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This guide makes sense of the most common questions first-time home buyers have including what mortgage you can afford and what extra costs you should plan for.
Millennial home ownership in Canada is on the rise thanks to insanely low interest rates and an influx of homes on the market. The pandemic helped spur this sudden surge of millennial home ownership even further, as almost 48 percent of Canadians aged 25 to 35 said they currently owned their home and 25 percent of them having purchased during the coronavirus lockdowns of 2020.
Naturally, this influx of new buyers comes with a whole host of questions about the home buying process, the current housing market and how to navigate both effectively.
As a real estate brokerage that is specifically focused on helping millennials purchase and sell homes, we get asked dozens of questions every day. That’s why we decided to put this guide together; a helpful resource for first-time home buyers in Edmonton and across Canada who are looking to purchase their first home.
Here are the top 5 questions millennials have when it comes to purchasing their first home.
#1 What Mortgage Can I Afford?
Before you start home shopping, you need to have a realistic idea of what you can afford.
When we say realistic – we mean it.
The first thing you want to do is take a look at your household income, aside from any bonuses or overtime pay.
Calculate your base salary and current monthly expenses, including groceries, utilities, miscellaneous expenses and more. Then, make a separate list of all the expenses that go along with buying your first home. That includes legal fees, applicable taxes, appraisal fees, home inspection costs and more.
Finally, be sure to evaluate your new monthly expenditures as a home owner including home insurance, condo fees, and monthly upkeep and maintenance.
Once you have a strong understanding of how much money you will need in addition to your down payment, and the new monthly expenses you will have as a homeowner, you can use an online mortgage calculator to determine the mortgage you can afford.
#2 What Tax Rebates and Benefits Are Available?
First time home buyers in Canada have two great rebates available to them in 2021.
First-Time Home Buyers’ Tax Credit
Buyers are making use of the First-Time Home Buyers Tax Credit which is a $5,000 non-refundable tax credit. If you’re buying a home for the first time, claiming the first-time homebuyer credit can land you a total tax rebate of $750. That might not seem like a lot, but in addition to other available rebates, it can certainly add up.
Home Buyers’ Plan
The Home Buyers’ Plan (HBP) gives you the ability to take money out of your Registered Retirement Savings Plans (RRSPs) tax-free to put towards the purchase of your first home. You can withdraw up to $35,000 and the contributions must have been in your RRSP for at least 90 days prior to the withdrawal.
#3 Should I Get a Fixed or Variable Mortgage?
One of the first big decisions new home buyers are faced with is whether or not to get a fixed or variable mortgage. First, you need to understand the difference between the two.
A fixed mortgage means the payment you make and the mortgage rate will remain the same for the length of your mortgage term.
A variable rate mortgage means the mortgage rate and your payments will vary depending on the prime lending rate set by your lender.
This decision is important and will depend on a variety of factors including current mortgage rates and how stable you want your budget to remain over the coming years.
While many mortgage brokers are recommending a fixed rate because of historically low interest rates, several major banks in Canada have recently raised their mortgage rates since the pandemic, climbing 40 basis points since the start of 2021.
The best advice we can offer?
Get a mortgage broker before you start the house hunt. Not only will they help you get pre-approved for a mortgage, but they can also help you choose which mortgage term works best for your specific situation.
#4 Should I Get Pre-Approval or Pre-Qualified For a Mortgage?
This is a question we get all the time and we always recommend that our clients get a mortgage pre-approval before starting the home buying process.
When you pre-qualify for a mortgage, you get an idea about how much you might be able to qualify for and what houses you could potentially afford. Nothing is guaranteed and this number is only based on estimates.
However, with a mortgage pre-approval, the bank has run your credit score as well as a host of other financial information to provide you with a letter that clearly states how much you can afford. A mortgage pre-approval is a great tool for new home buyers and shows the seller you are serious about the process.
#5 What Expenses Should I Budget For?
Most new home buyers are aware of the most obvious costs of purchasing like their down payment and legal fees. But there are actually several other costs associated, and being aware of them all will help you budget accurately.
- Property appraisal
- Property survey
- Title insurance
- Property insurance
- Land transfer tax
- Property taxes, condo fees, etc.
- Mortgage default insurance
Want to understand more about these costs and what they might mean for you? Head to our blog that breaks it all down here.
Is It A Good Time To Buy A House in Edmonton 2021?
As of July 2021, the Edmonton housing market is ripe with opportunity for new home buyers. Prices continue to remain flat or slightly positive month-over-month and are still between 8% to 12% higher than 2021. While mortgage rates have risen slightly since the pandemic began, they continue to remain relatively low.
Are you ready to start thinking about purchasing your first home in Edmonton? Have a question not listed here? Our ARIVL agents are ready to help.
Our job as real estate professionals is to be there for you — that means answering every question and guiding you through the process so you can find a home you love while also maximizing your investment for the long term. Follow us on Instagram, YouTube or email us at email@example.com.