First-Time Home Buyers FAQ

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I had the pleasure of being a panelist on a first-time homebuyer seminar last week. It became more apparent that even with the abundance of information available, it’s still an overwhelming process to purchase your first home. I thought it would be worthwhile to compile a list of commonly asked questions with simple, bite-sized answers. It’s important to note this is a jump-off point so please don’t hesitate to reach out if your question isn’t covered below:

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What is a down payment and where do I get it from?

- A down payment is the amount you put towards the purchase of your home (refer to the first question for minimum down payment requirements)

- Typically, you can put together a down payment from the following sources:

---- Personal Savings

---- TFSA/RRSP/Investment Accounts

---- Gift from an immediate family member

- With the exception of a gift, you must be able to demonstrate a minimum 3-months history of you being in possession of the funds (just to prove that you’re not laundering money!)

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Do I need to put 20% down?

- As long as the purchase price or value of your home is less than $1M, you are allowed to put less than 20% down as long as you qualify

- If you’re putting less than 20% down, the minimum required down payment is:

---- 5% on the first $500K of the value/purchase price ($25,000)

---- 10% on the value/purchase price between $500K -$1M (up to $50,000)

---- Example: If my purchase price is $600K, my minimum down payment would be:

-------- $25 K on the first $500K and

-------- $10K on the next $100K

-------- My total down payment $35K

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What information does the bank use when qualifying me fora mortgage?

- Your gross household income

- Your total debts and monthly payments towards those debts (i.e. car loan, line of credit, student loan, credit card, etc.)

- Any property related expenses (i.e. property taxes, heat, maintenance fees, mortgage payments, etc.)

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What documents are required when applying for a mortgage?

- Your most recent paystub

- An employment letter

- Notice of Assessments for the past 2 years (if we’re including bonus income)

- Proof of down payment (usually in the form of banks/investment statements or a gift letter)

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What first-time home buyer programs are available?

- RRSP Home Buyer Program

---- When purchasing your first home, the government allows you to borrow up to $35,000 tax-free from your RRSP for each applicant.The catch? You simply need to repay the borrowed funds over 15 years from the date you. borrowed it. You must start payments back to your RRSP within 2 years of purchasing your home.

- Land Transfer Tax Rebate

---- Depending on the province and municipality you live in, you may be charged a land transfer tax when purchasing a home. It's typically the largest portion of your closing costs. As a first-time homebuyer, you may be entitled to a rebate that covers either a portion or the entire land transfer tax cost.

- Shared Equity Program

---- The government program is designed to help qualified first-time home buyers reduce their monthly mortgage payments without adding to their financial burden. The government will contribute between 5%-10%of the purchase price as a down payment, and you are expected to repay the amount (relative to the value of the home) in 25 years or when the property is sold (whichever comes first).

- GST/HST Rebate

---- You can receive a tax rebate if you purchase anew home, substantially renovate an existing home or rebuild a home due to afire. In any of the cases listed above, you will be require to pay GST/HST, after which the government will rebate the GST portion to all Canadians who qualify.

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What qualification is required for a pre-construction home?

- Requirements for qualification depend on the builder when purchasing a pre-construction home

---- Some require no pre-approval/approval at all

---- Some require a full commitment/approval from a lender

---- Some require just a pre-approval showing you qualify for up to 80% of the purchase price

- Most builders have a staggered deposit structure that requires 20% of the purchase price to be placed as a deposit over a period of time up until the home is completed

- It’s a good idea to reach out to a mortgage broker up to 6-months in advance of your home closing to start reviewing options (the earlier the better!)

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What if I don’t qualify for my dream home? Do I just wait?

- Historically, the market will always continue to trend upwards

- Don’t try to “time” the market – no one has a crystal ball

- Think about your personal goal and objective –If it’s to achieve home ownership, it’s always the right time to take the plunge

- If you can’t afford your dream home, start off with a “starter” home, build equity, and use your first home to chart a path towards your dream home in the future

Got a question? Don’t hesitate to reach out. Always happy to help!