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Tools and research open the door for Canada’s first-time homebuyers

Jennifer Bissonnette

The Globe and Mail
October 25, 2013

The first-time homebuyeris one of the primary engines of the real estate market in Canada – without them, it becomes impossible for mid-level buyers to move up the real estate ladder, leaving even higher-end properties to languish on the market.

A stricter regulatory environment has reduced affordability and introduced some barriers, so first-time buyers’ success increasingly depends on setting out on their home search armed with the tools, advice and strategies.

“People are becoming more prepared, especially the first-time homebuyers we’re seeing,” says Jennifer Bissonnette, a mortgage specialist with RBC in Toronto. “They’re speaking with a mortgage professional to find out what is affordable for them.”

In major urban markets such as the greater Vancouver and Toronto regions, many first-time homebuyers are also choosing new condo developments, which give them additional time to plan for their purchase. “Many are 24 months, sometimes 30 months, from completion, which provides the opportunity to save for another two or three years,” says Ms. Bissonnette.

While it may seem like delayed gratification, a two- or threeyear roadmap can actually help would-be homebuyers achieve their dreams more quickly, says Ms. Bissonnette. “At this stage, many people are still living from payday to payday, so we look at their cash flow first. What are their expenses right now and how soon are they going to buy? What do they need to pay off or save in
order to achieve that goal?”

The Home Buyers’ Plan, which allows qualified first-time buyers to borrow up to $25,000 each from their RRSPs, can be particularly helpful for young professionals, who also benefit from the tax savings. “There is a misconception that it has to be used for your down payment, but it can also be used for closing
costs such home inspection fees, land transfer tax and legal fees,” she explains. “It’s a great program.”

Despite the fact that the maximum amortization period for mortgages has been reduced to 25 years, and some additional restrictions exist for borrowers who have less than 20 per cent down payments, it’s encouraging for buyers to know that it is still possible to purchase a home with a down payment as low as five per cent, says Debbie McPherson, senior vice-president of sales and marketing at Genworth Canada.

“With mortgage insurance, buyers can avoid losing out on a great opportunity and can start building equity in a home sooner,” she stresses. “If they meet certain eligibility criteria, they have access to the same competitive interest rates.”

The buying environment has changed over the last 18 to 24 months, says Diana Zitko, an accredited mortgage professional in the Vancouver region. “Buyers are not qualifying for as much as they were in previous years, while home prices have stayed relatively the same.”

The harsher environment makes it even more essential for would-be buyers to be preapproved before starting their home search, she says. “We take their application, pull their credit, and let them know exactly what they’re qualified for, within their means and comfort zone. That way, they’re ready to make an offer when they find the right home.”

It’s also critical to put together the best professional advice team, she suggests. “A great realtor will help them find the right home within their price range; our job is to find the best mortgage product and rate.”

While the excitement of buying a first home can be all-consuming, the right professionals will help their clients think about the bigger picture and the longer term. For example, says Ms. Zitko, “If our clients are taking a five-year term, we help them ensure they’ll still be able to afford their payments if rates go up
before they renew in five years.” Conversely, if homebuyers find they are $50,000 or $100,000 away from the kind of home they want, or they don’t have the credit rating they need, “we help them make a plan to pay down debt or save more money to get to that point,” she says.

For all homebuyers, finding the right property starts with being realistic about affordability, says Ms. McPherson. But that caution is doubly important for first-time buyers, who don’t have experience with the additional costs of owning a home.

“Closing costs, legal fees, condo fees, if purchasing a condo, insurance premiums, land transfer tax, municipal tax and utilities are some of the key expenses to consider when evaluating not only the overall closing costs, but ongoing basic monthly expenses,” she explains.

While it is still subject to insurance qualifications and a home appraisal, a thorough pre-approval can help prevent disappointment for buyers later on, says Ms. Zitko. “We often see people who were pre-approved but didn’t provide all the necessary documentation at the time. When they write the offer, they’re asked for their job letters and pay stubs, and there may be new debt – suddenly the numbers aren’t working.”

An understanding of how credit works can help make sure that doesn’t happen. “Lenders
now want to see a score of 650 to 680, with an absolute minimum of 600. We had a couple with borderline credit who went shopping for a car after prequalifying; they didn’t realize that each car lot was doing a credit check that reduced their score by 30 points,” she recalls. “It meant they had to wait six months longer before they could buy a home.”

A home is probably the largest purchase and most important investment that individuals
make in their lifetime, says Ms. McPherson. In addition to mortgage professionals, who will help homebuyers understand their mortgage options and evaluate their means, “industry professionals can recommend other key advisers – such as financial planners, realtors and real estate lawyers – who have important roles to play in the homebuying process.”

Posted on Friday, October 25, 2013 at 12:34PM by Registered CommenterElaine in | CommentsPost a Comment | References1 Reference

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