City or Suburbia? What can you afford even with bad credit?

City or Suburbia? What can you afford even with bad credit?
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The True Costs to Factor into your Decision

In this day and age, we are seeing many new lifestyle trends from individuals across Canada and throughout the globe. For example, there are many people who wish to become a home owner. That being said, there is still a portion of the population that choose instead to be renters and will continue to do so for a long period of time. While this household choice may reflect a variety of personal reasons, many of times it is their financial realities that drive this decision.

Another financially-driven decision regarding housing has to do with the choice to reside in a city versus a suburban area. Again, many personal factors will go into a preference like that – and knowing which scenario fits with both your lifestyle and your finances is an important part of deciding which course of action to take.

Lifestyle vs. Financial

As many Canadians across the country are striving to find a balance between their lifestyle requirements and their financial situation, there are some particular expenses associated with each residential option. Some individuals, for example will choose to commute to the city, yet reside in suburbia, where they may be more likely to experience an lower overall cost of living.

Of course, others may choose to pay higher values in the heart of the city, where they can save money on commuter costs, such as gas expenses. Perhaps they can even walk to work or take public transportation, yet still keep up with an overall higher cost of living. Ultimately, without having to pay for a vehicle and for gas, as well as other car-related expenses – this is an opportunity to save money – money that can instead be used towards higher monthly home costs.

Breaking down the Costs of Commuting versus City Living

If you decide to purchase a home in the city and will pay let’s say a few hundred thousand dollars more than you would for a home in suburbia, you are likely looking at having to take out a much larger mortgage. Having a sizeable mortgage is more likely to take longer to pay – not to mention the higher amount of interest you will be paying over time. In this scenario you will also likely still have some annual transit costs – the bus, the subway, the occasional car rental service, as well as the odd taxi fare here and there. This however may prove to be less than the amount you will spend on the overall vehicle expenses associated with a longer commute.

On the other hand, with a less expensive home, the potential for a smaller mortgage is a valid reason alone for opting for suburban life over city central. On average, 30% is the typical amount of income many home owners – especially first time home owners will pay toward mortgage payments. Therefore, choosing a home with a lesser mortgage could be a better choice in the end and save you some additional money.

That being said, if you are planning to commute to the city from your home, not only will you typically need to navigate traffic to get to work – you may be paying even more each month towards gas, higher maintenance and repair fees, car insurance and also vehicle financing. Ultimately, if you do plan to reside outside the city, yet travel further for work, these commuting expense need to be considered and weighed closely against your lifestyle and your financial situation.

Shifts in Household Structures (one person income)

Recent shifts in household types are also a factor in the affordability of housing in and out of the city. These days, there appear to be more one person income families, therefore, dealing with high home values may not always be an option on one salary. That being said, many Millennials (born during the early 1980’s to late 1990’s, in many cases appear more drawn to areas where they can walk or hop on transit to get to work and other activities. For this reason, they may instead opt to pay higher rent/housing costs yet often go without a vehicle. With lower employment and a lot of student debts on their plate, being able to save where they can seems to involve living within walking distance and again foregoing having to pay for a car.

Trends still however point to many Canadians making the move to suburban areas. Renters and homeowners alike may see this as an opportunity to save money in a variety of ways, for example, a lower overall cost of living and perhaps they do not need to commute into the city for work. With more work-from-home opportunities on the rise – and even relocating jobs – suburbia can be the better of the two residential options – although vehicle and other expenses should still be factored into this decision.

Factoring in Bad Credit:

If however, you are unable to access a mortgage or at least a mortgage valued at the size you will need to take on a homeowner role – then opting to rent or to buy a lowered valued home whether it be in the suburbs or in the city will likely be a huge priority for you. This decision alone may be enough to sway your decision one way or another as you assess how much you can afford.

There are more and more companies who are opening their doors to individuals with bad credit, offering a variety of loan options – including of course, home loans. You are likely to still need to prove that you will be able to meet your mortgage requirements and make payments on time. However, these companies tend to show more leniency and flexibility towards this with bad credit situations and having a not-so perfect credit score is not necessarily the deciding factor in whether you will be deemed ineligible for a mortgage. Although, there are more opportunities for home loans than before for individuals with poorer credit – re-evaluating where you can afford to live will still be fundamentally important.

In each scenario, there may be no right answer. This will be a personal decision for you based on comparing your lifestyle versus your financial needs. Each time, however you should ask yourself what can I afford? This can be done by re-evaluating your budget and pinpointing how much you can afford towards monthly mortgage or rent payments, as well as how much your commute will cost you – on top of all other mandatory expenses you may have. If you compile a pros versus cons list of each situation, city-living versus a suburban residence – hopefully you can arrive on a set plan that will reflect the best possible outcome for your situation.

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