For first-time homebuyers on a tight budget, what are the best options for securing a mortgage?

The market for first-time buyers has been challenging in recent years. The average home price in Canada is now 6,720, up 20% from 2021, according to the Canadian Real Estate Association. Graduates who are just starting their careers may not make enough money to buy a home, let alone qualify for a mortgage. While the cost of homes may seem prohibitive at first glance, many options exist to help first-time buyers take baby steps toward realizing their dream of homeownership.

Establish sensible financial goals.

The house you buy as a first-time buyer probably won't be your "dream home," but that's all right. Just entering the housing market is a huge step forward, but if your annual salary isn't quite where you'd like it to be, it's important to be realistic about what kind of home you can afford. You can get a better sense of what your financial situation might look like based on these three factors:

  1. How much money do you make a year in total?
  2. How much money do you have set aside for a down payment on a house?
  3. What is the total amount of money you have borrowed and are presently obligated to repay? (i e mortgages, car payments, etc.)

Getting pre-approved for a mortgage will give you a more precise picture of how much house you can afford. Besides helping you get a head start on your mortgage application, it clarifies your borrowing capacity based on the aforementioned considerations. Homewise's online pre-approval application takes no more than five minutes to complete.

Benefit from the Canadian government's generous incentives

Canadian first-time homebuyers can take advantage of a variety of government-sponsored programs designed to help them establish stable financial footing as their careers progress.

  • Canadian first-time homebuyers can save up to five percent of the purchase price of a previously owned home and ten percent of the purchase price of a newly constructed one through the government's shared equity program, the First-Time Home Buyer Incentive. When the property is sold or after 25 years, whichever comes first, you must repay the incentive to the Canadian Mortgage and Housing Corporation.
  • The Home Buyers' Plan (HBP) facilitates the use of preexisting savings by first-time homebuyers. If you are purchasing or constructing a home costing more than $35,000, you can make a tax-free withdrawal of up to $35,000 from your Registered Retirement Savings Plan (RRSP) under this program. Together with another first-time home buyer, you can receive up to a ,000 down payment assistance grant. Within 15 years of the withdrawal, you must re-invest the money into your RRSP.
  • Additional assistance for first-time homebuyers can be found in the form of a Land-Transfer Tax Rebate. The money you get back can be put toward other costs or saved. The maximum purchase price varies by country and even by city.

Examine a wide variety of loan providers

It's important to do some comparison shopping before making any large purchase. This is especially crucial when trying to secure a mortgage if you are in a lower income tax bracket. There are two main categories of mortgage lenders: A lenders and B lenders. Many large Canadian banks and credit unions fall into the "Prime A" category of lender, meaning they cater primarily to borrowers with excellent credit histories and secure financial backgrounds. Large financial institutions (like HomeTrust or Equitable Bank) that offer mortgages to borrowers with lower incomes are known as "B lenders." These creditors usually compensate for any degree of danger by charging higher rates of interest. Homewise, fortunately, is able to work with both types of lenders, so they can give you a comprehensive overview of the best options available on the market that suit you.

Think about asking loved ones for help financially.

About 30% of 2021's first-time buyers relied on financial support from relatives. Having family members "gift" you money or act as a co-signer on a loan can provide you with the extra money you need to buy a home.

A down payment gift is money given to you by a parent or other family member. You are under no obligation to pay back money that has been gifted to you, as it is not a loan. If you're having trouble getting approved for a mortgage, a co-signer may be able to help you out by applying for the loan with you and agreeing to take on the responsibility for the loan's repayment in the event that you default. Your chances of getting a mortgage would increase if you included your parents' or other relatives' income in your application.

Try to find a house that could be rented out.

Consider looking for a home that could be rented out if your budget is tight. Having amenities such as a finished basement and/or a private entrance would be an example of this. Before you get a raise in pay, renting out a portion of your home can help you meet your monthly mortgage obligations. Financial institutions typically count half of your monthly rent payment as additional income in order to determine your level of affordability. Until you can save up enough money to buy out your roommate, it may be a relief to have someone else in the house.

While purchasing a home is not without its difficulties, we hope that these suggestions will help you get closer to the closing date. Our team of devoted Mortgage Advisors at Homewise is here whenever you need them. You can apply with us online in under 5 minutes, and we'll be happy to assist you with every step of the process.

Willing to make a home purchase in the near future You can get a snapshot of your maximum mortgage and home affordability using our calculator. Look at this!

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