First Time Buyer
Since it is always good to know what to expect when buying your first home, the following information should help take the guess work and fear out of the process.
The federal government has a Home Buyers Plan and we’ve outlined some of the highlights below.For full details, please go to the Revenue Canada site at and go the Home Buyers Plan section www.cra.arc.gc.ca/.
As a first time buyer, there are a couple of options you can use to help finance your first home. One of the best is that you can currently “borrow” up to $20,000 from your Registered Retirement Savings Plan (RRSP) for the downpayment. (There is a proposed change in the amount to $25,000 in the draft 2009 federal budget). Buyers MUST meet the strict requirements under the Plan in order to qualify, including meeting the definition of a first time buyer, and withdrawals from the RRSP must be repaid over 15 years in order to avoid a tax liability.
You can also make use of the new Tax Free Savings Accounts which has no restrictions for first time home buyers and has no requirement to repay the withdrawal back to your TFSA. But since contributions to TFSA’s are not tax deductible, you may want to decide which vehicle is better for you.
New non-refundable tax credit to help first time buyer’s with some of their closing costs. This Home Buyer Tax Credit (HBTC) will provide up to $750.00 in tax relief on the purchase of a first home. The HBTC is calculated by multiplying the lowest personal income tax rate for the year (15% in 2009) by $5,000. For 2009, the credit will be $750.00.
To qualify for the HBTC, an individual must purchase a qualifying home and neither the home buyer or the home buyer’s spouse or common-law partner can have owned and lived in another home in the year of purchase or any of the four preceding years.
The First Steps
- The first step in the process is to find out how much you can (or want) to spend on a house. Talk to someone who can help qualify you for that purchase. We regularly work with reliable Mortgage Specialists from major banks who can come to your home and do the qualification, usually right on the spot. By a simple calculation of adding your downpayment to the amount of mortgage money the bank can loan you, it's easy to determine how much house you can afford. In preparation for your meeting, have copies of either paystubs or T4's ready and summarize what debts you may have (any loans and/or major credit card balances).
- Take advantage of the knowledge of professional real estate sales people. Choose one you feel comfortable with and let him/her help guide you though the process. A full-time agent knows current market conditions, trends, areas and availability and can help you select a home that is right for you. There is no fee to you for using your agent and in 99% of the cases, commissions are paid for by the seller of the home.
- When you find a home you wish to buy, you will need a lawyer to act on your behalf. To save you money in the long run be sure to choose a lawyer who is familiar with real estate transactions. Ask your agent for the names and numbers of 3 or 4 lawyers you can call. Remember that price shouldn't be the only criteria for selection.
How Much Mortgage Money Can I Get?
As a first-time buyer who has never owned property in the Province of Ontario, you can buy a house with as little as 5% down payment. For mortgages with anything less than 25% down payment, C.M.H.C. will need to insure the money coming from your bank or trust company. There is a small cost for doing this. For mortgage amounts of 95%, the premium is 2.75% of the value of the mortgage. Where the mortgage value is 90%, the premium is 2.0%. It is added directly to the mortgage amount and is figured into your monthly payment. As a little added bonus to you as a first time home buyer, both C.M.H.C. and G.E. Capital have now entirely waived their application fees which represent a savings to you of more than $225. Back to top
How Much Will All This Cost?
- There is a fee of approximately $235 to accompany your application to CMHC (if you need CMHC approval).
- Most financial institutions require a survey or evidence of title insurance before they will advance mortgage funds. If a survey is needed and the seller does not have one in his possession, either you or the seller would cover the cost of the survey. Surveys can cost anywhere from about $700 to $1000 plus GST. Title insurance is approximately $250.
- If you have made your offer conditional upon a building inspection, the cost of the inspection complete with written report is somewhere in the neighbourhood of $300 plus GST. Ask your realtor for a list of 3 or 4 companies you can call.
- On day of closing, you will need to have your new property insured. Once your deal is done, contact your insurance agent and provide required information. You will be provided with premium details and costs. Mortgage or life insurance to cover the value of the mortgage is a good idea.
- You will need the services of a lawyer. Fees will vary starting at about $600 currently plus disbursements (the other associated costs borne by the lawyers on your behalf) plus any adjustments that might be needed to prepaid taxes or utilities which will be added to the total cost. A reminder: GST is added to the services provided by your lawyer.
- Land Transfer Tax is paid on all property changing hands in the Province of Ontario. The Purchaser pays a stated amount based on the purchase price of the property he or she is buying. See the summary on the next page for specific costs.
- Appliances can sometimes be negotiated into the sale. If this is not the case, budget for the purchase of major appliances. The same applies to draperies and other types of window coverings.
- Associated moving costs will be the rental of a truck or the hiring of a company to move, depending on your situation. Costs vary greatly from very little to several thousands of dollars. Back to top
Who? Me? worry?
The whole process can be both exciting and terrifying. But once you've made the decision and chosen competent professionals to help, the purchase of your new home can be a rewarding (even fun!) experience. Just remember -- be realistic in 2 areas:
- Financial - DON'T MARRY YOUR MORTGAGE - Be comfortable with what you are spending. There ARE other things in life besides paying your mortgage. Remember to set aside 2% of the purchase price (made up of moving expenses, appliance purchases if necessary, etc.) to cover your closing costs
- Expectations - Unless you've got lots of money, you won't be able to afford what Mom and Dad have. Those things usually come a little later down the road. Back to top
- LAND TRANSFER TAX TABLE
- Effective June 1, 1989
- $5.00 per $1,000 up to $55,000
- $10.00 per $1,000 from $55,000 to $250.000
- $15.00 per $1,000 over @250,000
- add $5.00 per $1,000 over $400,000
- (where property contains one or two single family residences.)
