First-Time Home Buyers in Ottawa
If you are a first-time home buyer you will probably notice one thing: everyone around you start giving you advice on home buying, prices, market value, neighbourhoods and more. Keep in mind however, that you are responsible for this decision and you should feel comfortable making your decision based on what you want and need.
First-time Home Buyers: What should be your first steps?
Once you decided to purchase a real property, things will move fast and can get confusing. The first action you should take is getting to know some experts in the industry and in the niche you are planning to buy in. The most savvy real estate investors have one thing in common. They all put together a team of real estate experts that they rely on to save them time, money and potential setbacks. Talk with mortgage brokers, real estate lawyers, realtors and home inspectors. Look for those with experience in the niche you are looking to buy in such as Ottawa homes or real estate investments.
Get pre-approved. Discuss your real estate plans with a mortgage broker and make sure to provide them all the necessary documents they need to obtain a proper mortgage pre-approval. Great mortgage brokers closely monitor interest rate changes and they advise you of any movement in lending rates. Independent mortgage brokers generally have access to various lenders and often their mortgage solutions are superior than those offered by the five major Canadian banks. These mortgage brokers can also negotiate for you for discounted mortgage rates that save you lots of money over the years.
Do not rely on interest rates solely. Remember the five major Canadian banks fund the most expensive mortgage in Canada. Their rates are competitive but the terms they offer in the fine print can and does make huge difference for home buyers. If you ever need to port, transfer, break or refinance your mortgage the fine print that you may not have read could cost you thousands.
What is CMHC Mortgage Insurance?
The Canadian Mortgage Housing Corporation is a crown corporation of the Federal Government of Canada. It acts as the National Housing Agency of Canada. CMHC plays a crucial role for Canadian homebuyers. CMHC mortgage insurance is a default insurance that protects the bank’s mortgage loan in case of mortgage default. It simply means if you cannot pay your mortgage payments the bank is paid back all its costs in full after your home is taken back and sold on the market. In Canada, home buyers are required to pay this default insurance when you have less than 20% of down payment. It offers borrowers to purchase properties in Canada with as little as 5% down payment.
There are private companies that offer insurance for mortgages. The other two are Genworth and Canada Guarantee. These companies determine their own rules about the type of mortgages they insure for the banks. This is important for first-time home buyers because if one insurer declines your application then the lender can apply with another insurer for approval.
The insurance premium charged for down payments less than 20 percent are rolled into the borrowed amount. As an example on a $400,000 home purchase with $20,000 down payment (5 percent) the loan amount is $380,000. The CMHC insurance premium is $15,200 (4 percent of the loan amount). The total mortgage is therefore, $395,200. Always discuss with your mortgage broker the complete amount your borrow and understand that applicable taxes have to be paid on closing as part of the closing costs.
First Time Home Buyer Incentives
Home Buyer Incentive Share Equity Program
This incentive is a federal government program to reduce the mortgage payments for qualified first-time home buyers. The program provides 5 percent of the cost of a resale and 10 percent of a new home for first-time home buyers with at least 5 percent down payment.
This incentive isn’t payable until you sell the property and interest Is not charged.
Notes on qualifying: If your household income is over $120,000, you are not eligible for this program. And your total borrowed amount (including the incentive portion) can’t be more than four times your household income. You are required to pay the incentive back after 25 years or when you sell the home. The repayment amount based on the property’s fair market value.
Since real estate prices in Canada tend to increase you may want to repay early.
RRSP As Down Payment
The Home Buyers Plan allows first-time home buyers to withdraw up to $25,000 per buyer from an RRSP to purchase a real estate. You will not have to pay tax on the withdrawal. The federal government recently increased the maximum amount to give additional access to their RRSP for home purchases. The amount can now be used for expenses other than down payment. It can be used for closing costs, paying off some debt, moving expenses, furniture etc.