New Help for First Time Home Buyers…?
NEW HELP FOR FIRST TIME BUYERS …?
You’ve probably seen in the media that there are two initiatives in the latest federal budget aimed at helping first time home buyers. One of these comes into play right away, and the other comes into effect in September. What exactly is in it for you if you’re buying your first home? Let’s take a look…
RRSP WITHDRAWAL LIMITS
Up ‘till now, the limit for withdrawing from your RRSP for your down payment on a home was $25,000. That has been increased to $35,000. So if a couple is purchasing and they each have significant RRSP’s they now can withdraw $20,000 more tax-free to put towards their purchase. This has to be repaid over 15 years to avoid paying tax on it, but still it’s a huge help in terms of qualifying, especially since the Mortgage Stress Test was put in place. The problem is, I don’t meet too many first-time buyers who have $25,000 in their RRSP’s, let alone $35,000. If you’re one of the lucky ones with a large RRSP portfolio, this is good news for you, but unfortunately it won’t make a difference for most purchasers.
CMHC DOWN PAYMENT CONTRIBUTION
On the surface this sounds amazing! The federal government, through CMHC, will contribute up to 10% of the value of your home purchase as a down payment! What’s the catch? There are a quite a few…
- First of all, it’s a loan, not a gift. The amount will have to be repaid when you sell.
- Secondly, it’s unclear if the federal government will now have an interest in equity in the home if it rises in value. What? That’s right … It’s possible that when you sell, you’d owe the amount “given” by the government, plus their portion of the gain in the value. This has not yet been clarified and it’s an important point to be aware of.
- The program only applies if your total household income is under $120,000.
- You’ll be limited to the value of the home you can purchase. Even if you qualify for a bigger mortgage, you’ll be limited to 4 times the amount of your annual household income plus the amount of the government loan. This example from James Laird, co-founder of Ratehub.com and president of CanWise Financial, tells the story:A household with $100,000 of income and a minimum down payment of 5% ($23,994.40) qualifies for a $479,888 purchase. The total mortgage amount with CMHC insurance would be $474,129.34, with a monthly mortgage payment of $2,265.75, Laird noted. The maximum purchase price for the same household, if they participate in the FTHBI, drops to $404,858.29, with a 5% down payment of $20,242.91
- The loan amount is only 5% if you’re purchasing a resale home, but you’re still stuck with the limits on how much you can purchase.
- The increased down payment will have the effect of reducing your monthly payments. For a $400,000 purchase that could mean a savings of roughly $120 a month if you’re buying a resale property.
So, is this good news for most first-time home buyers in Canada? Probably not. It will benefit a select few who have lots of cash in their RRSP’s. And families whose household income is under $120,000 might decide that the constraints are worth the savings that the extra down payment might make in their monthly payment. But for most home buyers, I’m afraid it sounds better than it actually is.
Are you a first-time buyer trying to find your way through the market maze?
Our brokerage has a number of REALTORS® who are Accredited Buyer Representatives, specializing in working with firs-time buyers. We understand you’ve got a lot of questions. Sometimes once you look into things a bit more you might decide you’ll wait to save up more of a down payment, sometimes it means buying something a bit smaller than you’d hoped to start out with… Whatever your situation, we can help you create a plan customized to get you into your dream home, one step at a time.
Reach out anytime! We’d love to have a chat over coffee and share what we know that can help you make a smart choice. No obligation, just friendly information. In the meantime, here’s a link to download our Home Buyer Guide. It will help you figure out if you’re ready to make the leap! Home Buyers Guide – Your path to a smart purchase