Find us on Google+ Google+

Tuesday, July 4th, 2017

First Time Home Buyers


Relax, we’ll make buying your first home easy. Doing anything for the first time can be scary — especially when it’s something as big as buying a house! But don’t worry, we will provide you with all the information, advice, assistance and reassurance you need, every step of the way.

To help you feel prepared and informed, here are some of the steps involved in buying a house. If there’s anything you’re unsure about, please don’t hesitate to talk us. We’re prepared to do everything we can to make things proceed smoothly, quickly and effortlessly.

Selecting the Right Mortgage

Conventional vs.
High-ratio Mortgages

A conventional mortgage requires a minimum down payment of 20% of the purchase price or appraised value of the property, whereas a high-ratio mortgage requires a minimum down payment of 5%. If you’re buying a home and are borrowing more than 80% of the home’s value, the mortgage must be insured. This insurance protects the lender against borrower default, and enables them to give you mortgage financing for the purchase of a home with a small down payment. Mortgage default insurance can make a big difference in how quickly your mortgage loan is approved.
Closed vs. Open Mortgages
Closed mortgages usually offer lower interest rates than open mortgages of the same term, but open mortgages let you pay off as much as you want, at any time,without penalty.

Short Term vs. Long Term
The term you select is important. Short term mortgages are appropriate if you believe interest rates will be lower at renewal time. Long term mortgages are suitable if you feel current rates are reasonable and you want the security of budgeting for the future. This is especially important for first time homebuyers.
Fixed Rate vs. Variable Rate
You can choose a fixed or variable interest rate. A fixed rate mortgage allows you to budget precisely for whatever term you select because your payments will remain the same every month. A variable rate mortgage fluctuates with the market.

Mortgage Life Insurance

Help insure you’ll always have a home. Seriously consider mortgage life insurance. The cost is low and can be incorporated into your mortgage payments. In the event of death, terminal illness, or permanent disability, your balance will be paid in full (the maximum varies among financial institutions). Quotes are available with each approved mortgage.
You never know what the future might bring, so it pays to be prepared. That’s why your Mortgage Specialist always recommends mortgage insurance with every new mortgage. The Dominion Lending Centres’s exclusive Mortgage Protection Plan protects your family home should something happen to you or your ability to earn a living.
This convenient insurance package pays your mortgage balance in the event of your death. You can also choose coverage that continues paying up to 100% of your monthly payments for up to one year if you were to become totally disabled and unable to work for 60 days or more.
Our life coverage or life-and-disability coverage is very affordable because premiums are calculated on special group rates, and non-smokers save even more. Anyone is eligible to apply as long as you’re working or medically capable of working. While life-and-disability coverage is available only at the time of mortgage funding, life coverage can be added to any existing Dominion Lending Centres mortgage.
For more information about mortgage insurance, contact us today.

Affordability and Financing

Thoroughly review your current income and expenses. How much will your new mortgage add to your monthly expenses? Before you embark on your housing search, get a mortgage pre-approval, especially if you’re a first time buyer. A mortgage pre-approval lets you know how much money you qualify for, so you can shop in comfort.

Lenders determine affordability by looking at your Gross Debt Service ratio (GDS) and your Total Debt Service ratio (TDS). The GDS ratio is based on what you can afford to pay each month; it includes mortgage payments, taxes and heating. The TDS ratio includes everything covered under GDS plus all your other financing obligations. We can help you do a complete analysis based on net income and projected budgets to determine what you can afford.

We will also go over closing costs with you, like land transfer taxes, legal fees and other disbursements. A good rule of thumb is to budget about 3% of the purchase price for closing costs. And don’t forget: if you buy a new home from a builder, you’ll pay 5% GST on the total purchase price.

Before you’re pre-qualified, we will run a credit bureau report on you and ask for written confirmation of income and how much you plan to put down on your purchase.

Once you’re pre-qualified, the interest rate is guaranteed for 60 to 120 days from the time of your application. If rates drop, you’ll get the lower rate; if they rise, you’re covered. And just because you pre-qualified by a certain financial institution, you’re by no means committed to that lender. We’ll shop the market to get you the best possible deal!

Prepayment Privileges

Financial institutions vary in their prepayment privileges, which let you pay down your mortgage faster. Our best advice: research your options! Also be aware that the longer the amortization period (the time it takes to pay off a mortgage), the more interest you’ll end up paying. Amortization periods range from five to 35 years.

Biweekly instead of monthly payments could shave as much as eight years and $38,000 off a $100,000 mortgage, depending on current interest rates.

