Transitioning from renter to homeowner is likely one of the biggest decisions you’ll make throughout your lifetime. That’s why it’s essential to surround yourself with a team of experts – including both a mortgage and real estate professional – to walk you through the steps to home ownership, answer all of your questions and concerns, help you decide what kind of home you can afford and get you pre-approved for your mortgage.
With interest rates still hovering around ‘emergency’ levels – low rates never before seen by your parents and even your grandparents – now is an ideal time for first-time homebuyers to embark upon homeownership.
The main reason many renters feel they can’t afford to purchase a home has to do with saving for a down payment. But there are many solutions available today that can help first-time buyers with their down payments.
Many lenders will allow for a gifted or borrowed down payment. And of those lenders that will not provide this alternative, many offer cash-back options that can be used as a down payment.
Better yet, there are programs available from some financial institutions where they will offer a ‘free down payment’ or a ‘flex down’. Of course, you will end up paying about 2% more in your interest rate (at today’s levels), but the program will help you get in the homeownership door and start accumulating equity earlier. You must, however, stay with the original lender for the full initial five-year term or else you’ll have to pay the down payment back plus any early termination penalties.
In 2009, a $5,000 increase was made to the RRSP Home Buyers’ Plan, meaning first-time homebuyers can now withdraw up to $25,000 from their RRSPs for a down payment — tax and interest-free for 15 years.
And if you’re part of a couple making a home purchase together, you can each withdraw up to $25,000 from your RRSPs.
There’s an endless amount of information available to prospective homeowners – through the Internet, friends, family members and anyone willing to voice their opinion on a given subject, but be wary of such advice from non-professionals. What you really need, therefore, is education and coaching as opposed to being bombarded with more information.
Speaking to a mortgage professional in order to obtain a pre-approval prior to setting out home shopping can help set your mind at ease, because many first-time buyers are overwhelmed by the financing and buying processes and often don’t know what it truly costs to purchase a home. Real examples can go a long way in showing you what it costs to buy a home in your area versus what you’re currently paying in rent. For instance, if a renter is currently paying $800 per month, with that same payment (including taxes) they could afford to buy a $155,000 home. And assuming real estate values increase 2% per year over the next five years, the new homeowner would have accumulated $16,000 in equity in their home. If they continue renting, however, this $16,000 has generated equity in someone else’s home.
If you are just starting out on your road to homeownership it can easily become overwhelming. Your first steps should be to first find your team of professionals to help you along your journey- they are your mortgage professional and either a realtor or new home sales professional and start first with your mortgage professional so that you know what you can afford.
Jean-Guy Turcotte is an Accredited Mortgage Professional with Dominion Lending Centres-Regional Mortgage Group located in Red Deer and can be reached for appointments at 403-343-1125 or emailed to jturcotte@regionalmortgage.ca.
