As a first time buyer, you're likely to have many questions about selecting, financing and buying your first home. How do we start looking for a home? How much money will we require to purchase the home? How much will the mortgage payments be each month and can we afford it? How does the home buying process work and what can we expect along the way? These are just a few of the questions you're bound to have at the beginning of your exciting journey to buying your very first home!
A RE/MAX Sales Associate can provide the answers to your questions and walk you through the entire process, from viewing potential homes to making an offer to setting up mortgage financing. Although buying your first home can be overwhelming, you can be confident that your RE/MAX Sales Associate will be available to help you every step of the way. RE/MAX can make buying your first home simple and straightforward, eliminating any confusion and doubt and allowing you the opportunity to enjoy your first home, worry-free.
Just a 5% Down Payment?
The following is an excerpt from the Canada Mortgage and Housing Corporation website under the topic of "Mortgage Loan Insurance":
Get into your home sooner. Mortgage Loan Insurance helps you do it. Put as little as 5% down.
When you need a mortgage loan that is more than 80% of the purchase price of your home, mortgage loan insurance is required. It protects the lender and, by law, most Canadian lending institutions require it.
Having mortgage loan insurance means that if you, the borrower; default on your mortgage, the lender is paid back by the insurer - CMHC or a private company1. With the risk of losing their money removed, lenders have the confidence to make mortgage loans of up to 95% of the purchase price of the home (subject to price ceilings).
That means your down payment can be as little as 5% of the house price. With mortgage loan insurance, many Canadians who might be unable to obtain a 20% down payment can still buy a home.
What does mortgage loan insurance cost?
There are two components: an application fee and an insurance premium. The application fee typically ranges from $75.00 to $235.00 and mortgage loan insurance premiums range from 0.5%-3.75% of the amount of your loan (additional charges may apply), depending on the size of the loan and the value of your home. The premium can be added to your mortgage loan and paid off as part of your regular mortgage payments, or paid off in a lump sum at the time of purchase to save interest charges on the premium itself.
Where can mortgage loan insurance be obtained?
See your lender, who can obtain mortgage loan insurance from CMHC or private insurer.
CMHC will insure mortgages of up to 95% of the home's purchase price or the market value of the property, whichever is less. (Restrictions may apply. Contact your local lender.)
Both new and resale homes are eligible. Here are some of the criteria that must be met:
The home must be in Canada and must be your principal residence. Housing payments, including principal, interest, property taxes, heating (P.I.T.H.), the annual site lease in the case of leasehold tenure and 50% of applicable condominium fees, can't be more than 32% of your gross household income (GDS ratio).
Your total debt load can't be more than 40% of your gross household income (TDS ratio). Other criteria apply and are subject to change. For details, please contact CMHC or your local lender.
Right now, 3 million Canadians own homes with insured mortgages.
John and Sue lived in a rented Calgary home for seven years. When the landlord decided to sell the home, he offered the couple the first opportunity to buy it. While his price was fair, John and Sue didn't have a 20% down payment saved, so they couldn't qualify for a conventional mortgage.
While looking for other options, they found they could be eligible for mortgage loan insurance that would allow them to buy with as little as 5% down.
It should be noted that the protection provided to the lender by the insurer does not relieve the borrower(s) of the obligations under his/her mortgage contract.
|The Home Buyers' Plan ("HBP") is a federally instituted government program designed to assist "qualified" buyers in the purchase of a new home. Until 1999, the program was available only once and you had to buy or build the qualifying home for yourself, however, the rules have changed. In order to qualify you have to complete Form T1036 which is available at your tax services office.
Benefits from using the Home Buyers' Plan.
The utilization of your RRSP's within the guidelines of the HBP results in benefits that are quantifiable immediately and extend over the long-term:
- Increased down payment
- Decreased principal owing
- Avoidance of substantial interest costs over that accrue over long periods
How does it work? - No penalties
Under the "HBP", Revenue Canada permits you to use your RRSP funds towards the purchase of a new home. The default insurance companies support this program (when your down payment is less than 20%) in allotting the RRSP funds as a source of down payment.
No penalty for withdrawal
There are no negative effects from removing funds from the RRSP - in short, individuals are able to withdraw monies from their fund without penalty:
- No tax is owed on the monies withdrawn
- No interest is paid on the monies while it is outside of your RRSP
- There is no monitoring of the monies while outside your Plan (see Tax Management below)
Subject to restrictions
Regardless of no penalties for withdrawing funds, there a re certain guidelines that must be followed in order to remain protected under the HBP' umbrella:
- There is a maximum of $20,000 that can be withdrawn from one individual's RRSP.
- There can be a maximum of two first-time buyers in the purchase of a new home, and each individual can withdraw up to $20,000 for a total of $40,000.
- The purchased home must be owner occupied.
- The RRSP must be repaid within 15 years with minimum annual payments of 1/15th of the withdrawn amount - failure to do so will result in 1/15th of the RRSP initially withdrawn having to be added back to taxable income in any year the minimum re-deposit is not made.
Establishing an RRSP with borrowed funds for a tax refund.
The "HBP" permits an individual to establish an RRSP with borrowed funds, and then use the resultant tax refund for a down payment. In this scenario:
- The individual borrows funds that are contributed to an RRSP.
- After a 90-day period, the RRSP is collapsed to repay the loan.
- The client receives a tax refund that can be applied to the purchase of a home.
These funds re considered as an acceptable source of down payment provided that:
- The tax refund is in the individual's hands at the time of closing.
- The lender can verify that the borrower has proven liquidable assets equal to a minimum equity of 5% of the purchase price.
Researched from: Canadian Mortgages