Archive for the 'First Time Homebuyers' Category

August 27, 2018

Helping Clients Find A Down Payment They Can Afford

One dollar isn’t that much money in the grand scheme of things, but when it comes to buying a house it can make all the difference.

Back in February of 2016, Canadian mortgage rules tightened concerning mortgages over $500,000. The Canada Mortgage and Housing Corporation (CMHC) announced changes to the required down payments.

This is how much down payment is required per house purchase price:

Purchase price of home: $500,000 or less

Minimum down payment required: 5% of the purchase price

Purchase price of home: $500,000 to $999,000

Minimum down payment required:

  • 5% of the first $500,000 of the purchase price
  • 10% for the portion of the purchase price above $500,000

Purchase price of home: $1 million or more

Minimum down payment required: 20% of the purchase price

Those who are self-employed or who have poor credit history may be required to provide a larger down payment. With new mortgage stress test rules, it may be beneficial for a client to put down a more significant down payment to pass the stress test.

This might be a miniscule difference when it is on a smaller scale, however, it can quickly increase.

Take for instance a client who wants to purchase a $400,000 house vs. a $600,000 house ($20,000 minimum down payment vs. $35,000 minimum down payment). Or a client who wants to purchase a $900,000 house vs. a $1.1 million house ($65,000 vs. $220,000 minimum down payment).

It’s possible that real estate sales professionals might not even feel this impact because people are getting declined when looking for mortgage pre-approvals, therefore they never engage a real estate agent.

How can you help a client who wants to buy, and is on the line?

  • Independently check the values of interest properties. Make sure the property values are in line with the price being advertised.
  • Look for pockets where the client could get into the market – different neighbourhoods, dwelling types, etc. One neighbourhood might be out of their range, but they could get the same-sized house a little further away.
  • Review different scenarios with the client so they set realistic expectations. For instance, while the $1.1 million house may have different features from the $900,000 house, the down payment would cost at least $155,000 more. Similarly, the $400,000 may not have all the features as the $600,000 house, the down payment would be at least $15,000 less.

GeoWarehouse has the tools that make you the property expert. Help your clients find the properties and neighbourhoods where they can make the minimum down payments with ease.

Learn more about our property reports and neighbourhood search features at www.geowarehouse.ca.

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Ontario closing costsYou have probably represented many first time homebuyers. First time homebuyers are in a unique position because, depending on where they buy, they could have the opportunity to benefit from significant tax breaks.

Closing costs can be challenging because there are so many of them – but fortunately for you, if you are representing a first time homebuyer, their closing costs won’t reach the level of someone who has already owned a home in Ontario.

Here is a little summary of closing costs in Ontario and first time homebuyer tax credits and rebates.

  1. Legal fees and disbursements: if there is a mortgage to be registered the legal fee and disbursements will be greater.
  2. Insurance: your client will need fire insurance, and if there is a mortgage, they should look at mortgage insurance and possibly life insurance too.
  3. Property tax: if there is an overpayment on the tax bill at the time you buy, you will have to repay the amount on closing. Also, if your client is getting a mortgage and the mortgage will be collecting their tax payment monthly, there may be a property tax holdback of 3-6 months that will also have to be paid on closing.
  4. Appraisal: if the lender has requested an appraisal, your client can expect to pay $300-$400 if the lender has not agreed to pay for it.
  5. Home inspection: this could range anywhere from $400 and upward depending on the company.
  6. Interest adjustment: there will be an interest adjustment applied from the date of closing to the date of first payment date, this will have to be paid on closing.
  7. Land transfer taxes: these can get complicated with all the rebates and exemptions available.

In Ontario your client will have to pay land transfer tax equal to:

  • 5% of the value of consideration for the transfer up to and including $55,000.
  • 1% of the value of the consideration which exceeds $55,000 up to and including $250,000.
  • 5% of the value of the consideration which exceeds $250,000.
  • 2% of the amount by which the value of the consideration exceeds $400,000 for land that contains at least one and not more than two single family residences.
  • Check here for more details: http://www.fin.gov.on.ca/en/tax/ltt/rates.html.
  • If the buyer lives in Toronto:
    • 5% of the value of consideration for the transfer up to and including $55,000.
    • 1% of the value of consideration from $55,000.01 to $400,000.00.
    • 2% of the value of consideration over $400,000.00.

Now here is where first time homebuyers get a break:

In addition to these rebates, and aside from first time homebuyers, you have some other clients who stand to benefit from land transfer exemptions as well. According to this publication by Schwartz Law, these exemptions include:

  • Transfers between spouses
  • Transfers where there is no consideration (this has many conditions)
  • Transfers of land between affiliated corporations
  • Transfers of land to a family business corporation
  • Of course, all of the above have some conditions so you are best to speak with a real estate lawyer to find out if your client qualifies

Ok, so back to first time homebuyers – in addition to all the first time homebuyer rebates that exist, there are also first time homebuyer tax credits. There is a tax credit for certain first time homebuyers that acquired a qualifying home after Jan 2009. You can find complete details here to see if your client qualifies: http://www.cra-arc.gc.ca/gncy/bdgt/2009/fqhbtc-eng.html.

We have to remember that clients, especially first time homebuyers do not know as much as you about real estate. Many times people simply miscalculate their closing costs, and when this happens the result in closing could surprise – but this is usually not the best scenario. The best way to avoid any kind of a surprise on your closings is to make the effort to know more, learn more about LTT rebates and credits. Also investing in tools that you can use to investigate applicants and properties like GeoWarehouse can be very useful.

For more about how to help your clients save big bucks on closing, or to get the most information available, please visit www.geowarehouse.ca.

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