Help for First Time Home Buyers
Let’s take a look at two programs aimed at helping first time home buyers achieve their home ownership goals.
The Home Buyers Plan (HBP) is a federal program that allows first time home buyers to withdraw up to $25,000 from their RRSPs to use as a down payment. Normally if you withdraw money from an RRSP you are taxed at source. This means that if you wanted $20,000 in hand you would have to withdraw a higher amount to reflect the tax repayable to Revenue Canada. The lender would remit that extra amount to Revenue Canada as part of the transaction. With the HBP there is no tax penalty but there are repayment requirements. Generally you are required to pay this amount back into your RRSP within 15 years in annual increments.
Typically mortgage lenders look for a down payment of more than 20% of the purchase price of the home. For most first time home buyers this would put their dreams of home ownership out of reach. To aid those with low down payments, the federal government has created a program where high ratio mortgages (those with less than 20% down) are acceptable as long as they are insured. The insurance premiums are added to your loan repayment amount.
To be clear here, the insurance directly benefits the lender in case you default on your obligation. It benefits you by making the lender less risk averse and more likely to approve you. The Canadian Mortgage and Housing Authority, as well as a few private insurers, provides insurance for high-ratio mortgages. Your lender can help you to find the best mortgage insurance for your situation.
If in doubt, speak to a REALTOR® before you start your home search and they can walk you through the down payment requirements.
The Home Buyers Plan (HBP) is a federal program that allows first time home buyers to withdraw up to $25,000 from their RRSPs to use as a down payment. Normally if you withdraw money from an RRSP you are taxed at source. This means that if you wanted $20,000 in hand you would have to withdraw a higher amount to reflect the tax repayable to Revenue Canada. The lender would remit that extra amount to Revenue Canada as part of the transaction. With the HBP there is no tax penalty but there are repayment requirements. Generally you are required to pay this amount back into your RRSP within 15 years in annual increments.
Typically mortgage lenders look for a down payment of more than 20% of the purchase price of the home. For most first time home buyers this would put their dreams of home ownership out of reach. To aid those with low down payments, the federal government has created a program where high ratio mortgages (those with less than 20% down) are acceptable as long as they are insured. The insurance premiums are added to your loan repayment amount.
To be clear here, the insurance directly benefits the lender in case you default on your obligation. It benefits you by making the lender less risk averse and more likely to approve you. The Canadian Mortgage and Housing Authority, as well as a few private insurers, provides insurance for high-ratio mortgages. Your lender can help you to find the best mortgage insurance for your situation.
If in doubt, speak to a REALTOR® before you start your home search and they can walk you through the down payment requirements.
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