Buying a home is a bit harder for us millennials than it was for our parents and grandparents. My grandparents bought their second home in 1965 for $21,000, and with the funds from the sale of their first home (which we believe they bought for $5,000 in 1950) and some money they had saved, they were able to put $9,000 down. The home was a split level, with 4 bedrooms, 2 bathrooms, and beach access. My grandparents paid off the mortgage for that home in 4 years. My grandma still lives there to this day because for $21,000 in 1965 you could buy your forever home.
The times have changed a bit, there's no doubt about it. But, in saying that, that doesn’t mean that your situation is hopeless. If you enter the process with a plan for how to purchase your first home, you may be surprised at some of the help you can receive along the way. Let’s take a look at three great options: The Home Buyer’s Plan, the First-Time Home Buyer Incentive, and the Land Transfer Tax Rebate program.
One way to get a loan for your first home’s down payment without having to pay any interest is by using the Home Buyer’s Plan (HBP); that is, taking up to $30,000 out of your RRSP. Now, this means that by the time you go to pay for your first home, you would already need to have an RRSP containing significant savings. So you would need to plan ahead for this program to have any value to you. The good thing about saving into an RRSP is that the only time you can take the money out and not be taxed heavily on it is to use it through the HBP. So setting up an automatic savings plan can be really helpful in order to actually put money in an account that you can’t spend from.
Here’s the catch: Any money that you take out of your RRSP through an HBP needs to be repaid. Like I said, this is an interest-free loan, so if you withdraw $10,000, you’re only repaying $10,000. You would simply set up an annual payment plan and pay back the money consistently. For more information about this and RRSPs in general, you should reach out to an accountant — who can also fill you in on other reasons why using an RRSP might be beneficial to you.
The other program available to first-time buyers is a government program called the First-Time Home Buyer Incentive. This program is a way to reduce your monthly mortgage payments on an insured mortgage (under 20% down). Basically, on a residential resale home the government will contribute 5% to your down payment, and on a new build from 5% and up to 10%. There’s no interest on this loan, and you don’t even have to pay it back right away. The way it works is that the government gets to share in any increase (or decrease) in the equity of your home. So, if you buy your home for $400,000 the government will lend you $20,000. Fast forward five years, maybe your home is now worth $500,000 — when you sell you will pay back $25,000. In the meantime though, you’ve had lower monthly payments and saved on interest too. If you decide to stay in the home long term, after 25 years you will need to repay the loan at the current fair market value. It’s also possible to repay the loan at any time before either the sale of the property or 25 years, again, at fair market value.
There is one other way that the First Time Home Buyer Incentive might be beneficial, and that is for those who have recently separated from their partners. The way the current market’s prices are, this is beneficial to those going through a separation as it will reduce their monthly payments. It’s especially helpful when potentially going from a two-income home to a single-income home. The only catch here is that it still only works when putting less than 20% down.
For either of these options, it’s a good idea to speak with a mortgage broker to really understand how the programs could potentially help you and your unique scenario.
One other incentive that first-time home buyers get is the Land Transfer Tax Rebate program. This allows first-time buyers to get up to $4,000 rebated on their land transfer tax, which is awesome because this is money that can be better spent on any small repairs or renos you might need to do upon moving into your first home.
Although it might be a little more complicated to get into the housing market these days than it was back in 1965, with a plan in place and the right people there to guide you, it’s still possible. Your Realtor is your first point of contact and will know who can help you with all of the above. It’s never too late to get started, and if you come up with a plan and follow through, home ownership could be in your future sooner than you thought!