Are you a first time home buyer?

Are you a First Time Home Buyer?  Do you have questions?  Below, we have written down some information for you so you can start educating yourself on buying your first home.

Purchasing a home is quite an exciting time! It can also be a stressful one, being that a home will most likely be the biggest purchase of your life. Real estate is typically a great investment and can be a vital part of your financial security. All the questions surrounding the purchase of a home can seem overwhelming:

How much can I afford?

How much of a down payment do I need?

How much are closing costs?

What is Mortgage Insurance?

Let Be Mortgage Wise educate you so you have the right information you need to make your home purchase as easy and stress free as possible.

Should I Rent or Buy?
Becoming a homeowner may be more affordable than you think. For what you are paying in rent, you could be a homeowner building equity! Why pay someone else’s mortgage when you can be paying down your own? Have Be Mortgage Wise take a look at your current financial situation to see what is in your best interest.

Qualifying for a Mortgage?
The biggest mistake that homebuyers can make is buying the most expensive home they qualify for. There are several other expenses you will need to budget for on top of your mortgage payment, for example property taxes, utilities, insurance premiums, and common expenses. We don’t want to see you house poor. With our knowledge and expertise we can guide you into the most comfortable affordability bracket so you can ‘house shop’ with confidence.

Lenders qualify you based on your gross income prior to any taxes or other deductions being taken off.
Most lenders will allow you to use 35% of your combined gross income for housing costs, including principal, interest and property taxes (P.I.T.) plus heating costs of $50 per month. This ratio is known as Gross Debt Service Ratio (GDS).

When all of your other remaining fixed debt payments are added in (car loans, credit card payments etc.) the total, including your housing costs should not exceed 42% of your combined gross income. This is known as Total Debt Service Ratio (TDS). If your credit score is above 680, some lenders will qualify you on your TDS of up to 44%.

Down Payment options
In order to purchase a home you need to have a minimum down payment of at least 5% of your home purchase price. This means that the maximum loan to value cannot exceed 95%. Any loan to value 80.1% or higher is known as a High Ratio Loan to Value. High Ratio mortgages are subject to mortgage default insurance
A conventional mortgage down payment is 20% of the value of the home, or 80% Loan to Value maximum. No default insurance is necessary with conventional mortgages.

There are several down payment options:
• Savings
• Gift
• Flex-Down Mortgage
• RRSP 1st Time Home Buyers Plan
Savings: You are required to show proof of the source of the funds, for example 3 months history in your bank account or an investment certificate.

Gift: Only immediate family members, i.e. Father, Mother, Grandparents, Brother, Sisters, Aunt, and Uncle are acceptable sources of gifted down payment. Both parties will be required to sign a gift letter that states that the funds are a gift and there is no repayment plan, the relationship between the parties, the address of the purchased property, the amount of the gift, and sometimes the source of the funds used to make the gift. You will need to show proof of the gift money deposited.

Flex Down Payment Mortgage: Flex down payment mortgages allow you to borrow the required 5% down payment from a credit source other than the lender who will hold the first mortgage. The source can be a credit card, loan or line-of-credit. This is known as a non-traditional source of down payment and must be disclosed. The payment of the loan will then be included into your total debt service ratio (TDS).

RRSP Home Buyers Savings Program: You can borrow/withdraw up to $25,000 from your RRSP ($50,000 for a couple) in the tax year in which you buy or build a qualifying home. You must comply with the conditions governing the plan, This withdrawal is not taxable.
• You must be a first time homebuyer or you (or your spouse or common law spouse) must not have owned a home that you occupied in the last five (5) years. Provided you satisfy all requirements, you may re-activate the program. Before withdrawing RRSP funds, you must have a written agreement to purchase a home.
• You must use the home as your principal residence in Canada within one year of completing the purchase.
• You must be a resident of Canada for the period between the date of withdrawal of RRSP funds and the closing date of the house purchase.
• The home can be new from the builder or a resale.
• At the time of the RRSP withdrawal, you must not owe any money to your RRSP for a prior borrowing from RRSP to buy a home.
• RRSP funds must have been on deposit for at least 90 days before they can be used under the program.
• RRSP funds cannot be withdrawn later than 30 days after the house purchase is completed. If multiple withdrawals are made, they must be made in the same calendar year or in January of the next year at the latest if the house was purchased in December.
• The funds can be applied to the down payment, land transfer tax, legal fees and disbursements, improvements to the home, even furniture and appliances.
• After an initial grace period of the year in which the withdrawal was made (plus one more full calendar year), you are required to pay back the funds borrowed (beginning in the second year following the year of withdrawal) over a period of 15 years by depositing 1/15th of the amount withdrawn, annually to your RRSP.
For more information visit the Home Buyers’ Plan (HBP) at the Canada Revenue Agency web site at http://www.cra-arc.gc.ca

or call Revenue Canada at 1-800-959-8281.