First Time Buyers
Are You Ready to Buy Your First Home?
First assess if you have the financial resources. You should have at least 5% of the purchase price of a home for the down payment. While saving can be tough, buying a home should be part of your long term financial and personal growth strategy.
Secondly assess how long you expect to stay in your new home. Moving has its expenses and you will want to position yourself to be able to build some equity. It helps if your job and home life are stable.
Government Benefits for First Time Buyers
There are three main benefit programs provided to first time home buyer in British Columbia (BC).
The BC Property Transfer Tax for Canadian residents is equivalent to 1% of the first $200,000 of the purchase price, and 2% on the balance. This is a significant amount of money levied on any real estate transaction. For example, for a $400,000 purchase, the transfer tax is $6,000. As a qualified first time home buyer, you will not have to pay this tax.
The HBP program is offered by the Federal Government and allows you to use up to $25,000 ($50,000 for couples) of your Registered Retirement Savings Plan (RRSP) towards the down payment on a home. You can withdraw this money tax free from your RRSP. You’ll need to pay back this money to your RRSP over the next 15 years.
First-time homebuyers can get a loan from the B.C. government to help with the down payment on a home. The province will match the money saved by first-time buyers up to $37,500 or five per cent of purchase price. No interest or principal payments are required in the first five years of the 25-year loans, as long as the home remains the buyer’s main residence. After five years, buyers will make monthly payments at prevailing interest rates, and the loan will be registered as a second mortgage.
The Province offers 2 examples of how the program would work. In the case of a $475,000 home where the first-time buyer has saved $11,875 or 2.5 per cent of the selling price, the province will match the buyer’s saved amount allowing them to make the required minimum 5% down payment of $23,750. In the case of a $750,000 house where the buyer has saved 7% or $52,500 (already more than the minimum 5% down payment), the province will still match the buyer’s contribution up to five per cent of the price. The government’s maximum loan of $37,500 would then allow the first-time buyer to put down $90,000 and reduce interest costs and mortgage insurance premiums.
The program will accept applications from Jan 16 2017 to Jan 2020. To qualify, buyers must have:
- purchase price of $750,000 or less, excluding taxes and fees
- been pre-approved for an insured mortgage for at least 80% of the purchase price
- been a Canadian citizen or permanent resident for at least five years
- lived in B.C. for at least one year before applying
- never owned an interest in real estate anywhere in the world
- have combined, gross household income of under $150,000
To learn more and how to apply click here.
*Government regulations change often, so please be sure to check with your notary or lawyer as to specifically what benefits you are entitled to.
What Can You Afford?
If you haven’t already gone through the mortgage pre-qualification process, you will need to meet with a lender or mortgage broker. They will establish how much of a mortgage you will qualify for. Mortgage rates vary considerably and it is paramount that you shop around for the best rate, terms, and options.
Benefits of Home Ownership
Pride of Home Ownership
Pride of home ownership is the number one reason why Canadians desire their own home. There is no landlord looking over your shoulder. You are able to make home improvements knowing that any appreciation that results will be to your benefit. Home ownership gives you and your family a sense of stability and security. It’s making an investment in your future.
In Canada, especially in the last few years, homes have appreciated considerably and in doing so have added substantially to owners net worth. Unlike stocks and bonds, you get to live in your real estate investment. Also, in Canada your principal residence is exempt from capital gains taxes.
Mortgage Reduction Builds Equity
Each month, part of your monthly payment is applied to the principal balance of your home loan, which builds your equity. Homeowners accumulate wealth for the future while enjoying the benefits of a shelter that you can use, improve and sell. Your home is a safe haven for investment. You can borrow against a home’s equity for a variety of reasons such as home improvement, sending your kids to university or college, or starting a new business. Why pay-off your landlord’s property when you can own your own?