According to a 2017 Royal Bank of Canada poll, 39 percent of millennials between the ages of 18 and 34 said they plan to put down some of their hard-earned money to purchase a new home within two years. Meantime, another 59 percent of millennials have already purchased their own homes.

These millennials have employed — or plan to employ — various creative strategies to attain their dream of homeownership. In particular, the five strategies listed below rank among the most effective ways for millennials, or prospective buyers of any age, to be able to purchase their own homes.

1. Decide Between Fixed and Variable Rate Mortgage

As of October 2019, prospective homeowners across Canada could expect to pay a 3 percent fixed-rate mortgage. For homebuyers seeking a forever home, locking in a five-year fixed-rate mortgage is often a smart strategy, especially when rates are low.

However, Canada has experienced a shrinking economy throughout 2019, and indicators point to a possible recession in 2020. During recessions, mortgage rates are often decreased in an attempt to kick start the economy. This type of economic environment would make a variable-rate mortgage the better choice, especially for homebuyers who intend to move within a year or two, which is often the case with millennials.

2. Obtain Help from Family

As of 2018, an estimated 35 percent of millennials who planned to purchase their own homes within two years looked to their parents for financial assistance to help with the down payment. Additionally, more than one-third of all Canadians between age 20 and 34 lived with one or more parents to reduce expenses while they saved money for their own homes. By obtaining direct financial assistance from their parents, or by living rent-free while saving money toward a down payment, millennial homebuyers give themselves a financial advantage for qualifying for a mortgage.

3. Be Prepared for a Possible Stress Test

Would-be homebuyers who provided less than a 20 percent down payment have long been subject to a so-called stress test instituted by the Office of the Superintendent of Financial Institutions to qualify for a mortgage. This stress test requires nationally regulated lenders to vet borrowers based on either the benchmark interest rate set by the Bank of Canada or the contractual mortgage rate plus two percentage points — whichever is higher.

At the beginning of 2018, the stress test requirement was expanded to include buyers who provided at least a 20 percent down payment. However, province-regulated credit unions are not required to apply the stress test to prospective borrowers. As a result, credit unions represent an alternative for would-be borrowers who cannot pass the stress test.

4.Get Prequalified or Preapproved

Getting prequalified or preapproved for a mortgage represents two potential tools for prospective homebuyers with good or excellent credit. Prequalification is an informal assessment by a bank or mortgage lender based on information provided by a would-be homeowner.

Meantime, pre-approval requires borrowers to submit a full mortgage application, along with passing a credit check. Loan amounts generated by a prequalification process are estimates, while loan amounts listed through pre-approval represent precise figures. Given a choice between the two, obtaining pre-approval is preferable to prequalification.

5. Consider Creative Alternatives

Taking a creative approach to obtaining a mortgage can bring homeownership within reach for prospective buyers. For instance, some millennials purchase homes and live with roommates, just as many renters do. Meantime, different people purchase income properties such as homes with basement apartments to offset at least some of their mortgage costs, while others move away from expensive downtown locations to the suburbs, or make even more drastic moves to less expensive provinces.

Taking the Plunge

In considering whether to opt for a fixed-rate or variable-rate mortgage, would-be homebuyers should consider the following two questions. First, “What are the current mortgage rates in Canada?” Second, “Are mortgage rates likely to change?” In case you’re looking for more answers to your burning questions, you can take a deeper dive into mortgage rates by working with a company like Kanetix.

Prospective homebuyers must also be prepared to pass a stress test to qualify for a mortgage. Other factors to consider include whether family members can help financially. If finances are an issue, options such as purchasing an income property where a renter can help offset costs or moving to a less expensive market can make home buying financially viable. On the other hand, would-be buyers with good credit and solid finances should consider prequalification or preapproval to obtain leverage with sellers.

With all this knowledge in hand, prospective homebuyers will be well prepared to obtain the best possible mortgage for that new home!