Frequently Asked Questions
Buying a home could be the largest purchase of your life. That is why you want to be sure that you own a home that is compatible with your financial situation.
The simplest way to determine this is to compare your gross income to your total debt.
Very few homebuyers have the cash available to buy a home outright.
Most of us will turn to a financial institution for a mortgage, the first step in a potentially long-standing relationship. But even with a mortgage, you will need to raise the money for a down payment.
The down payment is that portion of the purchase price you furnish yourself. The amount of the down payment (which represents your financial stake, or the equity in your new home) should be determined well before you start house hunting.
The larger the down payment, the less your home costs in the long run. With a smaller mortgage, interest costs will be lower and over time this will add up to significant savings.
Most lenders now offer insured mortgages for new and resale homes with $0 down payment. Mortgages must be insured to cover potential default of payment, contact us for further details.
Most lenders offer insured mortgages for both new and resale homes with lower down payment requirements than conventional mortgages – as low as 5%. Low down payment mortgages must be insured to cover potential default of payment, and their carrying costs are therefore higher than a conventional mortgage because they include the insurance premium.
Low down payment mortgages are often referred to as National Housing Act (NHA) or High Ratio mortgages. Both Canada Mortgage and Housing Corporation [CMHC] or SAGEN Insurance offer default insurance.
With all low down payment insured mortgages, you are responsible for:
· Appraisal and legal fees
· An application fee for the insurance
· The payment of the mortgage default insurance premium (although the amount of the premium may be added to the mortgage amount)
There are ways to reduce the number of years to pay down your mortgage. You will enjoy significant savings by:
· Selecting a non-monthly or accelerated payment schedule
· Increasing your payment frequency schedule
· Making principal prepayments
· Selecting a shorter amortization
Today, about 50% of first-time home buyers use their RRSP savings to help finance a down payment. With the federal government’s Home Buyers’ Plan, you can use up to $35,000 in RRSP savings ($70,000 for a couple) to help pay for your down payment on your first home. You then have 15 years to repay your RRSP.
To qualify, the RRSP funds you are using must be on deposit for at least 90 days. You will also need a signed agreement to buy a qualifying home.
Even if you have already saved for your down payment, it may make good financial sense to access your savings through the Home Buyers’ Plan. For example, if you had already saved $35,000 for a down payment – and assuming you still had enough “contribution room” in your RRSP for a contribution of that amount you could move your savings into a registered investment at least 90 days before your closing date. Then, simply withdraw the money through the Home Buyers’ Plan.
The advantage? Your $35,000 RRSP contribution will count as a tax deduction this year. Use any tax refund you receive to repay the RRSP or other expenses related to buying your home.
While using your RRSP for a down payment may help you buy a home sooner, it can also mean missing out on some tax-sheltered growth. So be sure to ask your financial planner whether this strategy makes sense for you, given your personal financial situation.
First and foremost, you have to make sure you have enough money for a down payment – the portion of the purchase price that you furnish yourself.
To qualify for a conventional mortgage you will need a down payment of 25% or more. However, you can qualify for a low down payment insured mortgage with a no down payment or as low as 5%. Secondly, you will require money for closing costs (up to 1.5% of the basic purchase price).
If you want to have the home inspected by a professional building inspector – which we highly recommend – you will need to pay an inspection fee. The inspection may bring to light areas where repairs or maintenance are required and will assure you that the house is structurally sound. Usually the inspector will provide you with a written report. If they do not, then ask for one.
You will be responsible for paying the fees and disbursements for the lawyer or notary acting for you in the purchase of your home. We suggest you shop around before making your decision on who you are going to use, because fees for these services may vary significantly.
There are closing and adjustment costs, interest adjustment costs between buyer and seller and (depending on where you live) land transfer tax – a one-time tax based on a percentage of the purchase price of the property and/or mortgage amount.
Finally, you will be required to have property insurance in place by the closing date. And you will be responsible for the cost of moving.
Remember, there will be all kinds of things you will have to purchase early on – appliances, garden tools, cleaning materials etc. So factor these expenses into your initial costs.
A Cashback mortgage option can be applied to any of the costs listed above.
Cashback gives you up to 5% which you can use towards anything you want! Use the money for renovations, closing costs, furniture, appliances, or anything else you choose. You can even apply it to your mortgage as an immediate prepayment of the principal. That could potentially save you thousands of dollars in interest. However, If you decide to sell your home or pay out your mortgage prior to maturity date you will be obligated to repay the bank part or the whole cashback.
Contact us to find out more about Cashback .
Most banks have a portability option that lets you transfer the terms and conditions of your current mortgage to your new home, it is subject to a credit review and property appraisal when you make the new home purchase. Please note the mortgage portability option cannot be used in combination with the assumable mortgage option.
There is no maximum for how many times you can refinance. But you must qualify each time you apply. Contact us for more information.
Registered Retirement Savings Plans (RRSPs) are a good way to secure your financial future while enjoying tax benefits today. You may also be able to use your RRSP savings towards the purchase of a home. As a first-time buyer, you may also be eligible for the government-approved CIBC RRSP Home Buyers’ Plan. You and your eligible spouse may withdraw up to $35,000 each from your existing RRSP for at least 90 days. You don’t have to pay income tax on the funds, as long as you repay the total amount to your RRSP over the next 15 years. And your payments don’t have to start until the second year after the withdrawal. Contact us to find out if the RRSP Home Buyers’ Plan is a viable option for you.
Set up a bi-weekly automatic savings plan.