4 min read

the ultimate guide to buying your first home

Written By

Clay Shiffman

Buying your first home is an exciting milestone, but it can also be a daunting process filled with many questions and uncertainties. If you're a first-time home buyer in Alberta, you're in the right place!

This comprehensive guide walks you through essential tips and highlights key incentives available to help make your dream of homeownership a reality. Whether in bustling Calgary, vibrant Edmonton, or one of Alberta's charming smaller communities, we've got you covered.

Why buy a home in Alberta?

Alberta, known for its stunning landscapes and robust economy, is a fantastic place to lay down roots. The province boasts a high quality of life, affordable housing markets compared to other parts of Canada, and plenty of incentives for first-time buyers. With its diverse cities, strong job market, and natural beauty, Alberta offers something for everyone.

What is a first-time home buyer?

A first-time home buyer is an individual or household purchasing a home for the first time. This status can qualify them for various benefits, incentives, and programs to make homeownership more accessible. Here are some key points that define a first-time home buyer and the associated benefits.

Definition of a first-time home buyer

The most straightforward definition is someone who has never owned a home before. This includes single-family homes, condos, townhouses, or any other type of residential property.

Home programs and incentives may have specific definitions of what constitutes a first-time home buyer. For example, in Canada, the federal government defines a first-time home buyer as someone who has not owned a home in the last four years.

If you are buying a home with someone else who has owned a home before, you may still be considered a first-time home buyer if you meet the criteria individually. However, this can vary by program.

If you have owned a home in another country, you are typically not considered a first-time home buyer, but specific programs might have different rules.

Understanding the real estate market in Alberta

Alberta’s real estate market is as diverse and dynamic as the province. From the bustling urban centers of Calgary and Edmonton to the picturesque towns in the Rocky Mountains, Alberta offers a wide range of housing options and market conditions.

As a first-time home buyer, understanding the intricacies of Alberta's real estate market is crucial. Here are key factors shaping the Alberta real estate market.

Economic factors

Alberta's economy is heavily influenced by the oil and gas industry, which can lead to fluctuations in the housing market. When oil prices are high, the economy tends to thrive, leading to increased demand for housing. Conversely, downturns in the oil industry can slow the market.

Population growth

Alberta experiences significant population growth due to its strong job market and high quality of life. Cities like Calgary and Edmonton attract newcomers, which drives demand for housing.

Employment rates

Employment rates directly impact the housing market. Higher employment rates increase the purchasing power of residents, boosting demand for homes.

Interest rates

Mortgage interest rates set by the Bank of Canada play a crucial role. Lower interest rates make borrowing cheaper, encouraging more people to buy homes.

Government policies and incentives

Various federal and provincial policies and incentives, such as the First-Time Home Buyer Incentive and property tax rebates, can stimulate market activity.

Recent trends in Alberta's real estate market

Urbanization

Urban centres like Calgary and Edmonton continue to grow, with a strong demand for condos and townhouses, particularly in downtown areas. This trend is driven by younger professionals and families wanting convenience and amenities.

Suburban and rural growth

The COVID-19 pandemic has spurred interest in suburban and rural areas as remote work becomes more prevalent. Many buyers are seeking larger homes with more outdoor space, leading to increased activity in these regions.

Housing prices

Housing prices in Alberta have seen fluctuations. After a stabilization period, prices are rising again, particularly in urban areas. However, compared to other major Canadian cities like Toronto and Vancouver, Alberta remains relatively affordable.

New developments

There is significant new construction, especially in Calgary and Edmonton. These developments range from high-rise condos to single-family homes, catering to diverse buyer needs.

Rental market

The rental market in Alberta is also robust, with high demand for both short-term and long-term rentals. This is partly due to the influx of new residents and the transient nature of workers in the oil and gas industry.

How much money do you need for a down payment?

The amount of money you need for a down payment on a home in Alberta depends on the purchase price of the property and the type of mortgage.

Minimum down payment requirements

Homes priced at $500,000 or less

For homes priced at $500,000 or less, the minimum down payment is 5% of the purchase price. For example, if the home costs $400,000, you would need a down payment of $20,000.

Homes priced between $500,001 and $999,999

For the first $500,000, you pay 5% of the home price. For any amount over $500,000, you need to pay 10%. For a home priced at $700,000, the down payment would be $25,000 (5% of $500,000) plus $20,000 (10% of the remaining $200,000), totaling $45,000.

Homes priced above $999,999

Homes priced at $1,000,000 or more require a minimum down payment of 20%. For a $1,200,000 home, the down payment would be $240,000.

Getting ready for your first home purchase in Alberta

Purchasing your first home is an exciting milestone, but it can also be a complex process with many steps and decisions. Preparing adequately will make the journey smoother and more enjoyable.

Step 1: Assess your financial situation

Calculate your monthly income and expenses to understand how much you can spend on a home. Consider using online mortgage calculators to estimate your monthly payments. In Alberta, you need at least 5% of the purchase price for homes under $500,000, and a higher percentage for more expensive homes.

