Manitoba, Where the Spirit Lives
The province of Manitoba is between Saskatchewan and Ontario. It contains rich farmland in the south and cooler arctic weather in the north, with many lakes and rivers in between. More people are moving to Manitoba because of its affordability, diverse economy, and low cost of living. It also has a reputation for having a friendly and welcoming community. The affordable housing in Manitoba is ideal for many, especially first-time home buyers. If you are thinking about buying a house in Manitoba, you should consider a few things before you start your real estate hunt.
Best Cities in Manitoba To Live In
Manitoba’s capital city, Winnipeg, is an amazing choice for those looking for good transit, strong healthcare, and culture. The second-largest city, Brandon, is another fine choice. In reality, the province is so diverse that it is quite easy to find the perfect city or town for your lifestyle.
How Much of a Down Payment Do I Need?
A down payment is a sum of money you put towards purchasing the home right off the bat. Not many people are able to afford a house with what’s in their bank accounts, so instead, they save up as much as they can (down payment) and take out a loan (mortgage) for the rest. In general, the higher the down payment, the lower the overall mortgage.
A good rule of thumb is to save up about 20% of the listing price as your down payment. If your amount is less than 20%, you may need to get additional Mortgage Loan Insurance from your broker. For many first time home buyers in Manitoba 20% saving 20% is not a realistic option. Buying a home with 5% for your down payment is very much possible.
See the table below to give a general idea of what 5% and 20% look like as down payments for home prices.
Using a Tax-Free Savings Account or Registered Retirement Savings Plan (RRSP) for a Down Payment
You may use either your TFSA or RRSP for your down payment. Drawing out money from your RRSP is an option under the Home Buyers’ Plan (HBP). The catch is that you can only take out a maximum of $35 000, and you will need to repay it over time.
A TFSA is a great alternative. When it comes time to withdraw the funds, it comes out tax-free. There are some downsides, like no protection from creditors, but usually, the flexibility outweighs any potential drawbacks.
Ultimately, the choice is yours, depending on what your situation looks like. If you are unsure, it may be good to discuss this with your Mortgage Specialist.
Incentives, Grants, & Tax Credits to Help With Your First Home Purchase in Manitoba
First-Time Home Buyer Incentive
Homebuyers in Canada looking to purchase their first home can benefit from the First-Time Home Buyer Incentive. The program provides between 5%-10% of the home’s purchase price for the buyer to put towards a down payment. This reduces the overall cost, meaning a slightly lower mortgage payment right from the beginning.
Note: The Rural Homeownership Program was another option for low-income Manitoba residents. At the writing of this article, it is not currently available but may become so again in the future.
First Time Home Purchase Program
The First Time Home Purchase Program is available for Metis residents of Manitoba. If approved, the program covers the down payment and a portion of the closing costs. This program is not retroactive, meaning if you already purchased your first home and are now seeing this, it is too late. The approval for the program has to come before the purchase of your first home.
First Time Home Buyers Tax Credit
The First Time Home Buyers Tax Credit is available for Manitoba residents purchasing their first home and homebuyers with disabilities. A credit of up to $750 can be applied to your tax refund during tax season.
Basic Mortgage Terms
When you apply for your loan, the lender will want to know your amortization period. This means they want to know how long it will take you to pay it all back. Do you want a 15-year term? A 25-year term? This matters for two reasons. First, the more time you have to pay something back, the smaller your payments will be. Second, the downside is that interest builds continuously. Although your payments are smaller month to month, the overall amount you pay is higher because the interest is in the background, building with each passing month.
Interest Rate Types
Fixed and variable are the most common interest rate types. As you take out a loan, there will be a percentage on top of the loan amount (the principal) that you will need to pay back. Each month, this interest accumulates based on how much of the principal is left. Choosing the correct interest rate can help save you money, live within your means, and protect your homeownership.
A fixed-rate remains the same for the duration of the mortgage. You will always know your payment because it won’t change. The downside is that yours will remain the same if rates go down. On the contrary, you are locked in at a lower rate if rates go up, so you benefit that way. Fixed rates are typically slightly higher than variable rates but do offer some peace of mind with no surprises on the payment amount.
A variable-rate fluctuates with the market. Some years it might be extremely low, other years, it might be so high that you could struggle with your payments. On the extreme high end, a homeowner could lose their home to the bank from not being able to pay their mortgage. This could either save you a ton of money or risk losing it all. It is tough to predict what interest rates will look like in the future. Another aspect of variable rates is to ask if there is a convertibility feature. This is an option to jump from a variable rate into a fixed rate within your term. Additional fees and conditions may apply.
Mortgage Pre-Approval A mortgage pre-approval is a conditional promise from a lender that it will loan you a certain amount of money, at a specific interest rate, with certain terms. It’s typically a first step in the mortgage approval process, in which the lender tentatively approves you as a borrower. It is in no way a guarantee though, as the lender will next need to approve the property you are buying. There is a significant number of benefits of a mortgage pre-approval for first time home buyers.
“Open” or “Closed” Mortgage
Hit it big with a lotto win and want to suddenly pay off the rest of your loan at once? This is possible with an open mortgage. You can also renegotiate your terms if you have this type of mortgage.
Extra Costs of Buying a Home
First time home buyers in Manitoba should be aware that there are extra costs to buying a home, which refer to the bits and pieces here and there that all add up. Some examples of extra costs: > Purchasing appliances like stoves, washers, dryers, etc. They don’t always come with the house. > Closing Costs, which include land transfer taxes, utility adjustment costs, property taxes, legal fees, etc. This can easily be $5000+ on top of your down payment and mortgage. > Home Insurance > Home Maintenance. Some problems or wear-and-tear situations may arise shortly after moving in or in the months to follow.
How Much Do I Need to Cover the Extra Costs of Buying a Home?
It varies on where the home is located and if the appliances are part of the deal or not, etc. Budgeting around $10 000 is not a bad idea. If you don’t need all of it right away, it can be put away for future home maintenance projects. However, you may need more for those top-of-the-line appliances or premium home insurance rates. Your realtor may be able to give you a ballpark number to aim for, based on their experience with the market.