First Time Home Buyer
As a Surrey, British Columbia mortgage broker my job is to understand your needs and find the best rate and terms that I can. I will help you understand what documents are needed, where to get them, and make sure to provide you with any forms that are needed. Some lenders require an appraisal from approved company. I will not only confirm the appropriate company, I will order the appraisal for you whether you are in Surrey, Delta, Whiterock or the Greater Vancouver area.
|· First Time Home Buyers’ Program||Reduces or eliminates the amount of property transfer tax you pay when you purchase your first home.|
|· First Time Home Buyers’ Tax Credit||Designed to help recover closing costs such as legal expenses, inspections, and land transfer taxes.|
|· BC Land Transfer Rebate||Rebate available to offset the cost of land transfer tax. The maximum rebate allowed is $8000.|
|· RRSP Home Buyers’ Plan||One great source of down payment for your mortgage is a Registered Retirement Savings Plan (RRSP).|
|· Selecting the Right Mortgage||Closed or Open mortgage as well as choosing a fixed or variable interest rate.|
|· Down Payment||Typically a cash payment that reduces the amount of the mortgage loan.|
|· What to Bring||Applying for a mortgage requires a document gathering process.|
|· Costs of Buying a House||Some costs will have to be paid up front, others can be covered by the lender or combined into your mortgage.|
If you are considering buying your first home – you are in good company. First time home buyers account for a very large segment of the market.
Beginning with a consultation to understand your needs, I will advise you on how much you can afford before you go house hunting, this will keep you focused on shopping for homes within your price range.
FIRST TIME HOME BUYERS PLAN
To qualify for a full exemption, at the time the property is registered you must:
- be a Canadian citizen or permanent resident
- have lived in B.C. for 12 consecutive months immediately before the date you register the property or filed at least 2 income tax returns as a B.C. resident in the last 6 years
- have never owned an interest in a principal residence anywhere in the world at any time
- have never received a first time home buyers’ exemption or refund
and the property must:
- be located in B.C.
- only be used as your principal residence
- have a fair market value of:
$475,000 or less if registered on or before February 21, 2017, or
$500,000 or less if registered on or after February 22, 2017
- be 0.5 hectares (1.24 acres) or smaller
You may qualify for a partial exemption from the tax if the property:
- has a fair market value less than:
$500,000 if registered on or before February 21, 2017, or
$525,000 if registered on or after February 22, 2017
- is larger than 0.5 hectares
- has another building on the property other than the principal residence
Foreign entities and taxable trustees are not eligible for the exemption. If you are an individual who doesn’t qualify because you are not a Canadian citizen or permanent resident, but you become one within 12 months of when the property is registered, you may apply for a refund of the property transfer tax.
FIRST TIME HOME BUYER’S TAX CREDIT
The First Time Home Buyers’ Tax Credit, at current taxation rates, works out to a rebate of $750 for all first-time buyers in British Columbia. After you buy your first home, the credit must be claimed within the year of purchase and it is non-refundable. In addition, the home you purchase must be a ‘qualified’ home, described in more detail below. If you are purchasing a home with a spouse, partner or friend, the combined claim cannot exceed $750.
To receive your $750 claim, you must include it with your personal tax return under line 369.
In order to be eligible for the First-time Home Buyers’ Tax Credit, your home must meet the following requirements:
- Be within Canada
- Be an existing or new home
- Be a single, semi, townhouse, mobile home, condo, or apartment
- Can include a share in a co-operative housing corporation that gives you possession of the home
- You must intend to occupy the home within one year of purchase
In order to be eligible for the First-time Home Buyers’ Tax Credit, your home must meet the following requirements:
- You or your spouse must purchase a qualifying home
- The home must be registered in either your name or your spouse’s name
- You cannot have owned a home in the previous four years
- You cannot have lived in a home owned by your spouse in the previous four years
- You must present documents supporting the purchase of the home
BC LAND TRANSFER TAX REBATE
First-time home buyers in British Columbia can qualify for a rebate equal to the full amount of their property transfer tax, up to a maximum of $8,000.
To qualify for the British Columbia First Time Home Buyers’ Program, you must meet the following criteria:
- You must be a Canadian citizen or a permanent resident of Canada,
- You must have lived in B.C. for 12 consecutive months immediately before you registered your property, or you must have filed two income tax returns in B.C. in the past six years,
- You cannot have owned a home before, and
- You must not have received a first-time home buyers’ exemption or refund before.
