British Columbia is a hard place to be a first-time buyer. But despite the high prices and low supply, people still manage to find a way.
While it’s true that many first-time home buyers in B.C. get over the finish line with financial help from relatives — no shame in that — most have to rely on a combination of strategy, sacrifice, professional advice and government assistance.
If you’re a prospective first-time home buyer in BC, expect the path to be steep and bumpy. But know that emotional resilience and the right combination of assistance programs can help you avoid common mistakes and keep you moving in the right direction.
Set realistic expectations
Here are three areas around which first-time home buyers in BC often need to adjust their expectations.
Housing supply and prices in B.C.
As a first-time buyer in B.C., you’ll have to navigate two forces that are beyond your control: rapidly rising home prices and insufficient supply.
At the end of November 2022, there were fewer than 27,000 housing units for sale across all of B.C., according to the British Columbia Real Estate Association. And those homes aren’t just for B.C. residents to bid on; they’re also popular targets for out-of-province investors and retirees, as well as new arrivals from other countries.
Even though the B.C. market cooled significantly in the latter part of 2022, prices remain high. Across the first 11 months of 2022, the average price in the province rose by 8.6% to just over $1 million. So long as housing supply remains constrained, bidding wars will continue to drive prices higher. And the higher home prices go, the larger your down payment needs to be.
Your down payment and overall finances
Canada’s mortgage lending rules state that buyers must provide at least a 5% down payment on properties that cost less than $500,000. If the property you have your eye on costs more than that, your down payment will have to be even larger.
In addition to doing everything you can to cobble together your down payment, speak to your bank’s mortgage advisor, a direct lender or a mortgage broker early on in your home buying journey. An experienced mortgage professional can run the numbers for you, tell you what you can afford and possibly pre-approve you for that amount. They can also give you strategies for strengthening your overall finances before applying for a loan.
You can also do some general estimating on your own, using our BC mortgage payment calculator.
Local real estate activity
Another professional you should reach out to is a real estate agent who works in the area where you intend to own your first home.
Once aware of your goals and spending limits, a reputable local agent can look at recent sales activity and tell you the truth about the market you’re facing, including how competitive it is and if you may have to pay more than the asking price.
Good agents will not sugar-coat the situation you’re facing. Their job is to put you in the right position, both emotionally and strategically, to buy your first home. Being honest is how the best agents do it.
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Explore first-time home buyer programs in B.C.
There are a few programs first-time buyers in B.C. can use to reduce the overall cost of becoming a homeowner.
BC First-Time Home Buyers’ Program
The B.C. First-Time Home Buyers’ Program aims to help first-time home buyers by reducing their closing costs.The program targets the land transfer tax (sometimes called a property transfer tax) buyers must pay when they buy their first home.
Qualified buyers can receive the full $8,000 exception from the tax if the home they purchase is valued at $500,000 or less. They can still get a partial exemption if it’s worth up to $524,000, but any home worth $525,000 or more will cost buyers $8,500 in land transfer tax.
To get a full exemption, you’ll have to meet the following criteria before your closing date:
- Be a permanent resident of Canada or a Canadian citizen.
- Have lived in BC for at least the last 12 months or have filed at least two income tax returns in the province in the last six taxation years.
- No previous ownership of a property that could be considered your principal residence — anywhere in the world, ever.
- No previous receipt of the BC first-time home buyers’ tax break.
If you qualify for a full exemption, but you’re buying the house with someone who doesn’t, you may still be eligible for a partial exemption.
Let’s say your spouse is ineligible because they purchased and lived in a condo in Calgary for several years. If you are splitting your current purchase 50-50, you can still receive the exemption on your half of the home’s value.
BC Home Owner Grant
Another tax-focused program, the BC Home Owner Grant, offers eligible homeowners an annual reduction in property taxes of up to $770. If your property is in the Victoria region, Metro Vancouver or the Fraser Valley, the grant tops out at $570. To receive the full grant, your home’s value will have to be assessed at $1,975,000 or less.
The BC Home Owner Grant isn’t specifically intended for first-time buyers, but they are welcome to apply for it once they’ve taken possession of their home.
To qualify, you must:
- Live in BC.
- Be a Canadian citizen or permanent resident.
- Be either the registered owner of the home or the spouse or relative of its deceased owner.
- Use the property as your principal residence.
Newly Built Homes Exemption
Purchasing a new build or pre-construction home can be a way for first-time buyers to access reasonably priced properties in a way that often allows them to make their down payments incrementally. Going this route in B.C. can open you up to yet another assistance program.
The Newly Built Home Exemption may reduce or erase the amount of property transfer tax you pay when purchasing a freshly constructed home. Properties worth less than $750,000 may qualify for a full exemption of $13,000; those worth between $750,000 and $800,000 may receive a partial exemption.
One thing you may have noticed about these provincial programs is that they’re after-the-fact cost-cutters. If you need help with the upfront costs of purchasing of a home, you may need to turn to the feds.
Look at federal programs for first-time buyers in Canada
The federal government has rolled out three programs that can help first-time home buyers across Canada increase their purchasing power.
The First-Time Home Buyer Incentive
If you are having trouble assembling a down payment, the First-Time Home Buyer Incentive may be able to get you over the hump. You’ll just have to give the Government of Canada a cut of your home’s future value.
The First-Time Home Buyer Incentive is what’s known as a ‘shared equity’ program. If you’re eligible, you can apply for a loan worth 5% or 10% of a home’s purchase price.The amount varies depending on the kind of home you’re buying. The loan is interest-free, but if you’re approved, the government will have a claim to 5% or 10% of your home’s equity.
When you sell your home, you don’t pay back the dollar amount you borrowed, you pay back 5% of 10% of the property’s sale price. If you bought a $500,000 house by borrowing $25,000, or 5% of its value, for the down payment, you’ll owe the government 5% of whatever the eventual sale price is.
So, if you hold onto your home for 10 years and sell it for $1 million, for example, you’d owe the government $50,000. It’s still just 5% of the proceeds, but double what you originally borrowed.
The Home Buyers’ Plan
The Home Buyers’ Plan allows you to take up to $35,000 out of an eligible registered retirement savings plan, or RRSP, so you can put it toward the down payment of your primary residence.
In order to qualify, you must:
- Be a first-time buyer.
- Be a resident of Canada from when you withdraw the funds until your home is bought or built.
- Intend to use the home as your principal residence within a year of buying or building it.
Any funds you take out of your RRSP are tax-free, but have to be repaid within 15 years.
If these programs won’t work for you, there are a few more federal first-time home buyer grants and assistance programs worth investigating, including an easy to claim tax credit.
The bottom line for first-time home buyers in B.C.:
Don’t convince yourself that buying your first home in BC is impossible. It might be hard, but you won’t know what’s possible until you give it a shot. To do that, follow the tried and true first-time home buyer tips:
- Create a budget to keep your down payment savings on track and try to generate as much income as possible
- Keep an eye on the market to see if competition is heating up or easing a little.
- Get guidance from professionals who understand both the real estate and mortgage landscapes, such as a real estate broker or a realtor.
And don’t take it personally if the market doesn’t immediately cooperate. There’s nothing wrong with delaying your plans until buying a home fits more comfortably in your budget.
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