Posts Tagged first time home buyer
How to use your RRSPs to Purchase your First Home
Posted by Top Home Loans in Investing, Mortgage Advice, Real Estate on June 20th, 2009
What is the Home Buyer’s Plan?
The home buyer’s plan allows for each individual that is going on the title of the property to withdrawal up to $25,000 from their RRSPs to go towards the down payment on the new purchase. This means that if 2 people are going on the title of the property, then you can withdrawal up to $50,000, $25,000 per person, to go towards the down payment on the new purchase.
The withdrawals for this program are not considered as income in the year that this has been taken advantage of.
What are the Requirements?
When purchasing a home, you must either be a first time home buyer, or have not owned a home for a qualified period of time. The withdrawal for the down payment on the property must close within the same calender year.
The money in the RRSP must have been in the RRSP for a minimum of 90 days. You can withdrawal the money all at once or for a series of multiple withdrawals.
Do I have to repay the money back to my RRSP
Yes, you will have up to 15 years to repay the money to your RRSP. You are required to start repaying in the second year following the year you made the withdrawal from the RRSP. You will be required to repay 1/15 of the amount you withdrew annually until the amount is repaid. There is no tax liability if you only repay the minimum back to your RRSP.
Usually, your income levels will increase over the years, so it would be beneficial for you to pay the money back faster. This is because as your income level increases, then it is more advantageous for you to take advantage of RRSPs.
Until the money is repaid, then you cannot put money into your RRSPs to reduce your taxes at tax time.
This program is a great way to get a down payment on a new purchase; however, if you frequently put money into your RRSPs to reduce your taxes, then you will have to be aware that you will not be able to take advantage of RRSPs until the money you had withdrawan is paid off.
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How does the Home Buyers Plan work in Canada?
Posted by Top Home Loans in General Banking, Mortgage Advice, Mortgage News, Real Estate, Retirement Planning on April 21st, 2009
What is the Home Buyers Plan?
The home buyers plan is a program that allows qualified citizens to borrow money from their RRSPs to go towards the down payment of a new property. As this time, a Canadian resident can borrow up to $25,000 to go towards the down payment of their residence. This can be used towards either a used property or a new property. Once you have taken the funds from your RRSP to be used as a deposit for a property, you must meet certain conditions to apply and you must pay the money back within a certain duration of time.
What Conditions does it take to Qualify for the Home Buyers Plan?
You must be the annuitant of the RRSP in order to make the withdrawal from the RRSP. Also, you can withdrawals from multiple RRSPs as long as you are the annuitant on each of the RRSPs.
You must also meet one of the following conditions:
- You are looking to withdrawal the funds for the purchase or the construction of your first-time home purchase.
- You are withdrawing the funds to purchase or the construction of a home for a family member with a disability.
The conditions to be considered a first-time home buyer are that you or your spouse did not own a property that you lived in as a primary residence for at least 4 years prior to the decision to purchase a property. This means that if you are planning on using the home buyer plan, then make sure you and your wife have not had a mortgage in at least the last 4 years.
You must also meet all of the following conditions:
- You must have a completed accepted purchase agreement to purchase a new, used, or construction phase property.
- You must intend to occupy the property as your principle residence.
- Your Home Buyers Plan repayable balance as of January 1st of the year you want to make a withdrawal is at zero.
- Neither you or your spouse owns the qualifying home at least 30 days prior to the home being sold.
- You are considered a resident of Canada.
- You buy or build the qualifying home before October 1st of the next year.
How to Repay your Home Buyer Plan Redemption
The second year after you had applied for the home buyer plan, then the government will be expecting you to make a contribution to your RRSPs. The government will also expect you to file your taxes with a completed schedule 7. This must be done annually until the home buyer plan is paid off in full.
The first repayment is due the second year following the year you made the withdrawal. Every year, the government will send you a statement account attached to your notice of assessment and your notice of reassessment. This will provide you with the following details: the amount you have repaid, the amount you still have to repay, and the amount of your next repayment. You have up to 15 years to repay the home buyer plan in full, and payments are at a minimum of 1/15 of the withdrawal.
To make a payment, all you need to do is make a regular deposit to your RRSPs, and file a completed schedule 7 with your tax returns. The following year you will receive an updated statement of your account. You may be exempt from making your regular home buyer plan payments if one of three things occur: you die, you turn the age of 71, or you become a non-resident of Canada.