Based on the British Columbia property transfer tax rates, the rebate will cover the full tax amount up to a maximum home purchase price of $500,000. For homes with purchase prices between $500,001-$524,999, home buyers will only qualify for a partial rebate. If the home is purchased for $525,000 or more, no rebate is available and the full tax amount will be due.
If you qualify, your real estate lawyer will help you complete the First Time Home Buyers’ Property Transfer Tax Return form when he/she registers the property transfer.
RRSP HOME BUYER’S PLAN
When you take advantage of the Government’s Home Buyers Plan when applying for a Surrey mortgage, you are essentially creating a tax-free loan from yourself using the equity you’ve saved in your RRSP. It is important to follow all the rules and time restrictions to avoid unwanted tax and payment penalties.
In order to be eligible as a first-time home buyer, you must meet the following criteria:
- RRSP funds you borrow must be in your account for at least 90 days prior to withdrawal
- You cannot have owned a home within the previous four years
- If you’re buying with a spouse (or common law partner) who is not a first time home buyer, you cannot have lived in a house they owned for 4 years
- You have entered into a written agreement to buy or build a qualifying home
- You mush intend to live in the home within one year of purchase as your primary residence
- If you have used the Home Buyers’ Plan before, you cannot have any outstanding balance due
- You must make the withdrawal from your RRSP within 30 days of taking title of the home
- You must be a Canadian resident
If you make a withdrawal from your RRSP, but do not meet the first-time home buyer eligibility requirements, this withdrawal will be taxed and you must include it in your income tax statement as taxable income.
Buying with a partner
If both you and your spouse (or common-law partner) meet the first-time home buyer eligibility requirements, each of you can withdraw up to $25,000 from your RRSPs for a total of $50,000.
If only you qualify as a first-time home buyer, you will still be able to withdraw the $25,000, provided you have not lived in, as your primary residence, a house owned by your spouse or common-law partner.
How the process works
It’s important to note that any funds you withdraw for the home buyers’ plan must be in your account for 90 days prior to your withdrawal.
Don’t forget you must make the withdrawal within 30 days of taking title of the home. If you try to make the withdrawal more than 30 days after you take title of the home, your withdrawal will no longer be eligible for the HBP and you will be taxed on the amount you withdraw.
Finally, beginning 2 years from your purchase of your Surrey or GVRD area home, you must make annual payments over 15 years to pay back the loan to your RRSP. Canada Revenue Agency will send you a Notice of Assessment, which will indicate the amount of the loan you have repaid, the balance left to be repaid, and the amount of your next payment. To start repaying the loan, you must make a contribution to your RRSP in the year the repayment is due or in the first 60 days of the following year.
SELECTING THE RIGHT MORTGAGE
Choices in selecting a mortgage include:
Conventional vs. high-ratio or insured mortgages
A conventional mortgage is a mortgage that has a principal amount (the amount you are borrowing) that is no more than 80% of the appraised value or purchase price of the property, whichever is less. The principal amount of a high-ratio or insured mortgage is usually more than 80% of the appraised value or purchase price. A high-ratio mortgage also legally requires you purchase mortgage insurance which is usually added onto your mortgage payment.
For example, if your dream home has a price of $500,000 and you have a $25,000 down payment, you are only borrowing $475,000 to purchase. $475,000 would be considered a high-ratio mortgage because it is still 90% of the purchase price. For this example to become a conventional mortgage, a down payment of at least $100,000 would be needed to bring the borrowing amount to $400,000 which is 80% of the purchase price.
Closed vs. open mortgages
Closed mortgages generally offer lower interest rates than open mortgages of the same term, but open mortgages let you pay off as much as you want, any time, without paying a prepayment charge. As your Surrey mortgage broker, I can advise you on which option is best for you based on your goals and financial outlook.
Short term vs. long term
Short term mortgages are appropriate if interest rates will be lower at renewal time. Long term mortgages are suitable if current rates are reasonable and you want the security of a payment that you can budget your finances around. During our consultation, I will let you know what the trend in the British Columbia market is currently so you can make an educated decision.
Fixed rate vs. variable rate
You can choose a fixed or variable interest rate. A fixed rate mortgage makes it easier for you to budget for whatever term you select. A variable rate mortgage fluctuates with the market and may be a better option depending on your monthly cash flow.
In Canada, typically a down payment is 5% on the first $500,000 of the mortgage amount and 10% on any amount above $500,000. Homes priced at one million dollars or higher will require an 20% down payment.
