First Time Buyers
A home is one of the biggest purchases of your life and you have a lot of questions about the home buying process. The amount of new information in the marketplace can seem overwhelming. Here are just a few of the things you need to consider as a first time homebuyer here in BC:
- Can I qualify for a mortgage?
- How much can I afford to borrow?
- Where can I get the best mortgage rates? See Links Page for INVIS mortgage advisors contact information.
- What mortgage term is right for me?
- What other costs should I expect? See Mortgage Closing costs below
- Can I use my RRSP funds for a down payment?
- What do I need to know about payment options, mortgage portability and other conditions.
As a first time home buyer in BC and Canada, there are opportunities available only to you that are unavailable to repeat purchasers:
For more information on the BC Property Transfer Tax and the Canada Revenue Agency RRSP HomeBuyers Program, please email me at info@nataliepreston.com and I will email you the relevant documents within one business day.
100% financing and other low down payment programs have been expanded and it is now possible for a broader group of Canadians to qualify for their first home mortgage. Whenever the down payment is lower than 20%, most lenders are required by law to insure the mortgage against default. This default insurance is provided by three main institutions in Canada: CMHC, a Federal Crown Corporation, and Genworth Financial Canada and AIG, private insurers. The insurance premium is a one time amount which is normally included in the mortgage. Because the risk to the lender increases as the down payment gets smaller, the insurance percentage gets larger accordingly.
As an alternative to default insurance (or in combination with), RRSP Home Buyers Plans can be used to withdraw funds tax free from your existing RRSP to use as a downpayment. This can help you to reduce or eliminate the potential default insurance premiums, and can also help you obtain more purchasing power by combining your RRSP funds with the maximum mortgage you can afford.
Mortgage Closing Costs
When property is purchased in Canada, there are othe costs related to the transaction beyond the purchase price. Not all costs may apply in all circumstances, but are listed here for information and to help you plan for these costs. Your mortgage broker and your legal advisor can help you figure out which apply to your situation.
BC Property Transfer Tax: This is a provincial tax charged every time a property changes hands. The cost is 1% on the 1st $200,000 of value, and 2% thereafter. If you are a first time homebuyer, there is a program to provide full or partial relief from this tax on proprties up to $425,000 under specific conditions. We can help you find out if you qualify. BC Property Transfer Tax
GST: If you are buying a newly subdivided lot or a new home, GST will generally be charged at 5% on the full amount of the purchase. If you are building the home, the situation varies as some contractors include the GST, and others may refund partial GST to themselves or to the purchaser, so it is important to find out at the time you make your offer. Your Realtor (that's me!) can provide you with more information about GST.
Appraisal: Most lenders will require an appraisal of the property to support the lending value of the property. Fees are higher for revenue properties or more complex purchases. Commercial appraisals are significantly more expensive and more time consuming to prepare given the complexity of the appraisal required.
Property Inspection: An inspection is a thorough evaluation of the structure, systems and components of a home. The inspection report is usually multi-paged, and comments on the condition of, but not limited to: foundations, electrical, plumbing, heating, water heaters, appliances, fireplaces, drainage, roof, walls, floors, attic, crawl spaces, patios, etc. The inspection is usually performed a day or two before the market value is determined by the property appraisal. An inspection can cost anywhere between $300-$500 but the cost is well worth identifying any major cost repairs required.
Title Insurance: To protect the lender's interest in the mortgaged property in the event there is some discrepancy on title that would create a legal problem, many lenders require title insurance. Title insurance is often a less expensive and acceptable alternative to getting a survey prepared for the property.
Survey: Lenders may require a survey to support the transaction. A survey is a drawing by a certified surveyor of the property lines and where the building sits on the property. This is done so that the lender can verify exactly what and where they are lending on, and to provide some assurances that the buildings are not illegally encroaching on neighbouring properties, etc. The cost of the survey varies for size/complexity of the property but standard neighbourhood lots have a survey cost of about $270.
Mortgage Insurance: The term Mortgage Insurance is used in two different ways, and each have different and specific purposes:
Life/Disability Insurance: This insurance is often recommended by lenders to ensure that you are able to meet the mortgage payments should you or your co-borrower become disabled or die during the term of your mortgage. Rates and Coverage vary widely, so let us help you make sure you are getting the most coverage for your money.
Default Insurance: Default insurance is usually required on loans where the borrower is borrowing more than 75% of the value of the property. Genworth and CMHC provide this insurance and the cost varies with the amount borrowed relative to the property value. There is a $165 application fee for these programs.
Realtor Commissions: If you are purchasing and use a Realtor to help you, the seller will pay for their Realtor and yours. If you are selling, fees vary, but are often 6 or 7% on the 1st $100,000 and 3 or 4% thereafter. Commission fees are negotiable between the seller and their Realtor and should never be a set fee.GST at 6% of the commission payable is also charged to the seller.
Legal fees: If you are selling a property, you will be responsible for legal fees regarding clearing the title for the purchaser. If you are the purchaser, you are responsible for conveyance fees, preparation of statements of adjustment, and mortgage registration.
Interest Adjustments: This is the interest that you will pay for receiving the mortgage funds for periods outside of standard payment periods. For example, if your completion date was on the 23rd of a 30 day month, you owe 8 days interest for those days before normal payment cycles commence.
Property Tax Adjustments: Generally, property taxes for the calendar year are paid at the beginning of July. If you purchase a property before July 1st, the seller will be paying you for the days they owned the home from January 1st to completion day. You then are responsible for the entire amount to be paid to the municipality on July 1st. If you purchase a property after July 1st, you will pay the seller for the days you own the property from completion day to December 31st, as they will already have paid the entire amount to the municipality on July 1st.
Rental Deposit Adjustments: If the property has a rental suite the vendor must transfer the tenant’s security deposit to the purchaser. If completion takes place mid-month, adjustments must also be made for rent collected by the vendor and pro-rated payment made to the purchaser.
Property Insurance: If you have a mortgage on a property, almost every lender will want to make certain that you have adequately insured the property for loss from fire, flood etc. Note that the insurance must be for the full property value rather than just the mortgage amount. In the event of a loss, it is standard practice mortgaged property generally notes the financial institution as the payee. There is a fee of about $35 for the insurance company to confirm coverage in this manner and is often referred to as a “binder.”
First Time Home Buyer's Program
Introduced in 1994, the First Time Home Buyers' Program is designed to help British Columbians purchase their first home. Under the program, eligible purchasers can claim an exemption from Property Transfer Tax if the fair market value of the home is less than the threshold amount.
For registrations on, or after, February 20 2008, the fair market value threshold for eligible residential property is $425,000.
A proportional exemption is provided for eligible residences with a fair market value of up to $25,000 above the threshold (i.e. up to $450,000).
To qualify for the First Time Home Buyers' exemption you must meet all of the initial eligibility criteria. To retain the exemption, there are also requirements which must be met in the year following the transfer. For a general overview of the eligibility criteria, please see the brochure, Property Transfer Tax and the First Time Home Buyers' Program. If you would like to receive this information, please email me at info@nataliepreston.com and I will email it to you within one business day.
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