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5 Things to Know About Buying Your First Home

Update: On April 11, 2024, the Federal government announced an expansion to the withdrawal limit for the RRSP Home Buyers’ Plan, to $60,000 from $35,000. This will go into effect on April 16, 2024. This is the second time the withdrawal limit has been increased since it was introduced in 1992; it was last updated from a limit of $25,000 in 2019.

The new measure will also extend the amount of time home buyers have before they need to start making repayment instalments, to five years from the current two, for those who make HBP withdrawals between January 1, 2022, and December 31, 2025. 

Check out our blog to learn more about the government’s announcement.

Despite a hot housing market, you’ve probably decided that it’s now the time to move out of your parents’ home. That might mean living by yourself or with your partner. As a first-time homebuyer, it might also mean facing the struggles of financing your first home.

If you’re financially ready for it, buying your first home can mean reaching a new milestone in your life. But on the other hand, that’s not only the thing you should take into consideration. Buying your first home also means planning, budgeting, researching, and gathering just about as much information as you can in order to take the next step and make that big decision.

Don’t get stumped by any surprises. To help you prepare, we’ve come up with a list of five things you should know before making that decision.

1. The market’s hot, but not everywhere

Saying that purchasing a home in one of Canada’s largest cities, such as Toronto or Vancouver, is becoming increasingly difficult would be quite the understatement. For some, it’s much more alarming than that. In fact, a Broadbent Institute report finds it can take up to 400 weeks worth of work for the average Canadian to save up enough to purchase a new home.

Although the average sale price of a home in Canada recently reached a record high of $508,097, the average probably isn’t what you’ll end up paying. According to the Canadian Real Estate Association (CREA), the average home price is skewed higher due to the Toronto and Vancouver housing markets. Excluding these two cities, the average home price becomes $369,222—a much more affordable-looking figure. Moreover, CREA has also revealed a list of cities in which average house prices haven’t increased as substantially: Ottawa, Kitchener-Waterloo, Calgary, and Montreal.

2. You can make saving easier

This past year, a study released by the Urban Land Institute and PwC states that the percentage of people who can’t afford to make the minimum down payment on a new home in Canada is growing.

If you’re not making a purchase anytime soon, it’s in your best interest to scope out the different financial institutions in Canada and find savings options with higher interest rates so you can save more, faster.

Start with a tax-free savings account (TFSA). For example, if you and your partner can deposit $10,000 into a three-year GIC in a TFSA, you could earn more than $800 with today’s best interest rates. Best of all, interest income earned in this account is tax-free.

Since TFSAs have annual contribution limits, any additional savings could go into a high-interest savings account.

You can also use the money you’ve saved in an RRSP by taking advantage of the Home Buyers’ Plan (HBP). If you’re a Canadian citizen or permanent resident who’s purchasing a qualifying new or existing home as your primary residence and you haven’t owned a home in the last five years, you’ll qualify for the HBP. The HBP will let you withdraw up to $25,000 from your RRSP for your down payment or any homebuying-related costs. While the money withdrawn isn’t taxed, you do need to re-contribute that money or you’ll be taxed.

Saving with these accounts will also help you pay for some unexpected closing costs, such as land transfer taxes, home inspection fees, legal fees, or title insurance.

3. You can get tax rebates/credits

If you didn’t already know, there are a number of first-time homebuyer grants and programs that’ll help you pay less when buying your first home. Among these are credits and rebates that can help you recover some of the GST or HST paid on the home or any land transfer taxes. As a qualifying first-time homebuyer, you may also be eligible to receive the First-time Home Buyer’s Tax Credit. These credits and grants make it easier to become a first-time homebuyer.

4. You have options

Whether it’s for the best mortgage rates or the home itself, you should definitely shop around and weigh all your options. Besides your current financial institution, there are a number of mortgage providers that offer competitive, low rates. If you want to protect yourself against a rise in interest rates, you might want to look into fixed-rate mortgages. If you think interest rates will stay the same or fall, a variable-rate mortgage may be the way to go.

Also, visit as many suitable properties as possible within the neighbourhoods you prefer to get a better idea of the pricing in that area. Before you get too emotionally attached to any specific home, think about the factors affecting the price of that home such as the location, age, and physical condition.

Don’t have a clue about what you’re doing? Both your mortgage broker and real estate agent are there to help.

5. You’ve picked a home, but it’s not over yet!

So you’ve gone to numerous showings and you’ve picked the property you want. However, the process isn’t over just yet. Your real estate agent will help you prepare an offer to purchase before it’s presented to the seller of the property. You can add clauses to your offer, such as conditional on inspection or mortgage financing approval. You’ll also need to make a deposit either when you make the offer or within 24 hours after the offer’s accepted. The deposit covers a part, or all, of your down payment but sometimes a significantly larger deposit can help you win a bidding war.

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Flickr: Joe Mabel