What to Know as a First-time Home Buyer
Recent headlines read that Vancouver parents are giving their children $180K on average to buy their first home. The wealth gap is widening in Canada, it is becoming less and less accessible to own your own home. Most young people cannot even imagine putting down a down payment one day. Our country’s per-capita supply of housing units is lower than in any other G7 country. A report published by CBC states that approximately 30% of first time home-buyers are relying on any sum from their parents. In Vancouver the problem is ten-fold.
This disparity is caused by many things. Vancouver is a city with very pronounced geographical constraints. Surrounded by oceans, rivers, and mountains, it is nearly impossible for the urban environment to expand. There is also an endless supply of red tape when it comes to building affordable housing. Laneway houses for example seemed like a shiny new solution a few years ago, however, permitting has now become a nightmare. Don’t even get us started about building your own home; new codes are making it more and more expensive to construct a home of your own. The 2017 BC Step Code for example will add an estimated $50,000 to the price of a new home at its highest level. The amount of foreign investment in the city increases housing prices as well, and even legislation aimed at discouraging foreign buyers from owning housing can’t stop it all.
What does this mean for millennials and Gen Z? The Financial Post wrote that parents are giving children $82,000 on average to purchase their first home, $130,000 in Toronto, and $180,000 in Vancouver. Over $10 billion was gifted to children hoping to become homeowners in the last year. Yet the average Canadian income is $54,630. If you will not have access to a financial contribution from a parent or relative, or even if you do, you will have to start planning as early as possible.
Saving up for and buying a home is not as simple as it used to be. It is arguably the most important financial decision you will make, meaning you have to be prepared. With house prices skyrocketing, you will have to put the most effort into saving for your down payment. With homes over $1,000,000, your down payment will likely be 20%, and below that it will be between 5-10%. Obviously, this sounds easier than it is. You will also need a stable income and high credit score, and maybe even jobs on the side to be able to afford this. However, BC has recognized our housing crisis and provided a few incentive programs that you may be eligible for.
1. First-time Home-buyers Incentive (FTHBI)
The Canada Mortgage and Housing Association helps first-time home buyers to reduce their monthly mortgage payments by receiving 5 of 10% of their downpayment from the Canadian federal government. However, in BC the qualifications are a bit different. In the Vancouver metropolitan area you only qualify for FTHBI if your household income is less than $150,000 and your total mortgage amount is no more than 4.5 times your income.
2. British Columbia Property Transfer Tax
This offers rebates for property transfer tax after you purchase your first home. Many Canadians do not know that when you buy a property you must pay a transfer tax to the government, which can oftentimes be a very large sum. However, if you are purchasing your first home, this program can reduce or completely eliminate the transfer tax.
3. The Home Buyers Plan
This plan (HBP) is an interest-free and tax-free way to help finance your down payment through your RRSP contributions.You, or a member of your family who has a disability, can be allowed to borrow up to $35,000 (2021) from your RRSP account.
If you have made it this far into the article, congratulations! The last thing you should know about before buying a home is the closing costs. You have made it past saving for your down payment, past finding your mortgage, and now want to plan for other costs associated with this process. These closing costs can include property transfer taxes, legal fees, home inspection fees, title insurance, appraisal fees, and government registration fees. Ensuring that there is room in your budget for these predicted costs is imperative to having a successful journey.
While buying a home in Vancouver, British Columbia, or even anywhere in Canada seems daunting, we believe that with the right level of preparedness and knowledge it is possible. At NYF Wealth Management we want our clients to feel empowered and confident about their financial decisions, so that they can look at milestones such as buying a home or helping the next generation buy one, with ease rather than anxiety. Ask us now about how to best invest for you.