The home buyers plan and the first-time home buyers plan are great ways that Canadians can purchase there first home and receive there first mortgage. It is critical to take advantage of this program when deciding on making your first home purchase and possibly subsequent purchases if you qualify. When you are planning to purchase a home, make sure that you have deposited enough funds into your RRSP so that you can take full advantage of this program. The tax benefits of using it are extreme and you will not get these opportunities again.
First Time Home Buyers
Posted by Top Home Loans in Mortgage Advice on October 12th, 2008
Having a consistently growing mortgage market, it allows for almost everyone with a job to be able to find a house to live in. In most situations, home ownership is far greater than renting because it will allow you to build equity with every payment. Also, your investment will grow at an exponential rate because the bank will lend you money to leverage your investment.
Mortgage profitability
By reading reports about the consistent growth of house values in Canada, it is easy to see that it is rare for house prices to depreciate in value. Usually, home prices will rise from 3% to 10% annually. When was the last time your rent made you any money? This means that if you are paying interest only, then you will stull make money because your house will up in value. Mortgage payments are comparable to rent payments in most cases. For a 1 bedroom condo in Toronto the price can range from 800 to 1400 a month, and the mortgage payments are in the exact same range. Even if you are paying less for rent then you would if you purchased your own house, then you would still be losing money because the house will likely have appreciated.
Who should buy?
anyone who is considering paying rent payments should be looking into buying. Even if you are a college or university student, you and your parents should be actively looking into short term home ownership and determine if it will be more profitable to buy a property over paying expensive residence fees. Also, it will teach your child responsibility of maintaining there own property. If your child is working a part-time job to pay for school, then you can even generate some of the mortgage payment from them. If you have a full-time job, even if you have little to no savings, then you can still get a mortgage. Even though CMHC has removed 0% down on mortgages, you can still get a lender to pay your down payment for you; however, the interest rate will be a bit higher.
Down Payment and Closing Costs
On most new purchases, you will have to come up with at least 5% of the purchase price to cover the down payment of the property. A down payment is the banks way of verifying that you are serious about home ownership; however, most financial institutions offer programs that allow the buyer to avoid the down payment. The down payment is not the only fee that the buyer will encounter. The buyer will also need to worry about closing costs. These costs include legal fees, land transfer tax, property tax, inspections, appraisals, moving expenses, and all the other costs that come with buying a house. These costs are generally 1.5% of the purchase price and the bank will require that you are able to come up with this money from your own savings before they will approve your mortgage. It is important to plan for even more than the 1.5% of the purchase price just in case other fees come up.
Mortgage Insurance
When purchasing a new house, if you are putting down less than 20%, then the bank will have to apply mortgage insurance to your property. This form of mortgage insurance is used to insure the bank, so if you default on your mortgage, then the bank will not be liable. It is possible for the bank to request you get mortgage insurance even if you are putting more than 20% of the purchase price down on the property. Also, if you are new to Canada or you are self employed, then you could see your premium being much higher, and it would not be unlikely for the premium to be around 6%. It is required, by law, for certain mortgages to have mortgage insurance and the buyer must pay the insurance; however, the insurance can be added to the balance of the mortgage.
Investments, Grants, Loans, and Other Benefits for First Time Home buyers
In many contries, regions, and jurisdictions, governments have setup special promotions involving grants, loans, and other benefits for first time home buyers; however, it does take a bit of searching and a bit of luck. It is similar to if you visit a store, if you know a product will be on sale in the near future, then you won’t buy it, and you will wait to get the lower price shortly. It is like that in the mortgage industry; however, the sale is what existing special promotions are being offered by the government. For example, a first time home buyer was offered a grant for the down payment of a first home purchase as long as they live in the community for a minimum of five years. This is excellent because even if you move, then you are getting a tax free loan until the date that you move, and you are building up equity in the property.
The offers are frequently available; however, you must make sure that you search government pages on a regular basis. Also, phoning your government representatives and asking about these types of promotions is a good idea before house shopping.
For first time home buyers, it is easy to just jump into buying a home without thinking of the benefits or reviewing all the options; however, by taking a bit of time before beginning your home search and reviewing all the details, then you could save yourself a lot of money and a lot of hassle. Make sure that you know what you are getting into before you start the process, for the best advice is the advice you search for, not what you are given.