouse credit." Single parents who support and live with their child in a home that they maintain can claim one child younger than 18 for up to $11,138 in 2014. This non-refundable tax credit is reduced by the income earned by the dependant and can be claimed only by one person for the dependant.
Single parents of a dependent child in Canada who are older than 19, are residents of Canada for income tax purposes, and earn an annual income of more that $3,000 are eligible for the Working Income Tax Benefit. This is a refundable tax credit intended to provide tax relief for eligible working low-income individuals and families who are already in the workforce.
Moreover, single parents who are primarily responsible for the care and upbringing of the child and are residents of Canada are eligible for the Canada Child Tax Benefit. This is a tax-free amount paid monthly by the Canada Revenue Agency to help eligible families with the cost of raising children under 18 years of age. It may also include the child disability benefit (CDB), which is a monthly financial assistance for families who care for children with severe and prolonged mental or physical impairments.
Single parents who receive the Canada Child Tax Benefit are also eligible for the Employment Insurance Family Supplement on their family net income up to and including $25,921 per year. You do not have to apply for the benefit. The entitlements are automatically consolidated with EI payments.
What Type of Home Would Suit Your Family Best?
The first question to ask yourself before deciding what type of home would suit you is whether you'll be able to remain in one place for at least a few years.
There are several options you can choose from when purchasing a residential property: a traditional single-family home, a townhouse, a multi-family (i.e. duplex or triplex) building with more than one unit, or a condo. All of these have their pros and cons, and it depends what you prefer and can afford.
High Park Homes
Perhaps an interesting option to consider is a condo since you share costs or responsibilities or often don't have to bother with maintenance issues at all, such as the roof, landscaping, or snow removal, which a condo corporation generally handles instead. Plus, condos and units in multi-family dwellings provide their owners a sense of safety and the benefits of living in a community, such as having neighbours who can help if there's an emergency.
There may also be a selection of amenities like pools, gyms, or saunas that you can often find in condominium. At the moment, there's an abundance of condos for sale in Toronto.
A "nanny suite" or rental of usually a basement suite, of a home can be a real life saver. If you have a nanny, you can offer room and board as part of their compensation. A nanny can be shared in the neighbourhood with other families, and is extremely helpful if you travel for work, which can be really challenging as a single parent. There is someone in the home to stay with the kid/s, and it is safer all around. Many of our clients rely heavily on this extra income to subsidize their lifestyle. It can help out dramatically with paying for every day expenses like the household maintenance, taxes etc, or pay for kids sports and vacations etc.
Think in the Long Run
Many single-parent homebuyers choose the home they're going to buy according to their current preferences and needs. This is a common mistake, as needs will change. Your children will grow older and might go to schools in different parts of Toronto or even study in another city or abroad. You might find a new partner, have another baby, or decide to move somewhere else and sell the home.
Anticipating your family's future needs is very important because buying a house is a decision that has long-term consequences. Try thinking ahead and imagine how easy or difficult it would be to sell the home if something happened.
Furthermore, if you're relatively newly separated, keeping kids in the same school district might give them added stability. It has several other benefits as well, such as being close to the day care/after school program if not using a nanny, being nearby an ex- spouse is always a plus for school accessibility as well as for the children's ability to visit either parents.
What Neighbourhood to Choose?
As mentioned above, often staying in the same area, school district with both parents living in the area is a plus. Our clients we interviewed have stressed how important it is also to be in a child friendly, safe environment.
Interestingly, another observation came up. They recommend that you choose a neighbourhood that is accepting, friendly, open minded, and is an area with all kinds blended families etc.
Work with Professionals and Know the Market
Not only single parents but also everyone else who is considering purchasing a home might want to consider learning as much as possible about the market where they're planning to buy. Property prices, whether there are more buyers or sellers, whether the prices are rising or declining, and whether there any major development projects planned in the area are some important considerations.
Even though some of this information is accessible without help from a professional, discussing these factors with a real estate consultant will give you a new perspective.
Another observation came up during our interviews that sometimes single parents don't have alot of people to discuss this large investment and purchase with. Trusting your real estate consultant helps a great deal in making the plunge.
The Julie Kinnear Team has the experience and ability to understand your needs and help you with trusted advice. As a single parent, we are here to help guide you throughout.