If you are putting a down payment of less than 20% of the mortgage loan total you will be considered a high-ratio debt and will need to be insured by a mortgage insurer. You will have to pay a premium for the insurance along with your mortgage payments.
The larger the down payment the better, anything over 20% is considered to be a conventional mortgage.
The larger down payment amount has multiple benefits:
- Lower your monthly mortgage payment
- Pay less interest to the lender
- If you put down 20% or more you will not need to purchase default insurance
if you are considering buying a home in Surrey, some ways to save for the down payment are:
- Open a savings account with high interest rates
- You can save using you RRSP account
- Decide how much you would like to purchase a home for so you can set a goal to save for a down payment
- Start making regular payments to your savings account each month
- Job bonuses or tax returns
- Instead of gifts from family, let them know you are saving to buy a home and ask for cash
What to Bring When Applying for a Mortgage
When you decide you are ready to purchase a home, you will meet with a mortgage broker to explore your borrowing options. To begin with the pre-approval process you will need to sign an authorization form for a credit check. We then begin the document gathering process as we put together a document package to present to the lender.
You will need the following:
- Government issued Photo ID
- Employment letter
- Current pay stubs
- Proof of other sources of income, if any
- All assets – Recent statements from bank accounts or investment accounts
- All liabilities – Recent statements for any credit cards, loans, etc.
- Down payment amount source
Other questions you may be asked:
- If you have strata fees, how much?
- Monthly heating costs
- If you are renting, how much is your rent?
Each lender is different and may request additional documentation. We will help you each step of the way and tell you where to find all the information that may be needed.
Costs of Buying A House
You have decided to put an offer in on a place and it is accepted, what comes next? There are some costs that you should be prepared for in order to close the purchase of your new home.
These costs include:
- Deposit – once the offer has been accepted a deposit is required. This amount will vary so best to discuss this with your realtor when writing up the offer. This payment is due after all the subjects have been removed.
- Legal Fees/Closing Costs – Legal fees can be roughly $1,000 or more for a typical sale or purchase of a property.
- Property Taxes and City Fees – You are responsible for the portion of the year’s fees that you will own the property. These will be calculated by a lawyer or notary.
- Appraisal – A typical residential appraisal will cost be between approximately $250 – $400.
- Home Insurance – It is required by the lender that you have home insurance. It is NOT required for you to purchase life-insurance, although you may be pressured to do so. Life insurance is a good idea, just don’t take the first policy offered to you.
- Title insurance – This will protect you from title defects, errors or omissions, which includes errors in the public registry and existing surveys.
- Land Transfer taxes – this is paid by the buyer and it is not cheap! The amount of tax you pay is based on the fair market value of the land and improvements on the date of registration; some conditions ad exemptions can apply. The tax is charged at a rate of:
- 1% on the first $200,000,
- 2% on the portion of the fair market value greater than $200,000 and up to and including $2,000,000, and
- 3% on the portion of the fair market value greater than $2,000,000.
For example, if the fair market value of a property is $450,000, the tax paid is $7,000.
- For more information visit the BC Government website
Other Costs if Applicable:
- Mortgage Insurance – If you are financing a property to more than 80% of the property value than the mortgage needs to be insured; this is referred to as a High Ratio Mortgage. An insurance premium is charged and added to your mortgage. The amount will vary depending on how much of a down payment you have. If you have a 20% down payment or more, you do not require mortgage insurance.
- Home Inspection – some lenders require a home inspection to be done before they will issue you the mortgage. It costs anywhere between $300 – $600 for the inspection. It is a good idea to not be frugal and to get the inspection done, the cost of the inspection is nothing compared to what it will cost you if something is wrong. ie. A cracked foundation or black mold in the walls.
- Land Survey – This may be required by your lender before they will finalize the mortgage, this cost could run between $1000 to $2000.
- New Home Warranty – This is a one-time fee of a few hundred dollars and is only applicable in British Columbia, Quebec and Ontario.
So as you can see, there are many costs above and beyond the purchase price of the home. Some of these costs may be able to be added on to the mortgage but some you will be required to pay out of pocket. Your realtor and/or mortgage broker can help you to better understand the extra costs involved in buying a home and what you are required to have done.
I am also a licensed Surrey Life Insurance broker, ready to help you protect your family from unforeseen difficulties.
I’m always happy to schedule an in-person meeting or phone call if you have any questions or concerns about your Surrey mortgage.