Affordability biggest issue for first-time home buyers: financial advisor

HARRISTON – Buying one’s first home, and the associated financial decisions, can be an intimidating task for many.

The first step to easing one’s mind can be speaking with a financial advisor.

“I think the biggest issue we have for first-time home buyers is affordability,” financial advisor Joe McLaughlin told the Advertiser. 

McLaughlin, of Harriston-based McLaughlin Financial Group, called this period of in the housing market “the COVID effect” because housing prices are still dropping from extreme highs, six years after the pandemic first hit.

“Toronto [housing prices]  have dropped significantly since the COVID highs, but our area hasn’t followed suit quite as fast,” he added.

Asked why that is the case, McLaughlin said, “We are our own worst enemies.

“So many people bought extremely high during the pandemic but ... are not willing to let go of that house at what the market is calling for today.”

He also noted some people are not buying homes due to job uncertainty. 

“People don’t know what tomorrow’s going to bring so no one wants to jump into that house,” McLaughlin said.

To combat these issues McLaughlin said it comes down to one word: discipline.

“Put money away today as if you’re a home owner ... we need to practice today,” he said. 

McLaughlin advises his clients to practice discipline because they have the option to change or delay their housing goals today.

Once you buy a home, you can’t change those monthly payments, he added.

“The problem is people don’t know where to start,” McLaughlin said. “With the proper coaching ... anybody and everybody can own a home at some point.”

After discipline comes  a first home savings account (FHSA). 

This plan helps Canadians over 18 save for a home and can hold savings or investments including mutual funds, bonds and Guaranteed Investment Certificates. 

Limits to how much one can put in their FHSA include:

– $8,000, yearly contribution; and

– $40,000, lifetime contribution.

FHSA savings must be used by the end of year 15 or age 71. 

“The average person putting $8,000 away ... are going to get 29.65 per cent return on that deposit in their FHSA,” McLaughlin explained. 

“That $8,000 turns into an additional return of $2,372 on your income taxes.”

FHSA users can then take the additional return and “feed that into their FHSA for the following year,” McLaughlin said. 

Although this is an option, McLaughlin advises clients to continue with discipline and still place $8,000 away.

“The beauty of an FHSA ... is it’s virtually identical to an RSP (retirement savings plan),” he said.

“The only difference is when you buy your first home within 15 years, you must pull your money out of your FHSA within 30 days of owning that property,” McLaughlin said.

Other differences include:

– tax-free withdrawal on FHSA;

– tax-free growth on FHSA;

– FHSA doesn’t affect other savings accounts. 

“My best advice for anybody looking for a home is to figure out the [property’s] value ... then work with your financial advisor to figure out what the cost of ownership is and start saving as if you’re an owner today,” McLaughlin said. 

“Home ownership is a lifelong thing that (if) done right ... can be very successful. Done wrong, it could be financially detrimental.”