First-time home buyers are often navigating a very different market than what their parents and grandparents described. Interest rates are high, competition is steep and stress tests are common. All of these new realities can make home buying feel like an uphill battle for young, first-time buyers.
But it doesn’t have to be! With the right strategies and planning, a first-time home buyer can still buy a home that fits their needs with the help of real estate professionals who can navigate the intricacies of this market. This post will examine some tips for first-time buyers.
First-Time Buyer Incentives and Programs
It’s common for a first-time home buyer to think that they are at a disadvantage and might often feel overwhelmed with monthly mortgage payments for the first time. But there are resources that can help with a range of financial stresses such as closing costs, land transfer tax, and more.
The federal government of Canada has created incentive programs for first-time home buyers. They assume different forms, but they’re all designed to make purchasing a new home more affordable.
Incentive Programs for a First-Time Home Buyer in Canada
- Home Buyer’s Plan – This incentive allows a first-time home buyer to use funds withdrawn from an RRSP to help fund the purchase of their first home.
- The First Time Home Buyer Incentive – With this incentive, a new home buyer can lower their mortgage payment without increasing their down payment.
- Home Buyer’s Amount – This incentive takes the form of a $5,000 non-refundable income tax credit which first-time home buyers can use towards their purchase.
Before deciding on which incentive to apply for, it’s wise to speak to a financial advisor to help you qualify for the most suitable one. Once you are in the shopping process, you will want to ask your real estate agent about other financing options that may be suitable for your situation.
Strike a Balance Between Affordability, Location, Value
Finding an affordable home in Canada’s hottest real estate markets can be a challenge, especially for first-time home buyers wanting to purchase their dream home.
Buyers should search for an affordable type of house in a good location that shows potential for significant value increases. A real estate agent can help you determine what type of property makes sense in the right neighbourhood.
For example, a young couple looking to buy their first home might opt out of a two-storey, three-bedroom house in Toronto for an alternative. If their circumstances allow, they might choose a townhouse in Oshawa. That townhouse may cost half the price of a Toronto home yet still offer what they’re looking for. Oshawa is in reasonable proximity to Toronto, and the value of that property will rise in the years to come.
Pay Down Your Existing Debts
Debt isn’t an automatic deal-breaker when buying a home, but too much is disadvantageous with looking at qualifying income vs. debts owed. Your Gross Debt Service Ratio (GDS) should not exceed 39%, and your Total Debt Service Ratio (TDS) ratio should not exceed 44%.
Also, your credit profile matters too. Having a history of late payments and delinquencies, high credit utilization, or too many open accounts, can all weaken your credit score. That makes mortgage eligibility more challenging.
Strategies for Cutting Down Your Debts
- Use a debt reduction strategy such as the avalanche or snowball method
- Consolidate multiple credit accounts into one monthly payment
- Speak to your bank to reduce interest rates on specific credit cards
- Make smaller but multiple debt payments per month
- Review your finances to identify unnecessary expenses
Getting a Pre-Approval
A pre-approval helps ensure that you’re not spending more than you can afford when you put an offer on a house. A lender will analyze your credit score, income, down payment structure, and more during the pre-approval process. The pre-approval gives you a clearer picture of what you can afford to buy.
Taking the Pressure Off a First-Time Home Buyers Shoulders
Apart from the legalities and procedures of buying a home, the financial aspect of buying a home can be challenging for any home buyer.
However, making the right financial moves such as those listed above bring new homeowners closer to their goals. If you’re planning to buy a home in the near future get in touch with Zoocasa so that you can find the house or condo of your dreams.
