First Time Home Buyer’s Canada
Are First Time Home Buyer’s a High Risk clientele?
Short answer is not at all.
In fact, according to the most recent survey conducted by Genworth, First time Home buyers are “financially fit, well informed and eager to get into their first homes”
The CEO of Genworth, one of the 3 default insurance companies in Canada, Stuart Levings, stated that the survey indicated that today’s first time home buyers are well informed, they have their hands around their chequebook firmly and are really thinking before assuming the responsibility of home ownership.
The careful planning of these first time buyers today should serve the Canadian housing market well as these responsible first time buyers grow into responsible long term home owners.
What is your Point?
So why are we discussing this at all? Well, as of June 1, 2015, the Canada Mortgage and Housing Corporation (CMHC), the government controlled default insurance provider, has decided to increase the insurance premium for those people putting 5% down on their home purchases.
The premium is estimated to increase by nearly 15%. And without surprise, Genworth and Canada Guaranty both decided to follow suit on the premium increases led by CMHC.
So, what is the deal, if recent survey’s indicate that first time home buyers are a savvy bunch, then why are we increasing the fees to put 5% down?
Well, we must note first of all that we are assuming that first time home buyers are the ones purchasing homes with 5% down, but the survey does not really tell us this at all.
Remember: Anyone can purchase with 5% down, it is not necessarily an option reserved for first time home buyers.
Further details from the survey indicate the following:
- median home price 293k
- median down payment 34k (approximately 12% of purchase price)
- 69% of the funds for the down payment were derived from clients’ savings
- 22% of the funds for the down payment were from gifted sources from family
- 63% of those surveyed indicated that they put less than 20% down
- that means that 37% put at least 20% down
Unfortunately the data does not tell us how many of those 63% put 5% down.
One other thing to consider about these findings. In cities such as Vancouver, and virtually all of the lower mainland, 34 thousand dollars may not even be enough for 5% of the purchase price.
Why this is important is because 34 thousand dollars is a lot of money, and a demonstration of a responsible person to be able to save up that much, in my opinion anyways. But if the median house price in a city is twice the national average, when income is virtually at bar or slightly higher than the national average, then it is likely that most first time buyers would have no other choice than to put 5% down, in our market.
It would be interesting to see the stats on the relationship between defaults on mortgages with 5% original down payment. As far as I know, no data for that has been released by any of the insurers or institutions, so i guess we’re just going to have to take their word for it, that people putting 5% down are more risky.
In any case, if you or someone that you know is looking for some help navigating through the mortgage process, I would love to work with you, even if you are putting 5% down.
It’s Aleem from themortgagespecialist.com, feel free to call me anytime.