According to a survey done by the Canadian Mortgage and Housing Corporation (CMHC), the top 3 concerns of First Time Homebuyers are:
1. Paying too much for their home
2. Unforeseen housing costs
3. Living with post home buying costs
All very reasonable and unsurprising concerns. Thankfully, all three concerns are easily addressed.
1. Paying too much for your home
When buying anything, we do our best to pay a price we deem fair. The purchase needs to feel like an equal exchange of value. Anything else risks buyer’s remorse. With a significant purchase like a home, it’s no surprise this is the number one concern.
In stable market environments, determining the fair price of a home may be easier since there are less volatile variables at play. But the real estate market has been anything but stable the last few years. With steep rises in interest rates affecting supply and demand, a buyer’s market took hold. This is despite a national housing shortage in Canada. A weird phenomenon to say the least. In uncertain times like these, having expert guidance is more important than ever.
The average work day consists of a full day of work, followed by chores and family obligations. Spending hours researching the real estate market probably doesn’t make the list. This is where the guidance of an expert realtor comes in handy. A realtor’s work day involves real estate transactions. Whether it’s understanding factors that could affect the price of a home, or negotiating home purchases and sales. Hence, they become experts from experience.
Take advantage of this expertise. An expert realtor will ask the right questions to understand your situation. Asking about your desired property, considering factors that help or hinder your chances of acquiring such a property. With knowledge of your situation, they can then identify opportunities on the market. Giving you the best chance of paying a fair price for your desired property.
2. Unforeseen housing costs
When buying a home, we often only consider the down payment and mortgage costs. We may have heard about closing costs, but they may not have been clearly explained. Here are some closing costs in every real estate transaction: Property transfer tax, Legal fees plus tax, Tax on Mortgage Insurance (if less than 20% down), Appraisal fees, and Cost of adjustments upon closing. Together, these closing costs total about 2.5% of the purchase price of a home. On a $500,000 home, that is $12,500
Closing costs are due upon closing and cannot be tacked on to your mortgage. So, that money you saved for a down payment, is actually money you saved for a down payment plus closing costs. If you would like to buy a $500,000 home and have managed to pool together $50,000 for a down payment. You don’t have a 10% down payment. Instead, you have a 7.5% down payment ($37,500) and 2.5% for closing costs ($12,500).
It is important to be aware of these costs before you put an offer on a home. Knowing the true cost of the transaction will prevent cases of cancelled transactions due to unforeseen costs. A good mortgage broker will clearly lay out all costs of the transaction during pre-approval. Providing the necessary information to ensure a transaction without surprise costs. Make sure to reach out to a mortgage broker or ask your realtor to refer you to a trusted broker for a pre-approval. Having a pre-approval and a strong understanding of closing costs will set you up for success in your home-buying journey.
BC First Time Home Buyer Program: Property Transfer Tax Exemption
The usual property transfer tax cost for a real estate purchase is as follows:
1% on the 1st $200,000
2% on the balance up to $2,000,000
3% on the balance above $2,000,000
If you are a first time home buyer purchasing your primary residence for less than $835,000, you may be eligible for a full property transfer tax exemption on the first $500,000 of the purchase price. In other words, you won’t have to pay property transfer tax on the first $500,000 of the purchase price. But, you do have to pay the transfer tax on the remaining portion of the price between $500,000 and $835,000. There are also partial exemptions for purchase prices up to $865,000.
To qualify for a full exemption, at the time the property is registered you must:
be a Canadian citizen or permanent resident
have lived in B.C. for 12 consecutive months immediately before the date you register the property or, filed at least 2 income tax returns as a B.C. resident in the last 6 years
have never owned an interest in a principal residence anywhere in the world at any time
have never received a first time home buyers’ exemption or refund
So, if you were to buy a $500,000 home. You would normally pay $8,000 in Property Transfer Tax. But with the BC First Time Home Buyer Program, you are fully exempt from this tax. Saving you $8,000 in closing costs! This program helps to limit the unforeseen costs of purchasing a home for First Time Home Buyers.
3. Living with post home buying costs
After you buy a home, you are now responsible for the maintenance of the home. Which of course, costs money. While there is no way to know the exact costs after you buy a home. An expert realtor and mortgage broker can give you a close estimate of what costs to expect after you buy your home.
With their expertise, realtors are able to identify areas of your home that may need work after you buy. Maybe there is an old furnace, outdated flooring, or deteriorating shingles. Whatever it may be, a realtor will be able to identify any areas needing work beforehand, allowing you to be aware before you buy a home.
Mortgage brokers can give you a strong estimate of the monthly costs, including: the mortgage, heating costs, property taxes, and any other costs or fees associated with your specific property. Furthermore, the terms of your mortgage can result in extra unforeseen costs if you were not made aware beforehand. An expert mortgage broker will explain the terms of your mortgage to you, beyond interest rates. More specifically, prepayment penalties and portability costs, which come up if your life situation changes. 6 out of 10 Canadians break their mortgage early. Incurring unexpected penalty costs to go with their change in life situation.An expert mortgage broker can explain these costs when setting up your mortgage. So you are never caught by surprise when these post home buying costs come up.
The top 3 concerns of first time home buyers are very reasonable. With the help of experts, first time home buyers can mitigate the risks of these concerns becoming reality. It is important to note, as a first time home buyer, the help of a realtor and mortgage broker come at no extra cost to you.