Buyer’s FAQs
Subject to qualification, yes. In fact, even purchasers with 5% down may qualify to buy a home and make improvements to it. For high-ratio financing, both Canada Mortgage and Housing Corporation and GE Capital insured mortgages are available to cover the purchase price of a home as well as an amount to pay for immediate major renovations or improvements that the purchaser may wish to make to the property. This option eliminates the need to finance the renovations or improvements separately. Some conditions apply.
Where the improvements are cosmetic, the mortgage loan insurance premium is unchanged from the standard schedule. Where the improvements are deemed to be structural, the mortgage loan insurance premium is increased by .50% over the standard schedule. For information on mortgage loan insurance premiums see high-ratio home mortgage financing.
Most lenders will accept down payment funds that are a gift from family as an acceptable down payment. A gift letter signed by the donor is usually required to confirm that the funds are a true gift and not a loan. Where the mortgage requires mortgage loan insurance, Canada mortgage and housing corporation requires the gift money to be in the purchaser’s possession before the application is sent in to them for approval. Where mortgage loan insurance is provided by GE Capital this is not a requirement. See ‘what is mortgage loan insurance?’ for further information.
Yes. The federal government allows first-time buyers to use up to $25000 withdrawal in a calendar year from their RRSP with a payback period of up to 15 years under the Home Buyers’ Plan.
Yes. Skipping the inspection can mean you’re stuck with a property that needs repairs that weren’t disclosed by the seller, or the seller wasn’t aware of.
Most lenders now offer insured mortgages for both new and resale homes with lower down payment requirements than conventional mortgages – as low as 5%. Low down payment mortgages must be insured to cover potential default of payment, and their carrying costs are therefore higher than a conventional mortgage because they include the insurance premium.
With all low down payment insured mortgages, you are responsible for:
Appraisal and legal fees
An application fee for the insurance
Paying the mortgage default insurance premium, although the amount of the premium may be added to the mortgage amount.
There are numerous ways to reduce the number of years to pay down your mortgage. You’ll enjoy significant savings by:
Selecting a non-monthly or accelerated payment schedule
Increasing your payment frequency schedule
Making principal prepayments
Making double-up payments
Selecting a shorter amortization at renewal
The simplest way to accomplish this is to decrease your principal; thus, decreasing your interest obligation. There are a number of very feasible approaches to performing this task:
Increase Payment Frequency
Instead of paying monthly, consider paying bi-weekly. This simple step is very feasible for most working Canadians who are paid bi-weekly. It can cut your mortgage amortization by up to five years, and can save you tens of thousands of dollars.
Prepay
Use every advantage that the term of your mortgage offers you to prepay your mortgage. One way to do this would be to use your RRSP tax refund to make a yearly pre-payment.
Increase Payments
Round up your bi-weekly payment. For example, if you have a bi-weekly payment of $531.59, round your payment to an even $550.00. This will have a profound effect on the interest paid, and the amortization of the mortgage.
Today, about 50% of first-time home buyers use their RRSP savings to help finance a down payment. With the federal government’s Home Buyers’ Plan, you can use up to $20,000 in RRSP savings ($40,000 for a couple) to help pay for your down payment on your first home. You then have 15 years to repay your RRSP.
To qualify, the RRSP funds you’re using must be on deposit for at least 90 days. You’ll also need a signed agreement to buy a qualifying home.
Even if you have already saved for your down payment, it may make good financial sense to access your savings through the Home Buyers’ Plan. For example, if you had already saved $20,000 for a down payment – and assuming you still had enough “contribution room” in your RRSP for a contribution of that amount you could move your savings into a registered investment at least 90 days before your closing date. Then, simply withdraw the money through the Home Buyers’ Plan.
The advantage? Your $20,000 RRSP contribution will count as a tax deduction this year. Use any tax refund you receive to repay the RRSP or other expenses related to buying your home.
While using your RRSP for a down payment may help you buy a home sooner, it can also mean missing out on some tax-sheltered growth. So be sure to ask your financial planner whether this strategy makes sense for you, given your personal financial situation.
If you visit AboutMyProperty, you can check your property taxes, see how MPAC has assessed your property, and how your property compares to others in the neighbourhood.
Depending on the circumstances surrounding your bankruptcy, generally lenders would consider providing mortgage financing.
You need to consider a home inspection ($350 or more), a real estate lawyer ($1,500 or more), home appraisal ($350 or more), property & title insurance & land transfer tax.
To determine ‘affordability’ you will first need to know your taxable income along with the amount of any debt outstanding and the monthly payments. Assuming it is a principal residence you are purchasing, calculate 32% of your income for use toward a mortgage payment, property taxes, and heating costs. If applicable, half of the estimated monthly condominium maintenance fees will also be included in this calculation. Second, calculate 40% of your taxable income and deduct all of your monthly debt payments, including car loans, credit cards and lines of credit. The lesser of the first or second calculation will be used to help determine how much of your income may be used towards housing related payments, including your mortgage payment. These calculations are based on lenders’ usual guidelines. In addition to considering what the ratios say you can afford, make sure you calculate how much you think you can afford. If the payment amount you are comfortable with is less than 32% of your income you may want to settle for the lower amount rather than stretch yourself financially. Make sure you don’t leave yourself house poor. Structure your payments so that you can still afford simple luxuries.
According to the guidelines of the Canadian Mortgage and Housing Corporation (CMHC), one must have a minimum down payment of at least 5% of the total cost of the prospective property. With a down payment between 5 – 24.99%, one’s mortgage is deemed “high-ratio”. A high ratio mortgage is subject to a CMHC premium in accordance with the following schedule:
With a down payment of 25% or greater, the mortgage is deemed “conventional”. A conventional mortgage is not subject to any CMHC fees. Thus, a larger down payment represents a two-fold advantage to the prospective homebuyer. First, the prospective homebuyer will avoid CMHC premiums with 25% down payment. Secondly, a larger down payment will relate into smaller monthly payments, or a shorter amortization; both of which lead to interest savings over the life of the mortgage.
Yes, you can buy a home with a down payment of less than 10%:
Single-family dwelling: 5%
Two-unit dwelling: 7.5%
Minimum equity of 5% from your own resources is required. Gift down payments from an immediate relative are acceptable.
Maximum house price ceilings apply for 5% down payment. Limits of $125,000, $175,000 or $300,000 apply to locations throughout Canada.
You can put down as little as 5 per cent on a house, but under 20 per cent you need to qualify with a mortgage insurer such as CMHC or Genworth and pay a fee.
Table of Insurance Premiums
Loan amount (Relative to Home Equity) CMHC Fee
Up to and including 65% 0.50%
Up to and including 75% 0.65%
Up to and including 80% 1.00%
Up to and including 85% 1.75%
Up to and including 90% 2.00%
Up to and including 95% 3.25%
If you visit AboutMyProperty, you can check your property taxes, see how MPAC has assessed your property, and how your property compares to others in the neighbourhood.
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