Buyers - Financing Your Home
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Arranging a Mortgage:
Conventional Mortgage
If the downpayment is at least 25% it's a conventional mortgage.
High Ratio or CMHC
If the downpayment is less than 25% to as little as 5% , buyers can still obtain a mortgage, as long as it is established that they can manage the cost of home ownership through a mortgage insurance program offered by the Canadian Mortgage and Housing Corporation (CMHC).
- Program is available to both first time and repeat homebuyers.
- A $300,000 ceiling applies to homes purchased in the GTA.
- Insurance premium on mortgages above 90% is up to 3.75
- Premium can be added to the mortgage
- Maximum amortization period on the mortgage is 25 years.
- Buyers are required to demonstrate their ability to cover closing costs of at least 1.5% of the purchase price.
If the downpayment is a financial gift, the funds must be in the possession of the buyer 15 days before making an offer to purchase.
When approving borrowers for a mortgage, lenders look at two factors ------- downpayment and income.
No more than 30% to 32% of a borrower's gross annual income should go to "mortgage expenses" - principal, interest, property taxes and heating costs (plus maintenance fees for condo mortgages).
The combined incomes of both spouses are usually considered but rental income is not considered.
Pre-Approval in Writing
It is highly recommended that if a buyer chooses to seek pre-approval, (before a property is purchased), such pre-approval should be in writing, confirming the terms of the pre-approval and mortgage.
CMHC (Canada Mortgage And Housing Corporation) Mortgages
Be aware that if a buyer is arranging an insured mortgage (where the cash down payment is less than 25% of the purchase price), the mortgage lender (on closing) will deduct certain costs from the mortgage advance. PLEASE CONFIRM with the mortgage lender as to what costs will be deducted (For example: 8% provincial sales tax on the mortgage insurance premium, appraisal fee, property tax holdback or interest adjustment, if any). For further information contact your bank branch.
Buyer's Responsibility to Confirm Financing Arranged:
It is the buyer's responsibility to arrange any mortgage financing which might be required to complete the purchase. Once the mortgage is arranged, it will be the buyer's responsibility to:
1.satisfy any special requirements by the lender (e.g. - proof of income, proof of cash down payment, payment of other debt obligations, if required by the mortgage lender, etc.) in order to avoid financing problems on closing day.
2.confirm with the mortgage lender that mortgage instructions have been sent to the lawyer so they can finalize processing the mortgage financing for closing.
R.R.S.P. Home Buyer Plan ("RRSP PROGRAM")
This HomeBuyers' Plan (HBP) allows individuals to withdraw up to $20,000 tax free from their RRSP to buy a new or resale principal residence.
First Time Buyer
You must be a first time home buyer or you must not have owned a home in the last five (5) years. Provided you satisfy all requirements, you may re-activate the program.
Principal Residence
You must use the home as your principal residence in Canada.
Any Home ( New or Resale )
The home can be new from the builder or resale.
90 Day Deposit
R.R.S.P. funds must have been on deposit for at least 90 days before they can be used under the program.
Funds For Any Use
The funds can be applied to the downpayment, land transfer tax, legal fees and disbursements, improvements to the home, even furniture and appliances.
Maximum $20,000 Per Buyer
You can borrow up to a maximum of $20,000.00 from your R.R.S.P. tax free. The maximum for two spouses is $40,000.00.
Pay Back
After an initial grace period of two full calendar years (plus the balance of the year in which the withdrawal occurred) you are required to pay back the funds borrowed over a period of 15 years by depositing 1/15th of the amount withdrawn, annually to your R.R.S.P. Prepayments are allowed at any time without penalty. However, if you miss a payment for any given year, you will not be allowed to pay it back and it will be included in your taxable income for that year.
For more information:
Contact the nearest branch of your Bank or phone Revenue Canada: 1-800-959-8281
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