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Millennial couple searching for home

First Time Home Buyers Thinking Like Investors

FIrst time home buyer questions we hear often include, “Is it a good idea to get help from family?” According to a survey conducted by Pollara Strategic Insights for the Bank of Montreal (BMO), the answer is “yes’. Their survey revealed 56 per cent of first-time homebuyers in Canada will rely on family for financial assistance to purchase their home.

New buyers in the provinces of British Columbia and Ontario are most likely to look to family for help – 59 and 58 per cent respectively. That makes sense considering the cities with most expensive housing markets in Canada are Vancouver, British Columbia and Toronto, Ontario.

Millennials (24-39 years old) are more likely to seek help than Gen Xers (40-55 years old), according to the survey. (Millennials have obviously had less time to save for a down payment). Of those seeking assistance, one-quarter are looking for between $10,000 and $50,000. Millennials are seeking $100,000 or more. The average ask was just over $45,000.

Before you borrow from a parent, consider the fact that many report they are not comfortable with their retirement savings and haven’t been able to save enough as a result of supporting their adult children financially. If you ask them, they are likely to say “yes” for emotional reasons. Make sure they can afford it unless you want to support them in retirement!

Even with the help from family, affordability is a challenge with Canadian banks requiring mortgage holders spend no more than 30 per cent of their monthly income on housing. With the prices of single detached home rising out of reach, first time buyers are stepping into the real estate market with condominiums.

The First-Time Home Buyer Incentive is useful for some, though its benefits are limited. The maximum amount the program allows borrows is four times their qualifying income if household income is less than $120,000 per year. That means the maximum amount of a mortgage may be and still be eligible for the incentive is $480,000. That significantly limits the kind of housing first time buyers can purchase in Canada’s more expensive real estate markets.

Savvy millennials are thinking like investors. A pre-construction condominium purchase is becoming more popular among this generation because it allows them to invest in housing now and save money towards the building completion and the closing date.

A five percent deposit to hold the property sale gives Millennials more time to save more towards the down payment. Read our article on RBC’s Preferred Builder Program for more ideas on how to finance your purchase

Note: The First-Time Home Buyers Survey was conducted via an online survey between August 25 and August 31, 2020, with an online sample of 801 adult Canadians. The margin of error for a probability sample size of 801 ± 3.5% is 19 times out of 20.

Reference:

https://newsroom.bmo.com/2020-10-22-BMO-Housing-Survey-COVID-Has-First-Time-Homebuyers-Leaning-Towards-Fixed-Rate-Mortgages-and-Many-Will-Look-to-Family-for-Financial-Help

https://www.ratehub.ca/blog/first-time-home-buyer-incentive

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