4 Critical Things First Time Home Buyers Need to Know

Navigating the process of purchasing your first home can feel overwhelming. There’s a lot to know and a lot to remember.  Here are 4 important things all first-time home buyers should be aware of before jumping into their real estate search:

1.) Minimum Down Payment Requirements:

A down payment is the percentage of your home’s purchase price that you pay up front when you close on the property.  The higher your down payment, the less you need to borrow from your lender and the lower your monthly mortgage payment.

The minimum amount required for your down payment depends on the purchase price of your home:

Example #1:

-Purchase Price: $500,000

-5% of the first $500,000: $500,000 X 5% = $25,000

-TOTAL DOWN PAYMENT REQUIRED: $25,000

Example #2:-Purchase Price: $900,000

-5% of the first $500,000: $500,000 X 5% = $25,000

-10% of the remaining $400,000: $400,000 X 10% = $40,000

-TOTAL DOWN PAYMENT REQUIRED: $25,000 + $40,000 = $65,000

It’s important to understand how much money you’ll need to have set aside for your down payment before starting your search, so that you’re looking in the right price range, but this isn’t the only consideration.  Even if you can afford to purchase a home at a specific price point, the next question becomes, should you.  It’s critical to know what your monthly mortgage obligations will be, plus property taxes, plus condo fees (if applicable), plus utilities, plus all other monthly obligations, etc. so that you aren’t feeling stretched financially.

For more info you can visit: https://www.canada.ca/en/financial-consumer-agency/services/mortgages/down-payment.html

2.) RRSP Withdrawal as a First Time Buyer:

As a first-time buyer, you could potentially be eligible to withdraw up to $35,000 from your RRSPs tax free for your down payment. 

The following conditions must be met to qualify:-You must be considered a first-time buyer.

-You must have a written agreement to buy or build a qualifying home, either for yourself or for a related person with a disability.

-You must be a resident of Canada when you withdraw funds from your RRSPs and up to the time a qualifying home is bought or built.

-You must intend to occupy the qualifying home as your principal place of residence within one year after buying or building it. If you buy or build a qualifying home for a related person with a disability, or help a related person with a disability to buy or build a qualifying home, you must intend that the related person with a disability occupies the qualifying home as their principal place of residence.

Note that the borrowed funds must be repaid within a 15-year period.

More info on how to participate in the Home Buyer’s Plan can be found at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan/participate-home-buyers-plan.html.

3.) Loan Insurance Requirements For less than 20% Down Payments

If your down payment is less than 20% of the price of your home, you must purchase mortgage loan insurance.  The premium you pay will depend on the amount of your down payment. The bigger your down payment, the less you pay in mortgage loan insurance premiums. 

Find premiums based on the amount of your mortgage at https://www.cmhc-schl.gc.ca/en/consumers/home-buying/mortgage-loan-insurance-for-consumers/cmhc-mortgage-loan-insurance-cost

4.) Land Transfer Taxes:

As first- time home buyers, you may qualify for a rebate on both the provincial and municipal land transfer taxes.  To qualify for a rebate, you must meet the following requirements:

-You must be at least 18 years old.

-You must occupy the home as their principal residence within nine months of the date of transfer.

-You cannot have ever owned an eligible home, or an interest in an eligible home, anywhere in the world, at any time.

-If you entered into an agreement of purchase and sale before December 14, 2007, the home must be a newly constructed home and you must be eligible for the Tarion New Home Warranty.

-If you have a spouse, the spouse cannot have owned an eligible home, or had any ownership interest in an eligible home, anywhere in the world, while he or she was your spouse. If this is the case, no refund is available to either spouse.

-Restricted to Canadian citizens and permanent residents of Canada.

I know this is a lot to take in and digest. So, if you have any follow-up questions, please don’t hesitate to reach out. I’m happy to help.