First Time Home Buyer Alberta Down Payment
How do I receive money for my down payment?
As a first time Home buyer, you will have to come up with the cash for a down payment. The amount you will have to pay is determined by many different factors including property value, the amortization period, the mortgage rate whether a fixed rate or a variable rate as well as the percentage of your down payment.
Provincial housing regulations in Alberta state that the minimum amount you need to put down for your down payment is 5% of the value of the Home, however, if your down payment is less than 20%, you are required to purchase default insurance.
This insurance is provided by the Canada Mortgage and Housing Corporation (CMHC). To receive this insurance, a lender will pay a premium.
This cost will then eventually get back to you. With the insurance included, you will have a better idea of what your monthly mortgage payments will look like.
FYI: There is an opportunity to receive up to 25% of your premium refund if the insurance goes towards financing an energy-efficient Home.
Here are some of your options:
Home Buyer's Plan
You can also utilize the Home Buyers' Plan which is exclusively for first time home Buyers that allows you to take up to $25,000 out of your RRSP tax-free. This is a Canadian government initiative that gives a helping hand to millennials trying to purchase a house.
It is an option to receive the entire 5% down payment gifted by a family member. As the gifter, they will have to sign a letter which has:
- The exact dollar amount they will be giving away
- A statement that their money is a gift and it will not be repaid by the recipient
- The address and phone number of the gifter for the lender to contact for verbal verification that their gift is legitimate.
Since this gift is provided by the hands of someone else, you will need to shine in different parts of your mortgage application.
Home Buyers' Tax Credit (HBTC)
The Home Buyers' Tax Credit (HBTC) is a non-refundable tax credit for first-time Homebuyers looking to purchase property.
How is this tax credit calculated?
This credit multiples the lowest personal income tax rate for the year by $5,000. If the total of tax credits is higher than your federal income tax, you will NOT receive a refund for the HBTC.
How can I receive the HBTC?
In order to qualify for the Home Buyer's Tax Credit you will need to obey the following:
- You as the applicant along with your spouse or common-law partner have approval for a qualified Home
- You did not live in another Home officially owned by yourself, your spouse or common-law partner in the year of purchase or in the previous four years
When paying off a credit card, line of credit or an overdraft, you will have to keep in mind that there are two ways you can narrow down your debt efficiently and with speed.
The Snowball Method
You will make minimum payments on all your credit items EXCEPT for the product with the lowest balance. You will put extra money onto that card, line of credit, overdraft, etc. in order to pay it off first. Once it is completely paid off, repeat the pattern by paying off the lowest and paying minimum to the others. This method evidently shows how fast you can get one debt out of the way with strategic spending habits.
The Avalanche Method
You will make minimum payments on all your credit items EXCEPT for the product with the highest interest. After it is paid off, you will continue to target the next product with the highest interest while paying minimum on the others until you are debt-free!
Downsize Anyway You Can
Come up with different. realistic ways you are able to cut back in order to save money. This may be:
- Canceling subscriptions/memberships you don'to often (gym, meal kits, Netflix, Hulu, Amazon, etc.)
- Cut back on your mobile phone/internet plans
- Limit your utility usage (heat, A/C and gas)
- Get rid of a vehicle in exchange for a transit pass
- Stop your leisure spending (eating at restaurants, going to movies, shopping, vacations, etc.)
Utilize Your Bank Accounts
Tax-Free Savings Account (TFSA)
Any money you add into this account will be completely tax-free with no obligation to pay income tax. If you store your down payment in your TFSA, you can take it out and use it anytime with no restrictions.
Talk to your financial advisor about placing a percentage of your earnings, bonuses, commissions or tax refunds into your TFSA automatically with online banking.
Earn Extra Cash
Side hustles allow us to earn side income while focusing on main priorities. You can easily do this by:
- Trading/selling worn clothes to a consignment shop
- Selling miscellaneous items on online platforms (Kijiji, Facebook Marketplace, eBay, etc.)
- Listing yourself as a local dog walker
- Apply to a be food-delivery service like Skip the Dishes or DoorDash
- Become an Uber driver
To estimate how much your down payment will be, please visit our mortgage calculator for more detailed information. Our calculator is for research/informational purposes only.