By Rika Lavigne
With interest rates sitting at “emergency” levels – low rates never before seen by your parents and even your grandparents – now is an ideal time for first-time homebuyers to embark upon homeownership. But these rock-bottom rates won’t be available forever. The Bank of Canada estimates fixed rates could begin to rise this summer.
If historically low interest rates still don’t tip the scales with your potential first-time buyers who are sitting on the fence, it’s important to have prepared answers to their most common objections to help convince them why now is an optimal time to buy.
Down payments: The main reason many renters feel they can’t afford to purchase a home has to do with saving for a down payment. But there are many solutions available today that can help first-time buyers with their down payments.
Many lenders will allow for a gifted or borrowed down payment. Of those lenders that will not provide this alternative, many offer cash-back options that can be used as a down payment.
Better yet, there are programs available from some financial institutions where they will offer a “free down payment” or a “flex down”. The client ends up paying about one per cent more in their interest rate, but the program will help them get in the homeownership door and start accumulating equity earlier. The client must, however, stay with the original lender for the full initial five-year term or else they’ll have to pay the down payment back.
First-time homebuyer incentives: Last year, a $5,000 increase was made to the RRSP Home Buyers’ Plan, meaning first-time homebuyers can now withdraw up to $25,000 from their RRSPs for a down payment – tax- and interest-free. If a couple is making a home purchase together, they can each withdraw up to $25,000 from their RRSPs.
The budget also included a $750 tax credit for first-time homebuyers to help with closing costs, such as legal fees, disbursements and land transfer taxes.
The tax credit is based on $5,000 for first-time homebuyers. An individual is considered a first-time homebuyer if neither the individual nor the individual’s spouse or common-law partner owned and lived in another home in the calendar year of the home purchase or in any of the four preceding calendar years.
Educating and coaching: There’s an endless amount of information available to prospective homeowners – through the Internet, friends, family members and anyone willing to voice their opinion on a given subject. What they need is education and coaching as opposed to being bombarded with more information.
You may want to suggest that they speak to a mortgage broker in order to get pre-approval prior to setting out home shopping. This will help set their minds at ease, because many first-time buyers are overwhelmed by the financing and buying processes, and often don’t know what it truly costs to purchase a home. Providing real examples can go a long way in showing them what it costs to buy a home in their area versus what they’re currently paying in rent.
If a renter is currently paying $800 per month, for example, with that same payment (including taxes) they could afford to buy a $120,000 home. Assuming real estate values increase two per cent per year over the next five years, the new homeowner would have accumulated $27,000 in equity in their home. If they continue renting, however, this $27,000 has generated equity in someone else’s home.
It may be worth your while to set up a joint meeting with your undecided client and a trusted mortgage broker to further clarify the situation. Your client will have two professionals in one place available to answer all of their questions about the home financing and purchasing processes.
If you don’t think it would be worth your while to take a team approach with a mortgage professional for just one client, consider holding a free first-time homebuyers seminar where you and other professionals can dispel the myths and educate any clients you have that are undecided about homeownership. This is an excellent way to pool your resources to not only help your clients make a decision, but also tap into the clients of the other professionals holding the seminar with you.
Posted: 2010-03-22 07:59:54
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