Mortgage interest rate hikes have stalled your home-buying dreams. Now what?

The latest interest rate hike has suddenly reduced your mortgage qualifying power. Now, it seems, buying a home is officially out of reach — for now.

Your thoughts swirl; when will rates go down? Where are home prices headed? Is waiting to buy the right move? Could this be a financial blessing in disguise?

Not even policymakers have a crystal ball, so it’s best to make your home-buying plans based on what you know to be true. Namely, that you have more time until you’re able to purchase — so make the most of it.

Here are a handful of ways to continue to improve your finances while awaiting the right time to buy:

Save more

Only good things can come from having a bigger down payment and a healthy emergency fund.

While waiting, beef up your down payment by increasing weekly automated savings.

It might not seem like an extra $25 or $100 a week would be helpful, but it adds up. You now have time to check out if the new First-Home Savings Account is the right savings tool for your down payment growth (it only just came out in April 2023). There may be other opportunities to trim expenses from your spending and redirect that money toward your down payment — and an emergency fund, essential for any homeowner.

Your income is directly related to how much mortgage you qualify for, and becomes more relevant with higher rates, meaning your income doesn’t stretch as far. If your income hasn’t changed over the past few years, you’re qualifying for less and less of a mortgage because rates are eroding the amount of mortgage you can service.

Now is a golden opportunity to try to boost your income to regain borrowing power. Buying a home is like no other career motivation. Ask for that promotion, push for that raise you’ve earned, or update your online resumé and go for that higher-paying job. But be careful. If you change employers, a mortgage broker will want to see you in that role for a certain period of time (typically at least six months to demonstrate stability), and you’ll also need an updated employment letter.

I’m often asked if it’s worth jumping to a new job if you’d be considered a less secure person to lend to. If changing jobs pushes your income up by more than 15 per cent, it’s likely an overdue change and would pay off with higher qualifying power, better cash flow and stronger pension opportunities.

Clear more

Still have lingering debts? Now is a prime time to clear them up. The fewer debts you have going into a home purchase, the better overall your money picture will be. Debt works against you when applying for a mortgage, but it also puts a financial squeeze on you just as the pressures of owning a home bear down.

With this extra time, pay a little extra each week on your most expensive debt while still making regular payments on other balances. Use tax refunds, commissions and bonuses for lump-sum debt repayments. Sell some of the stuff you hardly ever use — a high-end blender, skis — to pay down even more debt.

If you need to consolidate debt, be careful. Any new, hard credit inquiries and debt products can work against your mortgage application. Try first to consolidate independently using your pre-existing line of credit (it’s like self-consolidation), rolling together the pesky expensive balances into the lower-rate product. If a self-consolidation strategy is not available to you and you desperately need a consolidation loan, bear in mind it will negatively impact your credit score and you might have to push the house purchase further until the balance is reduced.

Perhaps reach out to family who might be willing to help with a consolidation loan to expedite your home-buying process.

Enjoy more

Believe me, when you are renting, it is less expensive than owning.

Home ownership can be double or triple what renting costs. So, while you’re renting, my advice is to try to enjoy it, while still balancing your other priorities; saving, earning and clearing more debt.

Renting can liberate you! Move around, try working in different places and enjoy more luxuries like travel while not having to worry about a collapsed eavestrough or a hike in property taxes.

I get that the home ownership lobby has a strong voice, and that your parents and probably everyone else that’s given you unsolicited financial advice swear that renting is throwing money away. But, that’s not the case. Wealthy renters are popping up everywhere with a much higher capacity to save for retirement and short-term goals. They’re buying businesses and using their high cash flow to chase other wealth-building goals. If you’re going to buy a home, do it for the right reasons.

This article was originally published in The Star. Lesley-Anne Scorgie is a Toronto-based personal finance columnist and a freelance contributing columnist for the Star.