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

First-time buyers need a down payment of at least five per cent of a home's value to qualify for a mortgage insured by CMHC. Photo by Getty Images

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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.

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

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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.

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

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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.

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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.

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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.

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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.

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The money can grow up to 15 years and be withdrawn tax-free to purchase a first home.

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

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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.

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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.

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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.”

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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.”

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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.)

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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.

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

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