Buying your first home, even with the huge market correction we've seen so far in 2022, is incredibly challenging for most people. The price reductions we're seeing have been countered with ever-increasing interest rates, which keeps the monthly costs just as high or even higher now as they were at the peak of the market in February of this year. What's worse? As more buyers are shut out of home ownership, the increased demand for rentals has skyrocketed and driven the cost of renting through the roof as well.
That's the bad news. But there is some good news here, too. In another recent market update post, I illustrated how for some people - specifically, those renting a two bedroom apartment or house and sharing that cost with a partner or room mate - the monthly cost of a mortgage is actually the same as (or even better than!) the monthly cost of renting right now.
The larger barrier to home ownership for people in this situation is usually the down payment required. If you're new to home ownership, you may have heard that you need 20% down to purchase a house. While in some cases you may be required to put down more, you may not know that most first time buyers shopping for a primary residence are only required to put down 5% on the first $500,000 (and then 10% for the remaining balance, up to $1 million).
This is a big break for buyers, but of course when the most affordable homes in the region are still selling for $400-$550,000... this still amounts to a huge chunk of money that you may have trouble getting through saving alone.
So, how are people doing it? Here are a few common tips & programs that are used to help buyers break into the market and buy their first home.
#1 - Help From Family
This is not an option for everyone, but it is definitely one of the most common ways we see first time buyers getting into the market. Older parents are often have more established wealth that they're happy to access to help their adult children get started with building theirs. Whether it's through savings or by accessing equity in their own home, or even becoming another buyer on title to use their credit & income, family members can offer financial help that buyers wouldn't be able to find elsewhere.
If you're looking to buy and hoping to get help from a family member, your crucial first step will be to reach out to a mortgage professional to find out what options are available, what the parameters are (for example, when gifting a down payment, most lenders prefer it be from an immediate relative and require a gift letter).
#2 - RRSP Home Buyers Program
I'm always surprised when I meet buyers who don't know about this very common program offered exclusively for first time buyers. In a nutshell, the program allows you to withdraw up to $35,000 from your RRSP for the purposes of purchasing a home, without any tax implications, and allows you to pay it back over a 15-year period.
Essentially, you are taking a loan from your own savings account that must be paid back... to yourself...
Don't worry, it's actually very straightforward! I've used this program myself, and it's as easy as setting your minimum RRSP payments high enough to cover your annual repayment amount, and then allocating the proper amount to the Home Buyers Program on your annual income tax return (or telling your accountant to do so). What I love about this option is that so many of us make RRSP contributions throughout the year that doesn't benefit us until we retire, but in this way we can use our RRSPs to help us right now. And while you may miss out on that compounding interest that you may have generated during those years you borrowed it, you're gaining an asset (a property) that has historically seen. excellent long-term appreciation rates (even through short term downturns like we're seeing now).
Again, I recommend working directly with a mortgage adviser that you trust, but you can read all about the program here: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan/participate-home-buyers-plan.html
#3 - Region of Waterloo's Affordable Home Ownership Program
This one is definitely lesser known and while it does have more restrictions on eligibility, if it does suit you, it could be a huge help. I think that single-income buyers stand the greatest chance of benefiting from the program because the parameters are as follows:
Buying a home within Waterloo Region
Have a total household income of not more than $101,300
Purchase price of not more than $506,000
Be at least 18 years of age
Have resided in the region for at least the last year
This program will essentially allow approved candidates access to a loan for their 5% down payment.
Full details & how to apply here: https://www.regionofwaterloo.ca/en/living-here/funding-to-help-buy-a-home.aspx
BONUS: CMHC's Purchase Plus Improvements Program
If you're looking to buy a home on a budget, you might end up buying a fixer-upper to keep the purchase price more affordable. But how can you fund things like a kitchen renovation or replacing the windows and doors? Well, when you are approved for this program, you can access additional mortgage funds to cover the cost of these improvements. In order to apply for this program, you're going to need to get contractor quotes for the work you want done and submit these through your mortgage agent. If CMHC approves the request, they release additional funds to your lawyer, who holds the money in trust until the work is done. You will then be able to move forward with getting the work done, and when it's completed, an appraisal is ordered to assess whether the work completed matches the quotes submitted. Once this is completed, your funds are released to you from your lawyer so that you can pay for the work that's been completed. Then your monthly mortgage payments are simply increased to account for the additional money borrowed, allowing you to complete necessary renovations now while paying it off with your mortgage.
This one has a LOT of detailed eligibility criteria and a very specific process for applying & accessing the program, so discussing this with a mortgage professional is CRUCIAL. However, you can find a basic overview of the program and how it works here: https://www.cmhc-schl.gc.ca/en/professionals/project-funding-and-mortgage-financing/mortgage-loan-insurance/mortgage-loan-insurance-homeownership-programs/cmhc-improvement
If you don't already know, I make weekly market update videos that are plain-language, easy to digest, and specific to the #kwawesome real estate market on Instagram. If you want to follow along to keep informed about local market trends and tips, can click here or find me by searching for @tiffidenrealestate.
What do you think - are any of these programs new to you? Have you used any of these programs yourself? Let me know!
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