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Buying a home is one of the most personally and financially rewarding investments. However, many challenges come with looking for your first home since it’s most likely the biggest investment that most people make in their lifetime.
To help guide first-time buyers in the Victoria region, here are a few important tips to know when looking to buy your first home.
Minimum Down Payment in Canada
Saving for a down payment is a top priority for any home buyer. It requires long-term planning and precise budgeting to afford a down payment on the house of your dreams.
In Canada, there are certain rules for a minimum down payment that home buyers should keep in mind:
If the purchase price less than $500,000; minimum down payment is 5%
The purchase price is between $500,000 and $999,999; the minimum down payment is 5% of the first $500,000 and 10% for any amount over
The purchase price is $1,000,000 or more; the minimum down payment is 20%
It’s important to remember that the minimum down payment is subject to the lender’s approval depending on your credit history and employment status, and it is preferred that it comes directly from your funds.
How to Efficiently Save for a Down Payment
Saving for a down payment is the top priority for any home-buyer, and there are different options available depending on how much of a down payment you can afford.
One of the most effective ways to stash money aside is with an automatic savings plan. This type of plan allows you to specify an amount of money that is automatically transferred from your bank account to your savings account consistently. This doesn’t need to be a large sum either. You can contribute as little as $25 weekly, bi-weekly, semi-monthly, monthly or quarterly. It’s whatever works best with your cash flow!
Putting your savings in a Tax-Free Savings Account (TFSA) is one of the best ways to save for your first home. This is because all earnings and withdrawals from your investment are tax-free, and you can contribute up to $6,000 to a TFSA.
Another effective option to consider is directing your savings to your Registered Retirement Savings Plan (RRSP). The RRSP Home Buyer’s Plan allows first-time homebuyers to withdraw up to $35,000 from their RRSP (tax-free) to use as a down payment on a home. This plan also allows up to 15 years to repay that withdrawn amount upon the second year after the withdrawal.
Either option you choose will provide an effective savings plan for investing in your first home.
Having a pre-approved mortgage means that you’ve reviewed all of your earnings, assets and liabilities with a lender who determines the amount of money you can borrow to purchase a home. To proceed with a formal mortgage approval, the lender will assess the value of the property you are looking to buy and confirm such things as your income, down payment, etc.
Receiving a pre-approved mortgage is a tremendous advantage when looking for a home, as you’ll know the price range that you can comfortably afford when shopping around for a house and will help narrow your search so that you can find the house that suits you best. It will also show that you’re a serious home buyer and provide credibility when negotiating your purchase.
Additionally, the interest rate quoted on your pre-approval is usually locked in for 120, allowing protection if interest rates happen to rise while looking for your first home.
Benefits to Buying in Victoria, B.C.
Buying a home in Victoria has its benefits, especially for first-time homebuyers.
First, due to the COVID-19 pandemic, mortgage interest rates have been dropping to all-time lows. A lower interest rate means that you will pay off your mortgage faster. As a first-time homebuyer, this area is an enticing proposition to buy a first home.
Another benefit to buying your first home in Victoria is that the current market is a Buyer’s Market. This means that the reduced activity in the real estate market can help first-time homebuyers with purchasing their dream home at a below-average price point - this is due to the decrease in buyers looking for new homes and sellers wanting to sell quickly.
We have a fundamental understanding of the Victoria housing market and we’re here to make the buying process easier for those looking to purchase real estate in the Victoria area.
Give us a call now!