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Buying your first home in B.C. requires careful planning and, sometimes, a little help from the government. Here’s how one couple made their homeownership dreams come true.
These days, being a first-time home buyer in British Columbia, or anywhere else in Canada for that matter, is not easy. For years, Canadian housing prices experienced a steady upward trajectory, but the pandemic resulted in an unprecedented surge. And even though home prices have started to fall in recent months, they remain difficult to afford on average incomes.
If you follow housing news and trends, you might be under the impression that it’s impossible to become a home owner in B.C., but that’s a misconception. Just look at Sarah, a public employee, and her partner. They bought a three-bedroom, two-bathroom townhouse in the city of Victoria in 2020. The couple knew that buying a home anywhere in B.C. would be a challenge, so they went about the process of becoming first-time home buyers with a methodical determination.
For many B.C. first-time home buyers, especially those located outside of Metro Vancouver, home ownership is still within reach—but it takes careful planning, and sometimes a little help from the government.
Real estate prices in B.C. are famously high, and first-time home buyers who don’t have an existing house to sell face steep entry barriers. Between May 2021 and May 2022, the average price of a home in B.C. rose more than 8%, reaching close to $990,000. Plus, with fewer houses on the market than usual, buyers must compete for a limited number of available properties.
To overcome the affordability challenge, Sarah and her partner started saving for their down payment well in advance. “We started in 2018,” Sarah says. “I opened an account on a whim and started an auto-deposit. It wasn’t much per month, but seeing the funds grow convinced my spouse to do the same thing.”
As their small contributions added up, the couple realized that home ownership was a viable option. Not sure if it’s feasible for you? MoneySense has calculators to help you estimate the costs of buying real estate in B.C.
In Sarah’s case, those saving habits paid off. The couple was able to put down a 6.5% down payment on a $580,000 townhome in Victoria, a combination of their own substantial savings and a $20,000 family gift. That’s not an option for everyone; however, it has become more common recently. Last year, CIBC Economics found that around 30% of first-time home buyers received a gift from their families to put towards a new home—the average gift amount was $82,000.
Still, Sarah and her partner could have taken advantage of government programs like the Home Buyers’ Plan (HBP), which lets first-time home buyers borrow from their registered retirement savings plan (RRSP) in order to buy or build a home.
Forgoing government assistance programs could have been a mistake, says Romana King, author of House Poor No More: 9 Steps That Grow the Value of Your Home and Net Worth. “I think they missed out on a great financial tool that makes home ownership (and mortgage repayment) more manageable and less costly.”
King points out that accessing the HBP, for example, can help B.C. first-time home buyers pay less mortgage default insurance and reduce the size of their mortgage, thereby reducing their mortgage payments.
The HBP is a federal government program that lets first-time home buyers borrow up to $35,000 each from their RRSPs, tax-free. First-time home buyers who use the HBP must pay the money back to their RRSP within 15 years, starting in the second year after the funds were withdrawn. If they miss a payment, the amount for that year is considered income and subject to tax.
But the program has its drawbacks: Home buyers can only access funds that were deposited more than 90 days before withdrawal, and using funds from an RRSP means potentially depleting retirement savings in the name of home ownership—even if it’s only temporarily.
Accessing the funds is also a little more complicated than simply withdrawing from a savings account—home buyers must submit paperwork to their financial institution. For Sarah, the amount of paperwork was the main reason she and her partner didn’t use the HBP to further boost their down payment.
Another program Sarah and her partner could have accessed is the First-Time Home Buyer Incentive (FTHBI), which helps qualified first-time home buyers reduce their monthly mortgage payments without adding the financial burden of repaying an RRSP loan.
Under this program, Canadians can apply to receive 5% or 10% of the home’s value (5% for existing homes and up to 10% for newly built homes) from the Canadian government to boost their down payment. This would allow them to borrow less money, which in turn would lower their monthly payments. But it isn’t free money. The government will be repaid an equal percentage of the home’s fair market value at the time of the home’s sale or after 25 years, whichever comes first.
For example, if you purchase a home worth $500,000 and use the FTHBI to add 5% (a sum of $25,000) to your down payment, you’ll need to pay back 5% of the sale price when you sell your home. If you sell it for $700,000, 5% would be $35,000.
The eligibility requirements for the FTHBI in B.C. (and in Toronto) are slightly different from those in the rest of the country, depending on where you buy. In the Vancouver and Victoria metropolitan areas, you’re only eligible for the FTHBI if your household income is $150,000 or less and your total mortgage amount is no more than 4.5 times your income. For all other areas in the province (and the country, except Toronto), the qualifying income is $120,000 or less, and your total mortgage amount can’t be more than four times your income.
These limits create a maximum purchase price of $722,000 for homes bought in Vancouver and Victoria, and $505,000 for properties bought in other parts of B.C. In other words: Not every home buyer (nor their home) will fall within the eligibility criteria. It’s one of the reasons why the program hasn’t been as popular with Canadians as the federal government expected it to be.
However, changes may be on the horizon. In its 2022 federal budget, the Canadian government said it intends to make the program “more flexible and responsive to the needs of first-time home buyers,” though details have not been released.
And in June 2022, the Canada Mortgage and Housing Corporation altered the rules of the FTHBI, capping how much the government shares in the appreciation or depreciation of a home to 8% per year. The new rules could make the incentive more attractive to B.C. home buyers, who would end up owing less money if their home’s value grows significantly over the years.
In another attempt to make home ownership more attainable in Canada, the federal government will introduce a tax-free first home savings account (FHSA) in 2023.
The FHSA is a new kind of registered account that will allow first-time home buyers aged 18 or older to save up to $8,000 per year, up to a total of $40,000, towards the purchase of a home. The account combines the advantages of RRSPs and tax-free savings accounts (TFSAs): Contributions are tax-deductible (like RRSPs), and the money, including any investment growth, is tax-free when withdrawn (like TFSAs). The money in an FHSA must be used to purchase a home within 15 years of opening the account; otherwise, the funds must be transferred to an RRSP and become taxable at the time of withdrawal.
Sarah and her partner started saving early and took their time house hunting, which turned out to be wise decisions. The couple spent the better part of a year researching the best neighbourhoods and calculating how much they could afford to determine precisely the type of home they would purchase.
They were also patient in finding the right professional: A real estate agent who was willing to work with their wish list, which included a dream floor plan. As a result, they found their ideal home only a week after hiring an agent. After having a mortgage broker thoroughly review their finances, they made a successful offer. “It was honestly so much easier than we expected, as they held our hand through the entire process,” says Sarah.
Romana King says preparation is key to avoiding stress and other hiccups after taking possession of a home. “It appears they bought the perfect property for their current situation—a young family looking to set down roots—but with room for growth should their family dynamic change. I love that they were clear about their needs and bought accordingly.”
The only thing that might have improved their experience, according to King, would have been making use of a government program like the HBP. “I think they missed out on a great financial tool that makes home ownership (and debt repayment) more manageable and less costly.”
Editor’s note: The federal government’s First Time Home Buyer Incentive was discontinued in March 2024. The final day to submit an application to the program was midnight on March 21, 2024.
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