First-Time Home Buyer: RRSP, Tax Credits & Other Benefits
Let’s start with what a mortgage is and how you can get one as a first-time Home buyer.
A mortgage is a type of loan Canadians can put towards purchasing a Home. The loan consists of monthly payments that include interest and the principle amount. The payment amount is based on the purchase price of your Home, and the interest rate on your mortgage.
As you start to pay your monthly payments, your mortgage, slowly but surely, starts to decrease. Your house is basically collateral. This means the mortgage lender has the right to seize your Home if you stop making your payments.
You can first apply for a mortgage using a mortgage broker. They act as an intermediary between you and the lender. You also have the option to directly contact the mortgage lender yourself to get things going.
Lender, Broker vs. Real Estate Agent Explained!
When considering living in another Home, it can be very exciting for yourself and your partner. However, it is important to understand that the cost of the property isn’t just about the initial purchase price.
A functioning Home includes property taxes, utility fees, appraisal costs, title insurance, furniture, and other upgrades you want done to your Home.
What is a HBP?
The Home Buyers’ Plan (HBP) allows prospective buyers to withdraw up to $35,000 from their Registered Retirement Savings Plan (RRSP) toward the down payment of the house, without any tax penalties.
This is considered a loan from your retirement fund therefore it should be repaid within 15 years. If you are interested in claiming this credit, you must place a request through the T1036 tax form.
A down payment is the initial sum of money you have to pay in order to get your Home. The amount of your down payment depends on the purchase price of the house and how much you can afford to put down.
Down payment for first-time Home buyers:
If you are located in Canada, there is a minimum 5% down payment on a house costing up to $500,000. If your new home has a higher purchase price, you will need a higher percentage down payment. Whether or not you can afford the down payment is a good indicator if you can afford to buy that specific Home.
If the Home you are looking at requires you to take out a loan on the down payment alone, you may be looking at a house that is out of your budget.
You are legally obligated to buy insurance for your mortgage from the Canadian Mortgage and Housing Corporation (CMHC) if you are putting less than 20% down on your Home. This insurance fee means an extra payment on top of your mortgage from the year of acquisition until the end of your amortization period.
What is a HBTC?
The Home Buyers’ Tax Credit (HBTC) is a non-refundable tax credit that allows first-time Home buyers to claim a tax refund of up to $750 in the year that they purchase a Home.
In order to claim the credit, you, your spouse or common law partner have to file for the HBTC through the Canada Revenue Agency (CRA) website.
Does a first-time Home buyer need Home insurance?
Not only does Home insurance guarantee protection for you and your Home from incidents such as a fire, robbery, wind damage, vandalism, etc., but it also improves your chances of being approved for a mortgage.
Lenders like to see insured Homes because it is less risky for them to fund. The cost of Home insurance depends on your level of coverage, age, size, condition of your property and other neighbourhood factors. You can often contact your insurer and receive a reasonably priced bundle for auto and Home insurance.
Where do I start to shop for my future Home?
Do your research right away; start reading websites, newspapers, and magazines that have real estate listings. Figure out the type of Home you’re looking for and take note of how long the properties are listed for and for how much.
Decide on a strict budget that best suites your current financial situation and how much mortgage you can actually afford. At this stage, it may be a good idea to enlist a real estate agent into your Home buying plans. The agent can help you look for your dream Home while making the process a whole lot smoother, especially for a first-time Home buyer. A real estate agent doesn’t cost anything upfront, however, they do make commission based on the sale of your house. Once you and your agent have found the perfect Home for you, an initial offer can be made.
Have more questions? Still a little confused? Not too worry, please feel free to send us an email with your first-time Home buying concerns.
Take a peek below at some of our infographics we created for your benefit.