Learn how you could use an RRSP (registered retirement savings plan) to apply to the purchase of your home. Find out more about "Home Buyers' Plan" (HBP).
The Canadian Federal Government introduced the "Home Buyers' Plan" (HBP), which allows RRSP planholders who are also first time home buyers to withdraw up to $25,000 of their registered retirement savings plans (RRSPs) to apply to the purchase or build a qualifying home.
The home can be for you, or it can be for a related person with a disability. If the home is acquired by a person with a disability or for a related person with a disability, one of the following should apply:
As an HBP participant, you can acquire the home for the related person with a disability, or you can provide the withdrawn funds to the related person with a disability to help them acquire the home.
Up to two partners in the home can combine their RRSP's for a total maximum of $50,000. The only subsequent requirement is that they pay the withdrawals back into their plans (without further deductions) over a maximum of 15 years. Failure to do so will result in 1/15th of the RRSP initially withdrawn having to be added back to taxable income in any year the minimum re-deposit is not made.
A loan for the RRSP to be used as your down payment allows you, in effect, to borrow your down payment over the next 15 years.
NOTE: Situations may arise where the repayments may have to be made in less than 15 years. These situations are explained in HBP Repayment Situations.
One very good feature of the HBP, exploited by several of the major financial institutions (usually in cooperation with major Real Estate chains), is the ability to borrow money to top up your RRSP plan using accumulated RRSP eligibility limits. If your tax assessment notice indicates you are eligible for, say, $19,000 in contributions in the current year, and you already have $9,000 in a self-directed plan, these institutions will lend you - subject to a credit check - the $16,000 to buy the RRSP required to bring you up to the $25,000 HBP limit. You may wish to borrow the whole eligible amount to obtain the maximum tax deduction.
The idea is then to claim the eligible deduction against your current year's income in order to get a large tax rebate. This rebate can then be used either to pay down the loan, or applied to the cost of buying the home. Here, of course, the amount of tax you're paying each year is an important factor. If the $19,000 deduction in this example results in, say, a $6,000 tax rebate, then that's all the "free cash" you actually net from the process.
Here's the catch for those thinking of borrowing the money for the maximum RRSP: Unless you're planning to repay the RRSP loan quickly, or are able to extend the terms significantly this has the effect of greatly increasing the monthly payment, thus decreasing the chances of qualifying for a mortgage because of much higher "total debt servicing ratio".
Keep in mind that you (the participant) can only withdraw funds from an RRSP under which you are the annuitant. In the case of spousal or common-law partner RRSPs, the annuitant is the person who will receive benefits from the plan. For more information about spousal or common-law partner RRSPs, see RRSPs and Other Registered Plans for Retirement
NOTE: Some RRSPs, such as locked-in or group RRSPs, do not allow you to withdraw funds from them. Your RRSP issuer can give you more information about the types of RRSPs that you have and whether or not withdrawals can be made from these plans to participate in the HBP.
Credit scoring model seeks to quantify how likely the consumers are to pay off their debt without being late. The more your credit file demonstrates that you pay your debt on time, the more desirable you become as a potential customer. The higher the client's score is, the less likely they are to default on their loan.
Since choosing a right property to buy starts with needs and desires and finishes with a sizable portion of your earnings used for paying for it, it's important to ensure that the property you choose both meets your needs and is a good "fit" with your financial situation.
Regardless of how certain you are that you will get mortgage, it is always good idea to get pre-approved from the mortgage lender of your choice. This will officially address any questions about your eligibility, rate, terms and it will enable you to better negotiate for the property of your choice.
Familiarize yourself with the fundamentals of real estate before you invest in your first property.
Make sure your information is up to date. You have to know and be realistic about today's real estate market.
Location matters, so before you buy any real estate property, ensure that it's in a good location.
Regardless of how certain you are that you will get mortgage, it is always good idea to get pre-approved.
Keep in mind, the commission is always negotiable upfront, before you sign a contract.
If you are working with agent, make it clear that you want the agent, not his/her assistants, to represent you.
Before you buy any real estate property, have it inspected by a professional home inspector.
If you are buying property with a partner, have a proper partnership agreement to protect both of you.
Make sure you read your listing or buyer’s agreement carefully before signing it.
Don’t skip the final walk-through to make sure that everything is done properly, and that the items you agreed should stay are still there.