Making your first home purchase in BC can be a difficult process. Having to deal with finances, fees, and the surge in home prices in the past few months altogether may lead you to feeling discouraged. According to a recent poll from the
Royal Bank of Canada (RBC), more than a third (36%) of non-homeowners under 40 believe they will never own a home, while 62% of Canadians believe a majority of people are being priced out of owning a home for the next decade. However, with recent news of the market leveling out and updates on BC programs like the First-Time Home Buyer Incentive (FTHBI), it seems that things are looking up! It is needless to say that buying your first home is one of life’s biggest financial decisions, one that will need some guidance. And we are here to help! Here are 6 tips for first-time home buyers in BC.
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Assess your Financial Situation
Buying a home for the first time will come with its pros and cons. However, in order to come prepared, you need to assess your finances and be aware of what you can or cannot afford. Owning a home will come with additional expenses that you may not be aware of at first blush. You may want to keep a detailed budget to determine where your money goes currently and what it will look like with the additional expenses of home ownership. To help you make that decision, check out this calculator from the
Financial Consumer Agency of Canada (FCAC).
You should also think about what resources you have available to handle extra costs that come with home ownership. Whether it’s in the form of additional savings that you’ve set aside (instead of using them as part of your down payment) or even family members who are willing to help you make your down payment (there is no shame in asking your loved ones, especially as a first-time buyer).
If you find that it is taking everything you have to hit the minimum 5% down payment and meet the regular mortgage payments, then don’t be afraid to step back and hold off buying a home until you are able to create more breathing room in your budget.
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Ensure your Buying Decision Suits You Now and Your Future
The home you buy should be something you can enjoy not only now, but as your life changes over time. It is important to think seriously about your plans for the future. Assess where you’re going to be comfortable today and for the next 5 years without underestimating what the next few years will bring.
If having kids is part of your plan, think about how you can fit daycare payments in or the loss of income if one of you decides to stay home. How stable is your income, and what could you do in the case that unexpected conditions, like COVID-19, were to occur? Is the commute on a Sunday afternoon as doable on a Monday morning? If you dislike the kitchen of the home you purchased, will you be okay with spending money to renovate?
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Get a Pre-approval and Consider an Alternative Mortgage Lender
To avoid disappointment, pre-qualify first and then start house hunting. Getting a pre-approval will often depend on your credit score, a thorough analysis of your income, and the nature of your down payment, among other factors. Sounds difficult? Don’t sweat! There are a few ways you can do this such as a through a bank or a mortgage broker. However, one of the best ways for first-time buyers is to find a trusted lender.
A good lender can navigate you through the process of getting your finances in order and finding a deal that makes sense for your budget and financial goals. Worried about choosing the right lender? There are many new and innovative companies like
WiiBid that allow you to compare and auction your case resulting in multiple lenders competing over you. That way, you have the power to choose the best and lowest rate as well as working with your top choice lender.
In short, keeping your options wide and open when obtaining a pre-mortgage approval is beneficial. Make sure you do your research and find out the option that best suits your needs.
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Be Wary of Teaser rates!
If it is your first time purchasing a home, it might be important to learn a thing or two about today’s real estate climate. And that includes teaser rates. Teaser Rates, also known as adjustable-rate mortgages, are known to have led homeowners to financial trouble as well as housing rashes, just like that one that occurred in the US. “In 2005-2006, somewhere between 30 percent to 40 percent of all mortgages sold were ‘teasers’, where the rates started out low, but went up after two years”, says Adam Major to
Georgia Straight. Buyers found out that after the increase of rates, they could not afford the payments. And with the value of their houses going down, they could not refinance their mortgages.
Here in Canada, many home buyers are currently getting mortgage rates at 1.5 percent and below. “We are now in a position where nearly 100 percent of the mortgages being sold in Canada could be ‘teaser’ rate mortgages,” Major noted. This becomes a risk for aspiring buyers, especially first-time buyers, who may not be able to afford home mortgages if interest rates go to 5.5 percent. With this info in hand, buyers are warned to be wary of teaser rates and to keep an eye out on the mortgage climate.
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Take Advantage of Government Assistance such as the First-Time Home Buyer Incentive
As a first-time home buyer, you are entitled to new benefits and incentives. And so why not take advantage of it? In early May 2021, updates on the BC government’s First-Time Home Buyer Incentive came into effect. After nearly 5 months since it was first proposed, the Department of Finance and Canada Mortgage and Housing Corporation (CMHC) have improved the eligibility criteria for buyers in Toronto, Vancouver, and Victoria.
The First-Time Home Buyer Incentive (FTHBI) is a shared-equity program where the government contributes between 5% – 10% to a first-time buyer’s down payment. They would also contribute shares in any increase or decrease in the home value until the loan is repaid. The buyer won’t need to make any monthly payments; however, the loan must be repaid after 25 years or once the home is sold.
Here is a brief summary of the
new eligibility requirements of FTHBI effective May 4, 2021:
- The maximum eligible household income has been raised to $150,000 (an increase from $120,000)
- Participants can borrow up to 4.5 times their household income, up from the current four times
- The changes are limited to those living in the 3 cities (Toronto, Vancouver, and Victoria), while the original criteria continues to apply to those living in the rest of the country
So, what does this mean? According to
Canadian Mortgage Trends, first-time buyers wanting to participate in the program can now qualify for a purchase price up to $722,000, up from roughly $505,000 for those under the original requirements. This comes at a time when the average house price soared to $716,000 in Canada, according to
March data from the Canadian Real Estate Association. And while market prices are reported to calm down later this year, now might be the time to consider seeking government assistance, especially if you are a first-time home buyer.
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Keep on Saving by Creating a Savings Plan!
Your down payment and your monthly mortgage payments are just the beginning of your home purchase journey. There are a lot more expenses that come with buying your first home such as closing costs, land transfer tax, and home insurance. That’s why it’s a good idea to save up as much as you can even if you have saved enough for your down payment. The bigger the down payment, the smaller the mortgage and interest charges! You may also want to consider establishing an emergency fund to help you prepare for any unexpected costs. To give yourself some peace of mind, it’s good practice to set aside 5% of your income as an emergency fund to be ready just in case!