Obtain your credit report and score from major credit bureaus. A higher credit score can help you get better mortgage rates. If necessary, improve your credit score by paying down debts, correcting errors on your credit report, and avoiding new credit applications.

Step 2: Explore mortgage options

Getting pre-approved shows sellers that you are a serious buyer and gives you a clear picture of how much you can borrow. Shop around for the best mortgage rates and terms. Consider consulting with multiple lenders or using a mortgage provider.

Decide whether you prefer a fixed-rate mortgage's stability or a variable-rate mortgage's potential savings. Choose the length of your mortgage term. Common terms are three, five, and ten years.

Step 3: Prepare additional costs

Budget for legal fees for your real estate lawyer, and set aside funds for a professional home inspection. Additional home-owning costs include property taxes, which vary depending on the municipality. Ongoing costs for homeownership include insurance to protect your property and utilities and regular home maintenance.

Step 4: Leverage first-time home buyer programs

The Home Buyers' Plan (HBP) allows buyers to withdraw up to $35,000 from their RRSP (or $70,000 for a couple) to buy their first home without immediate tax penalties. The First-Time Home Buyer Incentive is a shared equity program that provides 5% or 10% of the home's purchase price towards your down payment, reducing the mortgage amount. The First-Time Home Buyers' Tax Credit (HBTC) is a non-refundable tax credit providing up to $750 in tax relief.

Step 5: Find the right real estate agent

Select an agent with experience in the Alberta market who understands the nuances of the local real estate landscape. An agent who has worked with first-time buyers can provide valuable guidance.

Step 6: Start house hunting

Identify what you need in a home versus what you would like to have. Consider location, size, number of bedrooms, and proximity to amenities. Attend open houses and schedule viewings to get a feel for different properties and neighbourhoods. Finding the perfect home can take time. Be patient and willing to compromise on some aspects.

Step 7: Make an offer and close the deal

Your agent will help you make a competitive offer based on the market conditions and the property's value. Always get a home inspection to uncover any potential issues with the property. Once your offer is accepted, work with your lender to finalize your mortgage.

Complete all necessary legal and financial tasks to close the deal. Your real estate lawyer will assist with this process.

Mortgage options

When buying your first home in Alberta, understanding the difference between a mortgage vs. home equity loan can help you determine the financing for your house. The right mortgage can make a significant difference in your overall financial situation and long-term satisfaction with your home purchase.

Types of mortgages

Fixed-rate mortgage

The interest rate remains throughout the mortgage term, providing predictability in your monthly payments. Common terms are 1, 3, 5, or 10 years. Fixed-term mortgages are best for buyers who prefer stability and want to avoid the risk of rising interest rates.

Variable-rate mortgage

The interest rate can change based on the prime lending rate, which means your monthly payments can vary. Variable-rate mortgages often start with a lower rate than fixed-rate mortgages, which can lead to savings if interest rates stay low. These are great for buyers who are comfortable with some level of risk and can benefit from potentially lower rates.

Mortgage terms

Short-term mortgages are typically one to three years. You can renegotiate sooner, which can be beneficial if you expect rates to drop. A short-term mortgage is great for buyers anticipating changes in their financial situation or market conditions.

Long-term mortgages are typically five to ten years. It locks in your rate for longer, providing stability and peace of mind. It's great for buyers who prefer long-term predictability and stability in their mortgage payments.

Amortization periods

The most common amortization period is 25 years, balancing monthly payment amounts and total interest paid over the loan's life. Most first-time buyers benefit from this as it offers manageable monthly mortgage payments and a clear path to owning the home.

Extended amortization periods can go up to 30 years. Longer periods can lower your monthly payments but increase the total interest paid.

Mortgage insurance

Canada Mortgage and Housing Corporation (CMHC) insurance is required for down payments under 20%. The insurance premium ranges from 2.8% to 4.0% of the mortgage amount and can be added to your mortgage payments.

Choosing the right mortgage lender

You can get a mortgage from various financial institutions, mortgage brokers, and credit unions. Banks provide stability, established reputations, and various products for different homebuying needs. Credit unions often offer competitive rates and personalized service, but may require membership and have limited availability.

Mortgage brokers have access to a range of lenders and products, which can help you find the best rates. You can compare different mortgage rates and terms to find the best deal. Mortgage brokers may require broker fees and service quality can vary.

Tips for first-time homebuyers

Understand your finances

A down payment is typically 5% to 20% of the home's purchase price. The more you save and the earlier you start, the less you'll need to borrow from a mortgage. You can have a dedicated home savings account to save for your down payment and set aside money periodically.

In addition to a home savings account, consider building an emergency fund to cover unexpected expenses that may arise during the home buying process, or after you move in. Calculate your monthly income and expenses to determine how much you can afford for mortgage payments, utilities, and maintenance.

