British Columbia is a great place to live, but, unfortunately, for a first-time home buyer — often a younger person — the barriers to home ownership are quite prohibitive. The BC housing market is expensive and competitive. A first-time home buyer in BC will need to have their finances in tip top shape and will still most likely need to make use of a variety of Government and other resources, in order to make their dream of home ownership come true. In this challenging landscape, strategic planning goes a long way.
Preparation to buy your first home starts way before you have your eye on a specific home; it starts with the realization that you would like, someday, to own a home in British Columbia. You’ve got the dream, and now you’re taking steps to make that dream come true. Just be aware that it may be a long and frustrating road, but with careful planning you’ll get there.
The current BC housing market is challenging for everybody, but especially for first time home buyers. Supply is low, and costs are high. In September 2023, only 5,531 residential unit sales were recorded in BC’s Multiple Listing Service® (MLS®) and the average price was $966,530, according to the British Columbia Real Estate Association. Homeowners who bought when times were better, and are perhaps enjoying a low-interest mortgage, are hunkered down, staying put.
For the few available homes, first time home buyers will be facing stiff competition from experienced, well-capitalized buyers coming from anywhere in Canada. These are people who can quite often offer substantial down payments and potentially offer the seller above their asking price and/or other attractive conditions as well. But don’t despair, the first-time home buyer, you can also stack the odds in your favour, starting with making sure you’re in a good financial position.
This may seem obvious — buying a house is expensive after all, but what we’re really talking about is educating yourself as to the actual costs, assessing your financial situation and creating and implementing a plan to make up for any deficiencies.
Commit to this right away, since it can take some time to move the score in the right direction. To improve your credit score, regularly take on some debt such as credit card or car loans, and then make the payments on time and in full. That’s all there is to it! The longer you’ve been doing this, the better your credit score.
What percentage of your monthly income is used to pay off debts? This is your debt-to-income ratio. To lower it, you can either make more money, spend less, or both.
The required down payment is a huge hurdle for first time home buyers. For properties under $500,000, you are required to put 5% down. If the home is between $500,000 and $1 million, the down payment is 5% on the first $500,000 and 10% on every dollar thereafter. If the house is $1 million or more, the required down payment is 20%. Of course, the larger the down payment you’re able to put towards your purchase the greater the odds of getting approved for a mortgage for the difference. Lenders will also consider you to be less of a risk, and you may be rewarded with more favourable mortgage terms. Not to mention, this provides additional comfort to sellers as well, which means they’re more likely to accept your offer.
Set up a budget and stick to it. You might consider leveraging a First Home Savings Account (FHSA), which is a federal registered plan, launched April 1, 2023. It allows you to save for a first home tax-free, with maximum contributions up to $8,000 per year to a total maximum of $40,000. Like other tax free accounts, funds can be invested within the account, potentially increasing your savings more quickly.
Our Maximum Mortgage Calculator is a handy tool when you are starting your search, so you can set realistic expectations. Be sure to factor in extra expenses, such as closing costs, or insurance when you are assessing your borrowing capabilities. We also recommend you come talk to us early on as part of the education and strategic planning process.
Even if your finances are in good shape, as a first-time home buyer, you’re likely to need a little extra boost. Sometimes families will step up and offer to help, but if this isn’t an option, there’s always the Government. Both the BC and Federal Governments offer a few programs to help first time home buyers.
Take your time researching the various programs. Qualifying criteria are diverse. For example, the BC definition of a first time home buyer is very strict: a person who has never owned or had an interest in a home anywhere in the world. However, the federal definition is more lenient and includes people who haven’t owned a home in the past four years.
The BC First-Time Home Buyers Program provides an exemption from the property transfer tax when you purchase a first home that is $500,000 or less., up to $8,000.
The BC Newly Built Homes Exemption reduces or eliminates the property transfer tax when you purchase a newly built or pre-construction home. Properties worth less than $750,000 not including any applicable GST, may receive a full exemption of up to $13,000. More expensive homes may receive a partial exemption.
The Federal First-Time Home Buyer Incentive (FTHBI) is a shared equity program meaning the government shares in the appreciation or depreciation of the home. The FTHBI allows first time home buyers to borrow up to 10% of the home’s value towards a down payment for new homes and up to 5% for pre-owned homes.
The Home Buyers’ Plan allows you to withdraw up to $35,000 from your RRSP tax-free for the purpose of buying or building a home. To keep the withdrawal tax-free, you will need to pay the funds back within 15 years.
Research and a good plan will help make your dream of home ownership come true:
We encourage you to check out our First Time Home Owner Handbook, where we go into great depth on everything you need to know about the home buying process. If you still have questions, feel free to contact us. We’re happy to help!