What a first-time home buyer in Alberta should know

From its vast fields to its mountain ranges, Alberta offers a combination of urban and rural living with its varied landscape and cities. And with thousands of people flocking to the prairie province for cheaper housing and more jobs, it’s no surprise that many are putting down roots in the Sunshine Province.

And if you're a first-time home buyer in Alberta, it's important to familiarize yourself with the local real estate market and the various rules and regulations that apply to home buying in the province. 

Understanding the different programs and incentives available to you is a crucial step to help you with your home purchase, but to also help you save during this big life decision.

What you should know before starting your home search in Alberta

The Alberta housing market is dynamic and can be quite competitive. It's not uncommon to face a few rejections along the way, but this is a normal part of the process. Staying focused, and motivated, and having a strong support team will significantly ease your journey in navigating Alberta's real estate landscape.

What's the Real Estate Market Like in Alberta?

• Average Sale Price Trend: As of September 2023, the average home price in Alberta was $454,961, showing a 5.4% increase from the previous year. This growth rate, while significant, is somewhat more moderate compared to Ontario's market dynamics, where prices have seen more dramatic fluctuations.
• Affordability Concerns: The rise in housing prices in Alberta, though less steep than in Ontario, still poses affordability challenges for potential homeowners. The average price increase necessitates a reassessment of budgets and expectations for those looking to enter the housing market.
• Rental Market Dynamics: Alberta's rental market is undergoing notable changes, with a 37% year-over-year decrease in the months of supply, suggesting a tightening market. This contrasts with Ontario, where the rental market dynamics might differ due to varying urban and rural demands.

Top Three Reasons for buying a home

First time homebuyers across Canada largely make the leap of faith towards home ownership due to three reasons. 66.2% of respondents to Statistics Canada listed owning a home for the sake of owning a home as their main motivation. 25.7% of respondents wanted to upgrade their dwelling to get a better quality of life. 25.6% of respondents wanted to for a family and thought that a home would help them towards that goal.

What Does a First-time Home Buyer look like?

In Canada 50.6% of first time home buyers were under 35 according to the Canadian Housing Survey. First time homebuyers were also 74.1% families rather than individiuals. Families include couples with children, couples without children, lone parents and multi-family households. 52.9% of first-time home buyers were buying a single-detached house. This number may seem very high as first time homebuyers in Calgary and other urban centers were mostly buying semis, townhomes and condos. Only 26.4% of first-time home buyers in Toronto were buying a single-detached home.

What's the typical down payment in Alberta?

In Alberta, the minimum down payment required for a home purchase is 5% of the first $500,000 of the purchase price, and 10% for any amount over $500,000. A larger down payment will not only reduce the amount you need to borrow, but it will also lower your monthly mortgage payments. And if you have a down payment of 20% or more of the home price, you’ll also avoid having to get mortgage insurance on top of  your monthly payments. 

Incentives for first-time buyers in Alberta

There are several programs that have been created by both the provincial and federal governments that provide opportunities for first-time home buyers to make the most of their purchase in Alberta.

Alberta-only incentive programs

Public Essential and Key (PEAK) Program

The Alberta PEAK program is a down payment assistance program for first-time home buyers in the province. It provides eligible homebuyers with a grant of up to 5% of the purchase price of their home to help cover their down payment and closing costs. The grant is provided in the form of a repayable loan and is interest-free for the first five years. After that, the loan must be repaid over the remaining term of the mortgage.

To be considered for the Alberta PEAK program you must:

• Be a first-time home buyer
• Have a household income under $80,000 (if you have no dependent children living at home) or $90,000 if you do have dependent children living at home
• Must have at least $1000 available for your down payment 

You must also be able to meet the minimum requirements for a mortgage including a minimum credit score, proof of income, and a stable employment history. To date, this program has helped 111 homeowners–and while the program currently isn’t offering any available homes, you can find more information on their website. 

The First Place Program in Edmonton

Through the City of Edmonton's First Place Program, first-time home buyers are provided a five-year deferral on land costs on town homes that are being redeveloped on vacant school sites by certain builders. However, those who tap into this program have to pay back five-years worth of land costs after five years have passed.

To qualify for this Alberta first-time home buyer  incentive, you need to:

• Have a combined household income of $117,000
• Get pre-approved by a mortgage lender
• Have at least 5% of the down payment
• Be a first-time homebuyer in Alberta
• Live in the property, for the first five years as the primary resident
• Be a Canadian citizen or have permanent resident status

The Attainable Homes Calgary (AHC) program

If you're a first-time home buyer in Alberta struggling to come up with a down payment, the AHC program could be the solution you've been looking for.