Your credit score plays a role in securing a mortgage. A higher credit score likely qualifies you for better rates and terms. You may not be able to get a personal loan with bad credit or a good mortgage to help with financing the home. Eliminating credit card debt, debt consolidation, credit repair, paying credit card debt, and paying off loans all have a credit impact to improve your score.

Get pre-approved for a mortgage

Getting pre-approved for a mortgage helps you understand your budget, shows sellers you’re a serious buyer, and can speed up the closing process. Compare mortgage rates and terms from multiple lenders to find the best deal. Consider using a mortgage broker to access a wider range of options.

After you move in

Regular maintenance is essential to preserve your home’s value and prevent costly repairs. Continue to manage your finances carefully to ensure you can comfortably make your mortgage payments and cover other expenses. Ensure you have adequate home insurance to protect your investment.

Alberta first-time home buyer incentives

Alberta offers several incentives and programs to assist first-time home buyers in making homeownership more affordable and accessible.

The First-Time Home Buyers' Tax Credit is a federal tax credit providing a non-refundable tax credit of up to $750 to help with home purchase costs. You must be a first-time home buyer, meaning you or your spouse or common-law partner didn't own a home and live in another home in the year of purchase or any of the four preceding years. You can claim the HBTC credit on your annual tax return.

The Home Buyers' Plan allows first-time buyers to withdraw up to $35,000 from their RRSPs to buy or build a qualifying home, without immediate tax penalties. You must be a first-time home buyer and the funds must be in the RRSP for at least 90 days before withdrawal. You replay the withdrawn amount to your RRSP over 15 years and repayment starts the second year after you withdraw funds.

The First-Time Home Buyer Incentive is a federal program offering 5% or 10% of the home's purchase price to help reduce monthly mortgage payments. It's a shared-equity mortgage with the Government of Canada. You must be a first-time home buyer, have a household income of less than $120,000, and the total borrowing amount must be less than four times your qualifying income.

You must repay the incentive within 25 years or when you sell the property, whichever comes first. The repayment amount is based on the home's fair market value at the time of repayment.

The GST/HST New Housing Rebate allows first-time home buyers to recover some of the GST or the federal portion of the HST paid for a new or substantially renovated home. It applies to new or substantially renovated homes, and the home must be the primary residence.

The Alberta Land Transfer Tax Rebate allows first-time buyers to benefit from the lower overall closing costs than other provinces with this tax. All first-time home buyers in Alberta automatically benefit from the absence of a land transfer tax, and no application is necessary.

Alternatives to a mortgage for first-time home buyers

Rent-to-own agreements

Rent-to-own agreements let you rent a home with the option to purchase it later. Part of your rent payments may go towards the purchase price. You can build equity while living in the home. However, rent payments are typically higher, and option fees are non-refundable if you choose not to buy.

Seller financing

The seller provides a loan to the buyer directly. The buyer makes payments to the seller instead of a bank. This option offers flexible terms and can be quicker to arrange. However, it often comes with higher interest rates and may include large balloon payments at the end of the term.

Lease option

A lease option gives tenants the right to purchase the property at the end of the lease without the obligation to buy. It provides flexibility and time to improve your finances. Like rent-to-own, part of the rent may go toward the purchase price. If you decide not to purchase, you may lose the option fee and premium rent paid.

Personal loan

Personal loans often have faster approval processes compared to mortgages. It can be advantageous if you need to secure funding quickly. Since personal loans are unsecured, you don’t need to put up your home or any other asset as collateral. This reduces the risk of losing your home if you can’t make payments. You can build credit with a personal loan to improve your creditworthiness and qualify for better credit products.

Line of credit

A line of credit is a flexible loan that allows you to borrow up to a certain limit. You can draw on the funds as needed and pay interest only on the amount you borrow. There are two main types: a personal line of credit and a home equity line of credit (HELOC). Understanding the benefits of a personal loan vs. a line of credit can help you choose which option makes sense.

Make homeownership a reality with KOHO

Purchasing your first home is a significant financial commitment, involving substantial upfront costs, ongoing maintenance, and various other expenses. If you're in the market for your first home and need assistance with financing, KOHO is here to help.

We provide various tools and resources to help you build a strong credit profile, increasing your chances of securing a mortgage. Our virtual credit card and overdraft protection coverage are excellent tools, provided you use your credit card responsibly and repay cash advances on time.

With KOHO, you can monitor your credit profile through a free credit score report, helping you stay on track toward your desired credit score. Your credit report offers valuable insights into the factors affecting your score, how it has changed, and steps you can take to improve it.

You can also apply for a high-interest savings account and earn interest at a competitive rate on every dollar. Your savings account is a great tool to help you save for a down payment on a home, reducing the amount you need to borrow and helping you manage your debt more effectively.

Build your credit with KOHO and let us assist you in financing the home of your dreams. KOHO for businesses provides financial solutions to help your company manage finances effectively. Learn more about our plans for spending and saving today.

Note: KOHO product information and/or features may have been updated since this blog post was published. Please refer to our KOHO Plans page for our most up to date account information!