Nailing your down payment is the first crucial step towards owning your first home. But with the benchmark home price over $1M within the Real Estate Board of Greater Vancouver area, you’ll have to be able to fork out a minimum of $252K (20% of the purchase price) before you can qualify for a mortgage.
Cheaper homes require less of a down payment — but the tally is still not to be sniffed at (it’s 5% for homes costing $500K or less, and, for homes between $500K and $900K it’s 5% of the first $500K of the purchase price and 10% for the portion above $500K.)
That’s why it’s crucially important to begin saving for your down payment as early as possible. The bigger the down payment, the smaller the mortgage, which can save you thousands of dollars in interest charges. And, once you get mortgage pre-approval, which is valid for 90 days, you’ll be eligible for deals at various financial institutions such as Prospera Credit union’s $3K cash back offer for first-time buyers to cover closing costs and move-in renovations.
It’s important not to get into debt for your down payment because this will add to your total debt load and will cast you in an unfavourable light with potential mortgage providers who will carry out a stringent eligibility check before offering you a mortgage.
If you’re feeling a wee bit overwhelmed with the notion of “how to get into the market”, we’re right there with you. Luckily, there are accounts specifically built to help you in your quest to home ownership.
Starting in 2023, a new tax-free FHSA will allow first-time homebuyers under the age of 40 to save $8K per year to a maximum of $40K per person towards the purchase of a home — contributions would be tax-deductible (like an RRSP) and withdrawals, including capital gains, will be non-taxable (like a TFSA).
The $8K per year saving limits may not allow enough savings to compete in the current Vancouver market, however, it’s a great option for younger Canadians thinking about owning a home in the future.
The HBP is a federal government program that lets first-time homebuyers borrow up to $35K each from their RRSPs, tax-free. First-time homebuyers who use the HBP must pay the money back to their RRSP within 15 years, starting in the second year after the funds were withdrawn. If they miss a payment, the amount for that year is considered income and subject to tax.
Before signing up for the HBP, savers are advised to consider if you can make the repayments and whether withdrawing funds from your RRSP will impact your retirement savings. It’s also important to remember that homebuyers can only access funds that were deposited more than 90 days before withdrawal — so if you’re considering this savings account, get the money into your RRSP as early as possible.
Important note: the FHSA and the HBP cannot be used simultaneously.
The TFSA allows annual contributions of up to $6K, with unused room carrying forward. This option is useful for homebuyers who have more than $8K per year to invest because their spillover from the FHSA cap can flow into a TFSA. The TFSA is also a good savings option for renovations to your home.
Mortgage experts are on hand to help you navigate the home buying journey. If you’re interested in speaking with a Prospera mortgage expert, fill in their online mortgage pre-approval form and be sure to check out their $3K cash back mortgage offer when shopping around for your mortgage.