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All About Financing
Knowing what you can afford in a home will determine what houses could be considered in your search for your new home. Before you begin looking, you need to be qualified or pre-approved for financing. (Note – there is a big difference between pre-qualified and qualified. Qualification involves a much more in-depth credit analysis and provides the go ahead to enter a mortgage agreement.) Once pre-approved, you will be provided with a written confirmation of what you can afford, along with a fixed interest rate good for a specific period of time.
To obtain pre-approval, contact a mortgage broker. The advantage of using a mortgage broker is that the broker operates independently of the lender and will be more objective in the search for the best financial product. Mortgage broker services are usually offered at no cost to borrower. We are happy to provide you with a few recommendations is you need.
Being pre-approved for a mortgage enables you to move quickly when you find the perfect place. When you make an offer, it won’t be conditional on obtaining financing, which can save you valuable time. This also lets the Seller know that your offer is serious – and could prevent you from losing out to another potential buyer who already has financing arranged.
If you’re having trouble qualifying for a mortgage, you can take some steps to help you work towards that goal:
• Pay off some loans first
• Save for a larger down payment
• Revise your target house price
Once your financial situation improves, your next application may very well be approved.
Down Payment Options
Your down payment can include funds from your own savings, investments, sale of property, or gifts from an immediate family member. The larger the down payment, the less interest you’ll pay over the life of your mortgage.
THE 5% DOWN PAYMENT
For as little as 5% down, it is possible to own a home. At least 5% of the purchase price needs to come from your accumulated savings or a gift from an immediate relative. You may also be eligible either to:
A) Receive ‘cash back’ from the lender, which can be used as the down payment or
B) Borrow the required funds
USING YOUR RRSP TO PURCHASE A HOME
The Home Buyers’ Plan (HBP) allows a person to withdraw up to $25,000 from RRSPs for a home purchase, subject to certain repayment conditions. Couples with separate plans can borrow up to $25,000 each to a total of $50,000. The HBP option is open to:
• First time home buyers
• Individuals purchasing a home on behalf of a person with a disability
• Individuals who are disabled themselves.
To withdraw money from your RRSP savings, you first need a T1036 form: ‘Request to Withdraw Funds from an RRSP under the Home Buyer’s Plan’ (HBP). You can download this form from the Canada Revenue Agency at the link below:
You will need to give the completed form to the RRSP issuer and meet the Canada Revenue Agency’s conditions, which include:
• You must take advantage of the HBP in the same year you are ready to purchase your home
• You must not have participated in the program previously, nor owned a home within the last five years
• You must be a resident of Canada
• You must enter into a written agreement to buy or build a qualifying home
A full list of terms and conditions can be found on the Canada Revenue Agency web site:
To be eligible for the HBP, the RRSP contribution money must also be held in an account for at least 90 days prior to withdrawal.
Not every RRSP is eligible under this program. Check with your RRSP issuer to see if you qualify. Also, advise your lawyer well before closing that you will be using these funds.