Helping first-time home buyers

WinnipegREALTORS® with the support of the Manitoba Real Estate Association is hoping the government makes a move in next week’s provincial budget to provide relief to home buyers, especially first-time home buyers who struggle to come up with a decent down payment while meeting all of their closing cost obligations. 

Relief for first-time home buyers can come through an exemption on  the land transfer tax (LTT). B.C. and Ontario have their own versions of a first-time home buyer exemption, while Alberta and Saskatchewan do not even have a land transfer tax. 

In fairness to the government, when the land transfer tax was enacted in 1987 it did exempt the first $30,000 of a house’s value. At the time, the exemption provided buyers in the starter home market with a significant tax break as the average price of a home was only $80,000 in 1987. Now, average house prices are significantly higher and the $30,000 exemption only amounts to a $150 savings based a 0.5-per-cent tax rate. 

The land transfer tax, which increases substantially as homes rise in price — a home that sold in 2008 for $952,000 incurred $16,690 in land transfer taxes. The LTT is essentially a home buyer’s tax that goes into its general coffers. It certainly can be seen as a disincentive to buying a property. Moreover, it can make it difficult for home buyers to come up with enough money to meet all their closing costs.   

First-time buyers are an important segment of any real estate market and maintaining housing affordability is critical to ensuring they can enter the market. 

One way government can help keep the real estate market moving is to lessen their taxes on homeownership — the land transfer tax is a good place to start. Besides Manitoba, B.C and Ontario, Quebec is the only other province or territory in Canada that levies a land transfer tax.

First-time buyers: making a dream come true

Are you among the thousands of Manitobans who pay rent each and every month, knowing that you’ll never see that money again?

For many, this need not be the case. Why not take income that is potentially lost forever and build it into an investment that can last a lifetime? Right now there are excellent opportunities for first-time buyers — mortgage rates are low and there is an abundance of reasonably-priced starter homes on the market.

But before you start looking at homes, it’s a good idea to first take a look at what you need, what you want and what you can afford. Whatever your taste and budget, there is a home out there for you; all it takes is a little planning and forethought on your part to make your dream of becoming a homeowner a reality.

What kind of home do you need?

Buying a home is never based on one specific factor; instead, it is a balance of many requirements — things like family size, location, income and lifestyle. REALTORS® are excellent sources of advice and assistance in these matters. Not only do they have the experience and knowledge to make sure the choice you make will be the right one, but they also can help you find the right property.

The first thing you need to do is decide exactly what you need in a home. How many bedrooms? How close to schools or shopping? Do you need a garage or finished basement? These kinds of questions can be itemized in a “buying blueprint” that will serve as a guideline in your search.

Next on your agenda should be deciding on a preferred location. City or suburbs? City or small town? Town or country? City dwellers tend to think that living in a smaller, outlying community would be idyllic, but forget about the commuting factor. How will the roads be in the winter? Do you really want to drive 45 minutes or an hour every day, winter and summer to get to your dream home?

Once you decide on a general area you wish to live, you will probably find that there are a good number of options when it comes to the age and type of home you might purchase.

New homes are a good bet because of their extensive warranties and pristine condition. On the other hand, you won’t have mature trees or landscaping, which is something you will have to plan and work at over a long period of time.

Resale homes offer a great combination of affordability and character. Many resale homes will include improvements such as finished basements or rec rooms, decks or patios and mature landscaping. They may also come with repairs and upgrading in the near future.

Townhouses and condominiums are obviously suited to particular lifestyles or budgets. Maintenance is usually taken care of by the management and upkeep costs can be low. Townhouse or condominium living often means sharing common areas such as parking, hallways and landscaping.

Rural properties offer the ambience that many of us crave: green pastures, wooded areas, friendly communities and safer streets. These pluses must be weighed against more limited services and additional commuting time.

What can you afford?

Once you have determined what it is you want and need, you will have to find out what you can afford. It is crucial to avoid a situation referred to as “house poor.” Many homeowners have found themselves in a state where the costs of paying for the home are so burdensome that any enjoyment is outweighed by the pressure of the monetary commitment.

So the first thing to do is set a maximum price range instead of just an upper price. It is not always wise to buy the most expensive home you can afford, but better to aim lower in anticipation of extra costs or fluctuations in your income.

What you can afford will be based on two things: the amount of your down payment and the maximum monthly payments. Obviously, it is preferable to make as large a down payment as possible to keep your payments down and save money in interest costs. A REALTOR® or your financial institution will determine the amount of the mortgage you can carry by calculating your debt-service ratio. The rule of thumb is that the sum of all your current loan payments (car, personal, credit card, etc.) plus your mortgage payment should not exceed 40 per cent of your gross income. In addition, mortgage payments and property taxes should not be more than 30 per cent of gross income.

Buying your first home at first may seem intimidating, but with careful planning and a clear idea of what you want, homeownership can be a joyful experience for you and your family.