With so many housing option, price
ranges and neighborhoods to choose from in many communities these
days, first-time buyers are in a prime position to enter the real
estate market.
But buying a home in today’s market,
especially in the higher priced areas, requires sacrifice and, often,
a lowering of expectations. As a first time buyer it’s
important to keep in mind that double garages, fireplaces, family
rooms, powder rooms, walk in closets etc, all add high dollars to
the price of any home. In the same way, prime neighborhoods
– regardless of a home’s negative features – also
command premium prices.
What all this means is that your fist
home may not be that large, beautiful house in a park setting you
dreamed of. It may be significantly smaller, require a longer
commute to work and some elbow grease on your part to clean and
fix up. But as your equity builds, you will be able to trade
in this home for a better one. It may take several trade-ins
over a period of years, but eventually you can realize the home
of your dreams.
Down Payment is the Key
The key to getting started for most
first time buyers is the initial down payment. This is the
part of the purchase price you have to put down as cash (usually
25 per cent of the purchase price for a conventional mortgage) but
can be as little as 5 percent. Saving up for a down payment
and keeping up with the monthly payments (mortgage, utilities and
property taxes), may require you to make some significant changes
in your spending and lifestyle habits. One of the best ways
to save for a down payment is by taking advantage of government
programs available to first-time buyers. Enlist the services
of a real estate professional to help you understand how these programs
work. A Realtor will also help you understand and choose
the housing options and neighborhoods that will best serve your
pocketbook and desired lifestyles.
RRSP Home Buyers’ Plan (Canada)
If you have been contributing regularly
to a registered retirement savings plan (RRSP), you may have to
look no further for your down payment. The federal government’s
RRSP home buyers plan allows eligible taxpayers to withdraw up to
$20,000 per person ($40,000 per couple) tax free from their plan
to buy a qualifying home. However, you have to pay back every
year at least 1/15th of the amount taken out until it is all paid
back, or there will be a tax penalty.
CMHC Five Percent Down (Canada)
The Canada Mortgage and Housing Corporations
five per cent down mortgage program is available to both first time
buyers and those who have already owned a home. This benefits
buyers who can afford the monthly payments but would have trouble
saving for a larger down payment.
Under the program, CMHC may insure
the mortgage on your home (against default in payments) for up to
95 per cent of the lending value of the home. The cost of
this mortgage insurance depends on the value of the house and the
size of the loan -- rates run from 1.25 to 3.75 percent. This
amount can be added to the mortgage or paid on a monthly basis.
For more information on CMHC, visit www.cmhc.ca.
