January 27th, 2023 | Buying
Strategies to Help First-Time Buyers Enter the Real Estate Market
Buying your first home has always been an aspirational life milestone. It’s something that many young people dream about, and when the day finally comes, it feels special and momentous.
However, in recent years, achieving the goal of buying your first home has become more challenging for buyers. Leaving behind the rental market and becoming a homeowner can feel like an insurmountable hurdle.
Rising interest rates and stricter lending rules all seem to be working against average the Canadian hoping to enter the housing market, but there are still many positive things to mention.
There are numerous strategies and programs that first-time buyers can use to enter the Ottawa real estate market and make the dream of homeownership a reality.
Let’s take a closer look:
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Learn About Government Programs
The government has always had a vested interest in getting Canadians to buy homes. The real estate market is a cornerstone of our economy, and when more Canadians can afford to buy housing, the better it is.
There are numerous government programs designed to help first-time buyers enter the market. Some of the most useful ones include:
First-Time Home Buyers Tax Incentive
First-time homebuyers could claim up to $5,000 with this tax credit. However, as part of the new 2022 Federal Budget, the government has now doubled this credit to $10,000.
This is helpful when budgeting for things like closing costs, moving expenses, or other unexpected fees that could come up when you are making a purchase.
Home Buyer’s Plan
The federal government also has what is known as the ‘Home Buyer’s Plan.’ With this, you can draw up to $35,000 or $70,000 for a couple, tax-free from your RRSP to finance the down payment of a home.
There are some stipulations. For example, the funds must be on deposit for at least 90 days and you will need to provide a signed purchase agreement. You must also repay the funds back into your RRSP within 15 years to ensure that you are not charged tax on the withdrawal, however, many lenders can set up automatic repayment plans so you won’t miss the deadline.
Download our Buyer’s Guide right here to learn more about buying your first home.
Other Ways to Save for a Down Payment
You can also withdraw from a TFSA to pay your down payment, and the 2022 Federal Budget also announced a tax-free savings account specifically designed for first-time home buyers.
The First-Time Home Buyers Savings Account allows you to put up to $8,000 per year ($40,000 in total) into a tax-free account. Any interest or investment growth you get from this account is also tax-free.
This would be a great option for buyers who want to take advantage of tax-free savings, without the hassle of repaying within 15 years.
Buying your first home is an exciting time! Here are a few related posts that can help you on your journey:
Do You Really Need a 20% Down Payment?
Several years ago, the Canadian Mortgage and Housing Corporation (CMHC) announced that Canadians would need at least a 20% down payment to qualify for a mortgage. This was only really half true and as a first-time buyer, it’s important to know that you can actually buy a home with less than 20%.
The minimum down payment works on a scale. 20% is the ideal number, but if your home purchase price is $500,000 or less, you can purchase it with a 5% down payment.
For homes with a purchase price of $500,000 to $999,999, you will need 5% of the first $500,000 and then 10% of the remaining.
For a purchase of $1,000,000 to $1,250,000, that would require a minimum of 20% down. The amount over $1,250,000 would need 40% to 50% down, depending on the lender.
However, if your down payment is less than 20%, you will be required to pay mortgage insurance, which is an added cost from your lender. Mortgage insurance premiums are typically between 0.6% and 4.5% of your total mortgage. (You can check out our mortgage calculator tool here to see what you can expect!)
Have you heard of secondary dwellings in Ottawa? They are a great way to improve housing affordability and get you closer to your dream of homeownership. Learn everything you can about Ottawa’s secondary dwellings in our blog here.
Can Your Parents Help You Buy a Home?
Absolutely yes! If your parents are kind enough or capable of providing support, that’s great! There are a few ways parents can help their adult children enter the housing market:
- Contribute to the down payment – Whether it’s a loan or a gift, parents can help by providing a lump sum for your down payment. This can also be collaborative. Consider this: Maybe you have a 6% down payment in your RRSP, but your parents lend you the remaining 4% to get up to a total of 10%. That means you will pay lower mortgage insurance premiums and save some money.
- Co-signing – Like regular loans, a mortgage can have a co-signor. If your parents co-sign on your mortgage, they will take on both the liability of repaying the loan if you default, but they will also reap the benefits of owning the asset.
There are almost limitless options when it comes to getting help from your family to purchase a home. Whether they help you with your deposit, closing costs, or moving costs, your parents could be a great resource for getting your foot in the door.
If you’re planning to enter the Ottawa real estate market in the near future, a local Ottawa real estate team is your best resource. Here are some reasons why it’s best to work with a local expert:
Adjust Your Expectations
The reason it’s called the ‘property ladder’ is because most people treat it as such. Purchasing your first home might come with some compromises. Maybe the home is not in your top choice neighbourhood or maybe it’s a condo when you always dreamed about living in a detached house.
Adjusting your expectations and planning for the future is key when entering the housing market. Most first-time buyers begin with a ‘starter home’ and then move up eventually to their ‘forever home.’ You can see where the ladder metaphor comes from.
Not only does this make sense from a stage of life perspective (maybe you purchase your first home as a young couple planning to raise a family in several years), but it also makes sense from a financial perspective.
If you consider your first home purchase more of an investment, you can truly understand the property ladder and how to move up.
When your first home no longer serves you, you could sell it and use the equity and profits from the sale to finance the purchase of a larger home without increasing your mortgage payments too much. You can also keep your first home as an investment property and build wealth that way instead. There are many options that suit many different types of people.
We might be a little biased, but Ottawa is a fantastic place to buy a home! Discover our top 5 reasons to relocate to Ottawa here.
Talk to an Expert
In a fast-paced market that relies heavily on both economic factors as well as federal legislation, it’s easy to feel overwhelmed and worried about getting the most accurate information.
We post an Ottawa real estate market update on our blog every month. You can read past blogs and check out Ottawa housing market trends here.
Speaking with friends and family on these matters can also sometimes add to the confusion, since the experience of someone buying a home even a month ago would differ greatly from the current market conditions.
Your best course of action is to open a conversation with an expert. They know the market, they know the area, and they know exactly how to advise you on reaching your first-time home buyer goals.
A real estate agent and mortgage broker can be your best guide when it comes to finding a home for sale and optimizing your finances for a smooth and successful transaction.
At the Chell Team, we know the local Ottawa real estate market like no other. If you’re looking to buy a home in the Ottawa area, contact us today or sign up for our newsletter here and stay up-to-date with the latest market news and listings.
