It’s often said that a home is the biggest investment you’ll ever make. For first-time homebuyers, the process is about much more than money. Without preparation, the costs of homeownership can run much higher than you initially planned.
Buying your first home is one of the biggest decisions you’ll ever make. It can also be quite complex if you don’t know what to expect. Rising home values and tighter lending guidelines can also make it difficult for first-time buyers to afford the starter home of their dreams.
The typical Canadian first-time homebuyer is a university-educated millennial who is planning to settle down with their significant other, according to a recent study conducted by Genworth Canada.[1] Although most first-time buyers are concerned with securing the crucial down payment, there are many other factors to consider. From mortgages to tax credits, here are five tips to consider if you’re a first-time homebuyer.
1. Research the area, and the market
Most homebuyers enter the market with a specific community or neighbourhood in mind. Unfortunately, it’s not always practical from a value-cost perspective to purchase from that area. While you’re checking the quality of the neighbourhood and its amenities, also consider distances to work and other destinations. If you live in a big city, proximity to work often comes at a higher cost. Research the market thoroughly and decide what the right compromise is given your budget, lifestyle and needs.
2. Work with a broker
Fewer and fewer Canadians go straight to their bank for a mortgage. Instead, they visit a mortgage broker to get a better sense of what their options are. The mortgage industry extends far beyond the top-five banks and there’s a pretty good chance that a lesser known lender will provide you with a better rate. Brokers work on your behalf to find you the best mortgage for your specific situation. Essentially, they scour the market for you to locate the most favourable lending terms available. This isn’t always possible at your bank.
3. Make use of government programs
If you live in Canada, there are plenty of government programs out there to make your first-time homebuying experience easier. The Homebuyers Plan allows you to purchase your first home with as little as a 5% down payment. This is a great opportunity to become a homebuyer and start building equity at a younger age. The RRSP homebuyers’ plan also allows you to withdraw up to $25,000 from your RRSP account to buy or build a qualifying home. Withdrawing from your RRSP account usually means paying hefty withholding fees and personal income tax, but the homebuyers’ plan allows you to do it tax-free.
4. Don’t feel rushed
A seller’s market can create a sense of urgency to snatch up the first piece of property that even remotely meets your criteria. After all, very few emotions move people faster than the fear of missing out. While it’s always important to act with purpose when buying a home, there will always be new listings tomorrow. If you cast your net wide enough, you’ll have plenty of options to find something suitable in a reasonable timeframe.[2]
5. Calculate all the costs of homeownership
While renting cannot compete with the long-term benefits of owning a home, it’s usually much cheaper when measured month-over-month. In some cases, one payment can cover all your renting costs. This isn’t the case with homeownership. In addition to your mortgage payment, you also need to factor utilities (heat, hydro and gas), insurance and property tax. There’s also significant closing costs associated with buying a home. Luckily, first-time buyers in Canada save the Land Transfer Tax and get a nice tax refund.
These are just some of the ways you can make your first-time homebuying experience go more smoothly. By working within your budget and maximizing all the benefits available to you, the path to homeownership will be much more pragmatic.
Sources
[1] Homeownership.ca. Genworth Canada’s First-Time Homeownership Study: 10 takeaways for first-time homebuyers.
[2] Homeownership.ca. 5 crowdsourced lessons from first-time homebuyers.
