First-time buyers emerge With interest rates now retreating after two years of prohibitive mortgage costs, the real estate landscape is starting to open up for first homebuyers.
Many first-time buyers put their ambitions on hold as the cost of cash rose after the pandemic, and we also saw a historic spike in property values in almost every corner of Canada.
However, the recent decisions by the Bank of Canada to reduce the cash rate, which in turn brings down the retail cost of a mortgage, has spurred many young buyers into action.
The rate has fallen 1.25% to 3.75%, one of the lowest among developed economies.
Of course, as a first-time buyer, you’re coming into the market at a complex time.
While the cost of a mortgage might be falling, the value of many homes will start to rise in response.
You’ll not only compete against other first homebuyers but also investors who are seeking rent-ready properties in the market’s lower quartile.
Consequently, when you find a great place to buy, you’ll most likely need to move quickly.
Below, we’ve pulled together some quick financial tips to help you.
Helping hand: Investigate provincial and national schemes designed to help you afford your first home. There are some excellent and financially rewarding programs available. You can claim up to $10,000 on your tax return as part of the government’s Home Buyers’ Tax Credit. Some provinces offer a rebate on land transfer tax, too.
Savings Account: It’s a smart idea to use a first home savings account (FHSA) as withdrawals, interest and dividends are tax-free. Individuals can contribute a maximum of $8,000 annually and up to $40,000 without a tax impost.
Cash Is King: Get a preapproved loan once you’re ready to start your property search. Why? If you find the perfect house or apartment, you’ll need to move quickly, and you’ll want to be confident you have the money to make an offer.
No Hesitation: Many loan preapprovals have a 12-week expiry. When you consider that it will take four to six weeks to settle on a property, that doesn’t give you much time. If your lender offers to lock down the interest rate for a fee, don’t bother taking that option. Rates are falling. A variable arrangement plays to your advantage right now.
Downpayment: Your downpayment cash has to be immediately available, not locked away in a savings account. There’s no law about how much your deposit should be. Generally, for properties under $500,000, you’ll need a 5% deposit. If you have a deposit of less than 20% of the loan value, you’ll get hit with Mortgage Loan Insurance.
Budget Carefully – Your mortgage approval will need to cover more than just the asking price. Consider on-costs such as property inspections, legal fees, taxes, moving costs and utility connections. These all add up. They can be anything from 2%-4% of the purchase price.