How to Become a Homeowner on a First-Time Buyer’s Budget in 2023
It's not easy being a first-time home buyer right now. At the end of last year, housing affordability hit an all-time low. Additionally, mortgage rates have risen significantly since 2021, while inventory remains tight for many property categories, but especially for starter homes.
As a result, many first-time home buyers are finding that they need to get creative or risk renting for longer than they planned. If you too are struggling to afford homeownership, here are some workarounds to consider as you plot your first home purchase.
1. Try House Hacking
“House hacking” is a real estate investment strategy in which participants use their homes to generate income in order to offset their expenditures. For example, renting out a basement apartment or taking on a roommate.
In some cases, house hacking may make it possible for you to qualify for and afford your first home. A lender, for example, may approve you for a larger mortgage if you purchase a property with immediate income potential. It could also help you pay your mortgage once you move in. For example, you could rent out your swimming pool for a few hours or lease out your garage for paid parking.
But before you make plans to house hack, make sure you fully understand an area's bylaws and homeowner restrictions. We can help you find a home with income potential in a neighbourhood with more flexible rules or less restrictive zoning.
2. Team Up With Friends or Family
If you aren't wild about the idea of welcoming strangers to your home, you may want to consider co-purchasing with a friend or family member instead. This unconventional housing arrangement is growing in popularity as a way to cope with higher costs.
By pooling resources, you may be able to buy a home that's larger or has more investment potential. On the other hand, sharing a big financial responsibility, like a mortgage, with friends or family could get messy—especially if you don't create a clear-cut co-ownership agreement beforehand that outlines mutual expectations. We can help you set priorities and search for a suitable property that works for all parties.
3. Tap Your Network for Help With Funding
Another established method for affording a first home is to lean on family or friends for financial help. According to the Canada Mortgage and Housing Corporation's latest Mortgage Consumer Survey, around a third of recent home buyers used gift money to help buy their homes.[5] So you wouldn't be the only one leaning on loved ones to afford a home at today's prices.?
Just be sure your benefactors are giving a gift, not a loan, and are willing to put that in writing. A lender will want proof that the money isn't adding to your debt burden. Another way to tap your network is to crowdfund part of your down payment. For example, if you're getting married soon, you could skip the wedding gift registry and ask guests to contribute funds to your hoped-for home purchase instead.
4. Look for Special Programs and Assistance
You could also cut some of your upfront mortgage costs by taking advantage of government programs, tax rebates, and other funding opportunities. For example, the Government of Canada's new First Home Savings Account (FHSA) initiative could help you trim your next year's tax bill as you gather money for your down payment. When you open an FSHA, you can route up to $8,000 per year of income to the account, tax-free (up to a maximum of $40,000).
You may also be eligible for a First Time Home Buyers' Tax Credit up to $1,500, as well as other home buyer rebates, depending on the type of home you buy and where you move. We can connect you with a lender or mortgage broker who can educate you about your options and help shepherd you through the process.?
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5. Expand Your Home Search
If you’re having trouble finding a home within your budget, consider broadening your search criteria. You may be surprised by the kinds of deals that are available when you're willing to compromise on things like neighbourhood, square footage, and cosmetic features.?
Keep in mind, starter homes are rarely forever homes, but merely a first step onto the property ladder. By gaining a foothold in the real estate market now, you can set yourself up to afford a more expensive property in the future. According to Statistics Canada, the net worth of a typical homeowner has more than doubled since the start of the new millennium, while that of the average renter has grown far more slowly. We can help you find an affordable first home so you can start building equity to reach your long-term financial and real estate goals.
6. Consider Co-Ownership with a service like Ourboro
Ourboro is a new way to buy and own your home. They will contribute 5-15% of the home’s value to help you reach a 20% down payment and become a homeowner sooner. Ourboro is not a lender, instead they co-own alongside you. And, since you’re both invested in the home, they are fully aligned in helping you succeed at every step along the way.?
After receiving your mortgage pre-approval from one of our approved lenders, via a third-party licensed mortgage broker, you’ll be able to lock in Ourboro’s maximum down payment contribution and begin housing hunting with your real estate agent.
Once you find your new home, the percentage of the down payment that you each contribute will determine how the home’s appreciation is shared when it’s sold. This is called the equity split.?
Since you get all the benefits of living in the home, it is your responsibility to keep it properly maintained and pay the associated costs. But, as your partner, Ourboro will offer a complimentary home maintenance service to help protect the home’s value. When it comes to renovations, you’re free to make minor changes to your home entirely at your own discretion while major updates may qualify for their Renovation Credit Program.?
When the home is sold you will divide the appreciation according to the equity split. Don’t worry, if the home hasn’t increased, or has decreased, in value they will accept the loss on their investment and you won’t owe them anything.
YOU CAN DO IT—AND WE CAN HELP?
Buying a first home is challenging, but it's not impossible—especially when you have a savvy real estate professional in your corner. We will work with you to devise a plan to overcome your financial constraints. Then, we’ll help you find a home that not only excites you but also fits your budget and lifestyle. Give us a call to get started with a free exploratory consultation.?
The above references an opinion and is for informational purposes only. It is not intended to be financial, legal, or tax advice. Consult the appropriate professionals for advice regarding your individual needs.
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