Mortgage Matters: There’s help out for there for aspiring first-time buyers

It’s not easy being first-time homebuyers in British Columbia. Not only can they face high pricing, they also have myriad mortgage rules and decisions to navigate.

The upside is that first-timers can access several programs to assist with a down payment and maximize their purchasing power.

First-time buyers need a down payment of at least five per cent of a home’s price to qualify for a mortgage insured by the Canada Mortgage and Housing Corporation and other insurers.

“First-timers typically want space [and are] looking for a two-bedroom unit,” says Glenn Issler, Vancouver mortgage broker with Simple Mortgage Solutions.

However, two-bedroom units in B.C. are often priced upwards of $600,000, Issler adds, noting that under current rules, that five-per-cent applies only to the first $500,000.

Buyers are then required to have 10 per cent of the cost above $500,000, to a maximum purchase price of $1.5 million. Sums above $1.5 million require 20 per cent, he adds.

First-timers can access two federal programs to save for the down payment: the First Home Savings Account, or FHSA, and the Home Buyers’ Plan, or HBP.

Under the FHSA, first-time buyers can contribute up to $8,000 annually with a lifetime maximum of $40,000. As well, contributors receive a tax deduction. “The FHSA is very popular because it’s so easy to use and beneficial,” says Brian Sloman, mortgage agent at Ratehub.ca in Vancouver.

The money can grow up to 15 years and be withdrawn tax-free to purchase a first home.

The HBP, meantime, benefits those with a Registered Retirement Savings Plan, or RRSP.

The plan lets them borrow up to $60,000 from an RRSP for a first home. Additionally, buyers can combine both plans, and couples can further lump their savings together, maximizing purchasing power, Sloman adds.

The federal stress test, designed to ensure borrowers can afford a mortgage if rates move significantly higher, requires borrowers qualify at the higher of either the five-year fixed benchmark rate, or two percentage points above their offered rate.

Sloman says most buyers must qualify at the offered rate, plus the two per cent. “One way to increase their chance of qualifying is a 30-year amortization instead of the standard 25-year.”

Issler also notes that the federal government’s waiving of the GST on new homes can reduce first-time buyers’ costs by tens of thousands of dollars. “It’s among a few stackable credits and rebates significantly cutting purchasing costs.”

Others includes CMHC’s Eco Plus program, which provides a 25-per-cent rebate on mortgage insurance on new, energy-efficient homes. (Other insurers offer similar programs, he adds.)

B.C.’s First Time Home Buyers’ Program is another rebate, available for resale homes. It eliminates the property transfer tax for first-timers on the first $500,000 of a home price, saving $8,000. They also receive a partial exemption beyond that, up to $835,000.

“Altogether, these significantly reduce down payments first-time buyers need to buy a home,” Issler says.