Conducted in partnership between the City of Calgary and The Calgary Foundation, this program provides down payment assistance in the form of a grant, for participants in Calgary who only have $2,000 for a down payment. The grant provided is interest-free and, as long as you’re the primary resident of the household, doesn’t need to be repaid. 

However, In exchange for the grant, the AHC program takes a portion of your home's appreciation: 100% of the home’s appreciation in the first year, to 25% after five years. 

The best part is, you don’t have to stay for a minimum amount of years when buying your home through this program–however, if and when you decide to sell, you’ll need to pay for:  

• The down payment loan 
• A home appraisal
• Whatever portion of the home’s price appreciation belongs to the AHC 

To be considered eligible for this first-time home buyer incentive, you need to have:

• A down payment of $2,000
• A household income of $103,000 for families, or a household income of $93,000 for couples without children, or a household income of $83,000 for individuals 
• Assets worth $50,000 or less
• Completed the program’s home education session

It also helps to get a pre-approval ahead of time, as you’ll need an approved mortgage to secure the home. 

Federal assistance for first-time home buyers

The First-Time Home Buyer Incentive (FTHBI) 

The FTHBI is a shared equity mortgage program offered by the Government of Canada. The program is designed to help first-time home buyers reduce their monthly mortgage payments by providing them with 5% or 10% of their home price as an interest-free loan towards the purchase of their home. To be eligible for the FTHBI, you must be a first-time home buyer, have a household income under $120,000, and the purchase price of your home must not exceed $500,000.

The First Home Savings Account (FHSA) program

The first home savings account (FHSA) is a registered savings account that provides benefits to first-time home buyers in Canada by allowing you to save for your first home in a tax-free account. The FHSA program started in April 1, 2023. The FHSA is one of the best tax savings accounts that is available to Canadians. It combines the best of tax free savings accounts (TFSA) and registered retirement savings plans (RRSP). Here is the low down:

• Like the RRSP, contributions to your FHSA account are tax deductible. What does this mean? This means that you do not have to pay taxes on the income of the contributed amount. What usually happens is that you will get a tax rebate direct deposit or cheque from the CRA the following year for the tax amount you paid on that income. This can be anywhere from 20% to 50% of your RRSP contributions. Sounds pretty good right?
• However, similar to the TFSA, qualifying withdrawals can be withdrawn tax free. This means that all the gains that your investments made in your FHSA can go towards your home. When you buy and sell investments in the account, as long as they are capital gains, you will not be taxed. FHSA's take the best quality of the TFSA and tack them on to an already amazing investment account.

Does this sounds too good to be true? There are limits on this account of course to prevent people from abusing this wonderful account. These are the limitations on this account:

• Similar to RRSPs and TFSAs, there is an annual contribution limit. In this case it is $8,000 per year with a lifetime contribution limit of $40,000. This means that you can contribute $8,000 a year for 5 years.
• The account may only stay open for a maximum of 15 years or until the end of the calendar year that you turn 71.

What can you buy in an FHSA?

• You can buy a variety of investment instruments in a FHSA including GICs, ETFs, individual stocks and bonds.
• Anything that can be held in a TFSA can be held in an FHSA

What is a qualifying withdrawal from an FHSA?

• For the withdrawal to be tax-free, it has to qualify the following characteristics
• The the individual has to be a first-time home buyer when the withdrawal is made
• The home for which the withdrawal will be used towards must be located in Canada
• If you can meet these withdrawal conditions, you will be able to withdraw the entire amount of savings that you have made in the FHSA on a tax-free basis

First-Time Home Buyers' Tax Credit

For first-time home buyers, a non-refundable tax credit up to $750 is available when purchasing a qualifying home. This Home Buyers' Tax Credit (HBTC) is determined by multiplying $5,000 with the lowest personal income tax rate, which was 15% in 2022. If you're an eligible first-time homeowner, you can look forward to a non-refundable tax credit of $10,000. What does this mean for your pocket? A tax rebate of up to $1,500 for the year you purchase your home.

To be considered for the First-Time Home Buyers' Tax Credit you need to:

• First-time Homeowners: This credit is primarily for first-timers. So, you're in the clear if you or your spouse or common-law partner haven't owned a home in the year of the purchase or the four preceding years.
• Persons with Disabilities: Even if you've owned a home before, you can still qualify for the tax credit if you have a disability and claim the Disability Tax Credit. However, there are a few conditions:

1. The home should be tailored to the disabled person's needs.
2. You must occupy this home within one year of purchase.
3. The disability amount must be claimed on your tax return in the year you buy the home.

The Home Buyers’ Plan (HBP)

The Home Buyers’ Plan is a valuable initiative for potential homeowners, offering the flexibility to access funds saved in an RRSP. Specifically, individuals can make a tax-free withdrawal of up to $35,000 to support purchasing or constructing a new home. 

