First Time Buyers
Congratulations on your decision to buy your first home!
Since you’re here, you’ve obviously decided to get educated and informed. I applaud you for that – it takes discipline and commitment!
Before you start seriously looking at possible homes, it’s important to understand the financial options available to you and how to get the best deal.
Here are the TOP 5 Points to Keep in Mind:
1. A mortgage pre-approval is key
Why is a mortgage pre-approval so important for a first time home buyer? Well, in addition to getting that “magic number”, that is, the amount that a lender is willing to lend to you to help you buy your place, you also get a good understanding of all the other financial details related to your home purchase… And you want it to be specific to where you will be purchasing, geographically.
The costs for purchasing in Ontario will be different than those in other provinces. You’ll want to know exactly how much you’ll need for your down payment and closing costs, what documentation you will need to pull together, and whether there are any issues that need to be taken care of on your credit bureau. My goal is to get you into the best possible financial position, so that you can qualify for the money that you need, and at the best possible rate.
2. Saving up for a down payment
This is one of two key hurdles for first-time home buyers in the greater Toronto area. The down payment is usually at least 5% of the value of the property. If you don’t have the cash sitting in a bank account, there are other options.
For example, with the federal Home Buyer’s Plan, you can access funds in your RRSP for a down payment – up to $25,000 per mortgage applicant. (Certain conditions do apply and you must repay the funds back into your RRSP within 15 years.) As well, some lenders offer “cash back” programs that allow you to use a portion of your mortgage to cover closing or other costs, so we can talk about that option also. And we can discuss whether you might be able to qualify for a mortgage while using borrowed or gifted money for your down payment.
3. What if you have less than perfect credit?
This is the second hurdle for home buyers – in the GTA and beyond. Know what’s happening with your credit is really important. A mortgage lender will be looking at your demonstrated ability to handle debt, as evidenced by your credit report and credit rating. I see people all that time that have an insufficient credit history, a credit history showing an imperfect track record of payments, or even mistakes on their credit bureau.
Because of this, doing a pre-approval as early as possible is crucial. It will enable you to fix these credit problems with plenty of time. As a result, you improve your chances of qualifying for the best rates and terms.
4. Lock in your mortgage rate
Getting a pre-approval gives you the price range you can afford, “locks” your interest rate (usually for 90 to 120 days, and sometimes longer) to protect you from rate increases, and gives you a good understanding of what to expect from the process moving forward.
5. Put together a plan
We would be pleased to help you develop your mortgage plan so that you don’t encounter any surprises when you find and fall in love with your perfect place. There is no cost or obligation for this service! We look forward to hearing from you, and helping you buy the home of your dreams!
RRSP Home Buyers Plan
The Home Buyers’ Plan (HBP) allows you as a first-time home buyer to withdraw up to $25,000 from your RRSP to buy or build a qualifying home for yourself or a disabled relative. You may still be considered a first-time home buyer if you own a rental property or if you haven’t owned a home recently.
This is a temporary “loan” from your RRSP. You need to pay it back within 15 years or it will be added to your taxable income. You can make withdrawals from more than one RRSP as long as you are the plan owner. Canada Revenue Agency provides a very comprehensive document on the Home Buyers’ Plan.
How the Home Buyers’ Plan works.
- The Home Buyers’ Plan (HBP) allows you to use money in your RRSPs for a down payment on a principal residence.
- You can use up to $35,000, or $70,000 per couple, of your RRSPs toward the purchase of a home, as long as the funds are not locked in. For example, an RRSP from a pension plan that that is inaccessible until age 55 would not qualify.
- You can use your RRSPs to acquire an accessible or better-suited home for a disabled relative.
- You must meet the government’s requirements as a first-time home buyer, primarily that you or your spouse haven’t owned a home in the last five years.
- Withdrawals are not deemed to be taxable income in the taxation year in which they are withdrawn.
- There is a no-penalty, 15-year payback period for the RRSP money. Under the terms of the Plan, buyers are required to re-contribute a minimum of one-fifteenth of the withdrawal each year, starting two years after the withdrawal was made. You can repay the full amount into your RRSP at any time.
- You can participate in the Home Buyers’ Plan even if you have withdrawn funds from your RRSPs under the Lifelong Learning Plan and still have a balance owing.
Make Sure You Check the Fine Print.
To participate in the Home Buyers’ Plan, one of the following conditions must apply:
- You are withdrawing funds to buy or build a home for a related disabled person.
- You are withdrawing funds to buy or build a home for yourself as a first-time home buyer.
In addition, you must meet all of the following criteria:
- You enter into a written agreement to buy or build a qualifying home.
- You intend to occupy the qualifying home as your principal place of residence.
- Your Home Buyers’ Plan balance on January 1 of the year of the withdrawal is zero.
- Neither you nor your spouse or common-law partner owns the qualifying home more than 30 days before the withdrawal.
- You are a resident of Canada.
- You buy or build the qualifying home before October 1 of the year following your withdrawal.
You are responsible for making sure that all Home Buyers’ Plan conditions that apply to your situation are met. If a condition is not met while you are participating in the plan, your RRSP withdrawal will not be considered eligible. You will have to include the RRSP withdrawal as income on your tax return for the year you received the funds. If you don’t meet the conditions for this year, you may still be able to at a later date.
- If the minimum annual repayment is not made as scheduled, that amount is included as income for that year.
- Additional repayments may be made if desired; this will result in a smaller outstanding balance and lower scheduled repayments for the rest of the payback period.
- The repayment does not need to be made to the same RRSP from which the original withdrawal was made. You must, however, be the plan holder.
- You cannot direct your repayment to a spousal RRSP.