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Frequently asked questions.
Why use a mortgage professional?
What is the Home Buyers' Plan?
What is the First Home Savings Account (FHSA)?
Do I qualify for the 5% down payment program?
What should I expect for closing costs?
What is Property Transfer Tax?
What type of income proof do I have to provide?
Why use a mortgage professional?
- Power of professional negotiating expertise.
- One stop convenience for access to numerous lenders and mortgage products.
- Unbiased knowledgeable advice.
- Access to unadvertised rates.
- Work for you, not the Bank.
What is the Home Buyers' Plan?
- The Home Buyers Plan is a federal government program that allows a person to withdraw monies from their RRSPs to buy or build a qualifying home for themselves or a specified disabled person. A person must meet the definition of a first-time home buyer if using the funds for themselves but need not be a first-time home buyer if using the funds for a specified disabled person.
- Budget 2024 increased the amount that a person can withdraw up to $60,000.00 from $35,000.00 for withdrawals made after April 16 2024. If both people in a couple qualify and the withdrawal is made after April 16 2024 then up to $120,000.00 could be available.
- The funds to be withdrawn must have been invested into the RRSPs for a minimum of 90 days prior to their withdrawal.
- Withdrawn funds must be paid back over a period not exceeding 15 years. Budget 2024 extended the time before which the 15 year period commenced for withdrawals made between January 1 2022 and December 31 2025 from 2 years from when the first withdrawal was made by an additional 3 years. Thus, for such people the 15 years repayment period would start in the 5th year following the year in which the first withdrawal was made.
- To be able to use the program a person must meet a number of criteria and fill out a T1036. To ascertain whether you can participate in the program you should visit the government website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan.html
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What is the First Home Savings Account (FHSA)?
- The First Home Savings Account (FHSA) is a registered
account which allows a first-time home buyer (as defined by the program) to
save towards the purchase of a qualifying home with certain tax advantages.
- The account combines the best feature of a RRSP and a TFSA
in that not only are contributions tax deductible but qualifying withdrawals
are tax free as well including the returns on your investments in the account.
- Direct transfers from one’s RRSPs are also permitted.
Transfers from one’s RRSPs are not tax deductible upon the transfer but again
are not taxed when making a qualified withdrawal.
- The maximum annual contribution and RRSP transfer permitted
is $8,000.00 with a total lifetime limit of $40,000.00.
- This program can be used in conjunction with the Home Buyers
Plan so long as a person meets both program’s requirements.
- The FHSA has a number of criteria, rules and requirements
which a person must meet and comply with and there are repercussions for non
compliance. To learn more and ascertain
whether the program is suitable for you, you can visit the government's
website at the link set out below. You may also wish to speak with your financial planner or accountant.
- https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account.html
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Do I qualify for the 5% down payment program?
- The home must be located in Canada and be purchased to be occupied as your principal residence.
- For purchases of $500,000 or less you must have from your own resources a down payment of at least 5% of the purchase price of the home. For purchases over $500,000 there is a graduated scale for down payments whereby you must have at least 5% of the first $500,000 and 10% over that to a maximum purchase of $999,999. The program is not available for purchases of $1,000,000 or more.
- The mortgage payment, both principle and interest, as well as the property taxes, heat and one-half of the condo fees (if applicable) must not exceed 35% of your gross household income. (This can be increased up to 39% depending on your credit rating.)
- The mortgage payment, both principle and interest, as well as your property taxes, heat and one half of the condo fees (if applicable) plus all other outstanding indebtedness must not exceed 42% of your gross household income. (Again, this can be increased to 44% depending on your credit rating.)
- You must be able to cover closing costs equivalent to at least 1.5% of the purchase price.
- You must also meet the lender's eligibility requirements regarding income, employment and credit worthiness.
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What should I expect for closing costs?
- Closing costs are approximately 1.5% of the Purchase Price. The following are approximate costs:
- Appraisal Fee: $425.00
- CMHC FEE (if applicable): $165.00
- Survey Certificate/ Title Insurance (if applicable): $350.00
- Home Inspection: $500.00
- Legal Fees: $1500.00
- Tax Adjustment: (if applicable)
- Interest Adjustment: (if applicable)
- Property Transfer Tax: (if applicable)
What type of income proof do I have to provide?
In most situations lenders require a comfort level that the borrower has sufficient income and cash flow to service the mortgage as well as any other obligations that they may have. The higher the Loan to Value (i.e. mortgage amount vs. purchase price) the more important this becomes as the lender is placing less reliance on the value and equity in the property and more on the earning power of the borrower. The following is a summary of what Lenders require depending on what type of job you have:
Salaried Employees
- Job Letter - lenders use 100% of the income. Verification is made on company letterhead which must be signed by an appropriate individual. If you are a recent hire, the letter should confirm that any probation period has passed. Bonuses, car allowances and other forms of remuneration should be mentioned if applicable.
- Pay Stubs - many lenders will also require your most recent pay stubs.
Hourly Employees
- Job Letter - lenders use 100% of the guaranteed hourly income. Verification is made on company
letterhead which must be signed by an appropriate individual. If you are
a recent hire, the letter should confirm that any probation period has
passed. Bonuses, car allowances and other forms of remuneration should
be mentioned if applicable.
- Pay Stubs - showing year-to-date income verification.
- T4's and/or Personal Tax Returns (T1 Generals) - 2 years to take an average.
- Notice of Assessment (NOA) – optional depending on the lender. If required then most recent to confirm no taxes owed.
Commission Income
- T4A's and/or Personal Tax Returns - 2 years to take an average.
- Job Letter - confirming position.
- Notice of Assessment (NOA) – optional depending on the lender. If required then most recent 2 years.
Self-Employed
- Financial Statements of Company - 2 years average of net income used. Depending on lender's policies, the add-back of various personal expenses run through the company may or may not be allowed. Examples of such add-backs include depreciation, amortization and capital cost allowance (CCA). Lenders may also require Articles Of Incorporation.
- Personal Notice of Assessments (NOA) - most recent 2 years.
- Personal Tax Returns (Full T1 Generals showing personal net income) - most recent 2 years.
Overtime - will be used as long as there is a proven track record - 2 years evidence (T-4's).
Bonuses - once again a 2 yr track record required.
Part-time Job - should be in place for 2 years before using the additional income.
Tips - generally not recognized unless declared for tax purposes.
Car Allowances - this varies from lender to lender.
Alimony and Support - evidence that payments have been made regularly and a copy of the separation agreement is required.
Investment Income - must be received continuously. This source of income is limited to interest, dividends or some type of ongoing revenue. Capital gains, which result from the liquidation of an asset is a one time occurrence and can't be used.
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