If you're considering making this significant move with a partner, the combined financial boost can amount to $70,000. It's crucial to note that any funds utilized under this plan need to be reinstated within 15 years. Additionally, participants must commit to purchasing or constructing their homes by October 1st of the year following their RRSP withdrawal. 

To be considered for the Home Buyers’ Plan you need to:

• First-Time Homeownership: This should be your initial foray into the housing market.
• Canadian Residency: Maintain residency in Canada from withdrawal until the home transaction is complete.
• Purpose of Property: Intend to use the property as your primary residence within a year of its acquisition or construction.

Other things to think about 

Aside from these existing programs, there are several important things to keep in mind to have a smooth first-time home buying experience. 

Budgeting

Before you start looking for a home, it's important to have a clear understanding of what you can afford. This includes not just the purchase price of the home, but also the additional costs associated with home ownership, such as property taxes, insurance, and maintenance. A good rule of thumb is to aim for a housing expense that is no more than 30% of your gross monthly income.

Property taxes

Property taxes are assessed and collected by the municipality in which the property is located in the province of Alberta. The amount of property tax you'll need to pay will depend on the assessed value of your home and the tax rate set by your municipality. It's important to understand how property taxes will impact your monthly budget, and to factor this into your overall home buying plan.

Understanding the mortgage process

It's important to understand the mortgage process, including what type of mortgage is best for your needs, documents you'll need to provide, and how to prepare to pass the mortgage stress test. Working with a mortgage specialist can help simplify the process and ensure that you get the best mortgage rate possible.

Strategies for First-Time Home Buyers in a Volatile Market

Navigating the real estate market as a first-time home buyer can be daunting, especially in times of economic uncertainty. With fluctuating mortgage rates and a competitive housing market, it’s crucial to arm yourself with strategies that safeguard your investment and ensure a successful home purchase. Here are key tactics to consider:

Locking in Mortgage Rates

Understanding Rate Locks: A rate lock is a guarantee from a lender to hold a certain interest rate for a specified period, typically 30 to 90 days, while you complete your home buying process. In a volatile market, locking in a rate can protect you from sudden increases in interest rates.

When to Lock in Your Rate: The best time to lock in a rate is after you've found a home and have an accepted offer, although some may choose to lock in a rate at pre-approval. Keep an eye on market trends and consult with your mortgage advisor to decide the optimal timing.

Budgeting for Fluctuating Rates

Financial Buffer: Ensure your budget includes a buffer to accommodate potential increases in interest rates during the term of your mortgage. This means looking for homes priced below your maximum budget to allow for flexibility in your monthly expenses.

Fixed vs. Variable Rates: Consider the difference between fixed and variable rates. A fixed-rate mortgage offers stability, as your interest rate won't change over the term. A variable rate may offer lower initial rates but can fluctuate with market changes, impacting your monthly payments. Assess your financial stability and risk tolerance to choose the right option.

Mortgage Pre-Approval

Benefits of Pre-Approval: Getting pre-approved for a mortgage not only gives you an understanding of what you can afford but also strengthens your position as a buyer in a competitive market. It shows sellers that you are serious and have the financial backing to complete the purchase.

Pre-Approval Considerations: When getting pre-approved, discuss with your lender how long the approval is valid and if it includes a rate lock. This can be a critical advantage in a volatile market, ensuring you’re protected against rising rates as you search for your home.

Flexible Home Search

Expanding Your Search: Be flexible with your home search criteria. Consider different neighborhoods, home types, and features to find the best value within your budget. Sometimes, compromise is necessary to align with financial realities and market conditions.

Timing the Market: While trying to time the market perfectly is challenging, being informed about market trends and seasonal fluctuations can help you make a more strategic decision. Historically, there are times of the year when competition may be lower, potentially leading to better deals.

Professional Guidance

Working with Experts: A real estate agent experienced in working with first-time buyers can provide valuable insights into market trends and help you navigate the buying process. Similarly, a mortgage broker can offer advice on loan options and assist in securing the best mortgage terms for your situation.

Educational Resources: Take advantage of home-buying seminars, online courses, and financial literacy resources geared towards first-time buyers. These can help demystify the buying process and prepare you for the decisions ahead.

Being a first-time buyer comes with lots of perks

With the right preparation and a clear understanding of the process, you can become a proud homeowner in Alberta. There are several incentive programs available for first-time buyers in Alberta. Be sure to do your research to understand where you can leverage your buying power as a first-time home owner. Once you’ve budgeted and feel ready with your down payment, one of Pine’s mortgage agents would be happy to speak with you to begin your mortgage approval process.