Mortgages for first-time homebuyers
If you’re thinking about purchasing your first home one of the first steps should be to take advantage of the wealth of experience a seasoned mortgage agent provides.
Unlike the limited options at traditional banks, a mortgage agent has relationships with many different lenders. This means they can find you the mortgage plan best suited to your needs by negotiating on your behalf with more lenders… including multiple banks.
The best part about working with a mortgage agent is that since their fees are paid by the lender, there is no cost to you.
Your mortgage agent can also guide you step-by-step through the home buying process, and provide access to rates you might not find at a bank, starting with some key considerations to help you qualify for your mortgage loan.
Understanding how much mortgage you can qualify for
Buying your own home is a dream most of us have. One thing that is important to keep in mind is not to “overbuy” on your first property. If you can comfortably afford a condo, try to avoid stretching yourself too thin buying a detached home if it will cause undue financial hardship or stress. You want to find a comfortable mortgage amount, which might mean starting small and working your way up.
Remember, some lenders will approve you for more than you need… so we recommend crunching the numbers yourself. Add up everything, childcare, meals, entertainment expenses, estimated bills, retirement savings, etc. If you feel confident that you can comfortably afford the payments on your dream home, that’s the sweet spot you are looking for.
Getting pre-approved for your mortgage
Getting pre-approved can take a lot of the guesswork out of shopping for a home. Your mortgage agent will assess your current financial picture including income, debts, credit scores, etc., and determine the maximum amount lenders will offer you.
Getting pre-approved also means you’ll get a locked-in mortgage rate. This will usually be held for 120 days.
The final advantage? Being pre-approved lets sellers know that you’re serious and that your offer won’t fall through due to insufficient financing. Which will make your offer much more attractive to sellers, and likely put you ahead of other offers that are conditional on financing.
Start saving for that down payment
Saving up for a down payment is the first step to moving into the house of your dreams. Thankfully, in Ontario, first-time homebuyers can buy with only 5% down (as opposed to the usual 20%). Sure, with 20% down you will qualify for a conventional mortgage, but for many first-timers, saving up that much money for their first home just isn’t possible.
If you are planning on making a 5% down payment of less than 20% it’s important to keep in mind that you will need to pay mortgage default insurance, which may cost roughly 2.40-4% of your total mortgage loan amount.
A mortgage agent can help you understand all of the potential costs and all of the ways first-time homebuyers can accumulate their down payment:
- RRSP withdrawal: First-time purchasers in Ontario can borrow up to $25,000 from their RRSP to use as a down payment. Funds must be repaid within 15 years. Learn more at the Canada Revenue Agency site
- Family gift: Gifted down payments are permitted, so long as they come from immediate family
- Borrowed funds: If you have a good income, and money available on a line of credit, borrowed funds may be used as a down payment
Government programs for first-time homebuyers
The government of Canada also has a number of programs in place to help Canadians purchase their first home. Your mortgage agent can help you understand your options, and how to apply for them.
How does an FHSA work?
You can open a First Home Savings Account (FHSA) and make tax-deductible contributions of up to $8,000 annually, to a lifetime maximum of $40,000. If you don’t contribute the full $8,000 in a single year, the balance can be carried forward and added to next year’s contribution amount.
What is a TFSA and how does it work?
The Tax-Free Savings Account (TFSA) program began in 2009. It is a way for individuals who are 18 and older and who have a valid social insurance number (SIN) to set money aside tax-free throughout their lifetime. Contributions to a TFSA are not deductible for income tax purposes.
What is the Home Buyers Plan (HBP)
The Home Buyers’ Plan (HBP) is a program that allows you to withdraw from your registered retirement savings plans (RRSPs) to buy or build a qualifying home for yourself or for a specified disabled person.
What is the First Time Home Buyers Credit?
First-time home buyers who acquire a qualifying home can claim a non-refundable tax credit of up to $750. The value of the HBTC is calculated by multiplying $5,000 by the lowest personal income tax rate (15% in 2022).
What is the $10,000 tax credit for first time home buyers in Canada?
The HBTC is a federal non-refundable tax credit whereby you or your spouse/common-law partner can claim a combined $10,000 in the year you purchase a home. This equals a one-time $1,500 tax credit that reduces the amount of income tax you owe.
Learn more about refunds from the Government of Canada.
CMHC first-time homebuyer program
The CMHC (Canada Mortgage and Housing Corporation) offers a number of incentives for first-time homebuyers. Visit the CMHC website to learn more.
Buy with 5% down
Not technically a deduction or rebate, the 5% down payment option lets first-time homebuyers access mortgage insurance other homebuyers are not entitled to. To qualify, you will need to satisfy the requirements of a 5-year, fixed mortgage. You will also be asked to prove that you can cover closing costs, approximately 1.5 % of your purchase price.
Keep in mind that properties purchased in this way must meet the following criteria:
- Owner-occupied
- Amortization can be no longer than 25 years
- The home cannot exceed $1 million
- Proof of down payment must be provided
To find out if you quality, speak to your Capital 360 Mortgage Broker.
Land Transfer Tax Rebates
Land transfer taxes can add considerable cost to the purchase of a home. Thankfully, there are programs in place to ease some of the burden for first-time homebuyers.
The maximum amount of the refund is $4,000. The increased limit of $4,000 applies only to conveyances or dispositions that occur on or after January 1, 2017, regardless of the date the agreement of purchase and sale was signed.
Your Capital 360 Mortgage Agent can help determine whether you are eligible for either of these rebates, and your real estate lawyer can claim them for you when they transfer your deed.
Learn more about these refunds from the Ontario Ministry of Finance.
Let a Capital 360 Mortgage Agent help you become a first-time home buyer
Getting pre-approved for your first home can feel overwhelming. There’s a lot to learn and a thousand questions that go through the minds of first-time home buyers.
Thankfully, we’re here to help you qualify for your first mortgage. Call us today at 416-346-6779, and let us help you get the keys to your first home.