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 1% more in your interest rate, but the program will help you get in the homeownership door and start accumulating equity earlier. The only catch, however, is that you must remain with the original lender for the full initial five-year term or else you’ll have to pay the down payment back.
And last year, 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.
And if there’s a couple making a home purchase together, they can each withdraw up to $25,000 from their RRSPs.
Making an informed decision
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. What you need, therefore, is education and coaching as opposed to being bombarded with more information.
That’s why it’s important to speak to a mortgage broker or lender in order to get a pre-approval prior to setting out home shopping. This will 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. We can provide you with real examples that can go a long way in showing you what it really costs to buy a home in your area versus what you’re currently paying in rent.
If you’re currently paying $800 per month, for example, with that same payment (including taxes) you could afford to buy a $120,000 home. And assuming real estate values increase 2% per year over the next five years, as a new homeowner, you would have accumulated $27,000 in equity in your home. If you continue renting, however, this $27,000 has generated equity in someone else’s home.
As always, if you want to talk about what type of home you can afford, your answers are just a phone call or e-mail away!