Another option to consider is portability. If you decide to sell your home and buy another, you should be able to take your mortgage with you or transfer it to the buyer of your home without penalty. This can be a major advantage if your mortgage rate is below current market rates.

Property Purchase Tax

Property Transfer Tax

You pay property transfer tax each time you register a property at the Land Title office.

The First Time Home Buyers’ Program

If you are purchasing your first home, you may qualify for an exemption from property transfer tax if certain requirements are met.

What are the Requirements?

Purchaser

You qualify for the exemption if:

  • you are a Canadian Citizen, or a permanent resident as determined by Immigration Canada,
  • you have lived in British Columbia for 12 consecutive months immediately before the date
  • you register the property, or you have filed 2 income tax returns as a British Columbia
  • resident during the 6 years before the date you register the property,
  • you have never owned an interest in a principal residence anywhere in the world at anytime,
  • and you have never received a first time home buyers’ exemption or refund.

Property

The property you purchase qualifies if:

  • the fair market value of the property is not more than the current threshold of $425,000,
  • the land is 0.5 hectares (1.24 acres) or smaller, and
  • the property will only be used as your principal residence.

If the property does not meet all of these requirements, you may still qualify for a partial exemption.

How do I apply for an exemption?

You apply for the exemption when you register the property at the Land Title office.

Generally, a lawyer or notary public registers the property and applies for the exemption on your behalf.

The Land Title office sends your application to the Ministry of Small Business and Revenue to verify your eligibility.

Make sure you do not apply for the exemption if you have owned an interest in a principal residence anywhere in the world at anytime. If you do this, you will be assessed for the tax due and an additional penalty equal to the tax due.

If you do not apply for the exemption when you register the property at the Land Title office, you can apply for a refund of the property transfer tax you pay within 18 months of the date you register the property.

What are the requirements to keep the exemption?

You need to occupy the property within 92 days of the date you register the property and continue to use the property as your principal residence for at least 1 year after you register the property.

If the land is vacant when you purchase the property, a principal residence needs to be built on the property within 1 year of the registration date, and you need to reside on the property for the remainder of that year. The fair market value of the land, plus the cost of building any improvements on the land cannot exceed the current threshold of $425,000.

The ministry will send you a letter at the end of the first year you own the property. If your property purchase was registered on, or after, February 20, 2008, the letter will ask you to confirm that the property is still your principal residence. If your property purchase was registered before February 20, 2008, the letter will ask for details of your financial account(s) that you have registered against your property from the date of registration until February 20, 2008.

If your property purchase was registered before February 20, 2008, and you paid down your mortgage before February 20, 2008, there are limitations on how much of your financing you can pay down. It is your responsibility to make sure the ministry receives all of the necessary information. If the ministry does not receive the information, you will be assessed for the property transfer tax due.

RRSP Home Buyers’ Plan

What is the HBP?

The RRSP Home Buyers’ Plan (“HBP”) is a federal government program tha allows first time home buyers to currently withdraw up to $25,000 (the “Contribution”) from their RRSP to use in the purchase of their first home.
To qualify as a first time home buyer, the buyer may not have owned, or lived with a spouse or common law partner who owned, a principal residence beginning January 1st of the 4th year before withdrawal and ending 31 days before withdrawal.

How does it work?

A first time home buyer can withdraw up to $25,000 from his/her RRSP towards the purchase of a home. If the buyer is purchasing the home with a spouse who is also a first time home buyer, they can both withdraw $25,000 each from their RRSP accounts.

Some conditions of the HBP:

  • The buyer MUST be a first time home buyer and a resident of Canada at the time of withdrawal. The buyer MUST purchase or complete the build of the home before October 1st of the year following the withdrawal.
  • Only RRSP contributions made 90 days before the withdrawal date may be used towards the Contribution.
  • The buyer must intend to occupy the home as his/her principal place of residence no later than one year after buying or building it. Once he/she occupies the home, there is no minimum period of time in which he/she has to live there.

The buyers must repay the Contribution to his/her RRSP in annual installments equal to 1/15 of the Contribution amount, commencing the second tax year after the withdrawal and continuing thereafter for a period of fifteen years until the Contribution has been fully repaid to the buyer’s RRSP account. If the buyer does not repay the annual installment in any given year, that amount due to be repaid will be added to the buyer’s income for the year and taxed as such.
Further information can be found on the CRA website here: http://www.cra-arc.gc.ca/E/pub/tg/rc4135/rc4135-e.html

For more information, look at CMHC’s Step by Step Buying Guide.

SEO Powered By SEOPressor