Good time to buy first home

August 17, 2005
From OREA

Surprising as it may sound, the costs of owning a home these days can be substantially lower or comparable to those of renting.

With interest rates at their lowest in three decades, a great variety of housing options, and some help from government incentives, there's never been a better time to make your dream of home ownership come true.

If you are tired of helping to pay your landlord's mortgage, but think a home of your own is financially out of the question, the Ontario Real Estate Association and your local realtor urge you to think again!

When buying a home, the major stumbling block for most first-time buyers is the down payment.

You may have the ability to keep up with the monthly financial obligation (mortgage payment, insurance, utilities, property taxes, maintenance, etc.), but finding the down payment may be a problem.

The best place to start is to determine how much you can afford to pay. The modest home you can afford may be a far stretch from your “dream home,” but it will be a start and will require far less cash as down payment.

To determine how much you can afford as a first-time buyer, enlist the services of a realtor. A realtor will help you identify what you want, and take you to homes and neighbourhoods that reflect your lifestyle, needs, and price range.

This individual also will help you understand property financing, taxes, insurance, and the steps you will have to take as a first-time buyer to complete a real estate transaction.

Once you decide what you can afford and find the home you want in the right neighbourhood at the right price, here are some of the sources you can tap into for a down payment:

• savings and investments;
• Registered Retirement Savings Plan (RRSP); or
• loans, lines of credit, or gifts from your family or relatives.

RRSPs

The Government of Canada's Home Buyers' Plan allows qualified buyers to withdraw a maximum of $20,000 from their RRSPs to purchase or build a home.

If your spouse also is eligible, you each can withdraw up to $20,000 towards the down payment, for a total of $40,000.

No income tax is deducted from these funds, as long as they are repaid to the RRSP according to the government's repayment schedule.

You may participate in the plan if you (or your spouse) have not owned a home which you occupied as your principal residence in the last five years.

To qualify for a conventional mortgage, a home-buyer must put at least 25 percent of the purchase price down on the house. However, with as little as five percent down, all homeowners have access to the Canada Mortgage and Housing Corp.'s (CMHC) mortgage insurance.

Also, with the CMHC's Flex Down product, the down payment now may be borrowed from any source that is arm's-length to, and not tied to, the property purchase or sale transaction.

These sources may include lender cash back incentives; loans from your bank or finance company; lines of credit or credit cards; gifts or grants; and sweat equity (intended for new constructions).

The mortgage insurance premium is 3.4 percent under Flex Down (3.25 percent if the down payment is from the borrower's own resources). The mortgage insurance premium is based on a sliding scale, and the premiums can be added to the mortgage paid on a monthly basis.

For more information, go to CMHC's website at www.cmhc-schl.gc.ca and type “Flex Down” in the search engine.

First-time buyers of newly-constructed homes may receive a refund of land transfer tax up to a maximum of $2,000.

Only individuals who are at least 18 years of age, have not owned an interest in a home anywhere in the world, and whose spouse has not owned an interest in a home anywhere in the world while he or she was spouse of the individual, qualify as first time buyers.

The first-time buyer must be buying a newly-constructed home or an interest in a newly-constructed home that has never been occupied.

The purchaser must occupy the home as his or her principal residence no later than nine months after the date the property is transferred to his or her possession.

For more information, contact the Ontario Ministry of Finance at 1-800-263-7965.

A realtor can help you understand how these programs work and ensure you get the maximum benefit possible.

So if you're ready to leap into the world of home ownership, why wait? It's the best investment you'll ever make!