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First Time Home Buyer Mortgage
First Time Home Buyer
There is nothing more exciting than buying your first home. Whether it’s to start a family, make the home your own or to put down roots for safety and stability, home ownership is an exhilarating experience. Understandably it can feel overwhelming with so many things to consider, in addition to choosing the perfect house. Ideally before beginning house hunting, knowing what you can afford and understanding first time home buyer programs will make the experience easier.
Square Capital offers innovative mortgage solutions working with banks and private lenders to provide borrowers with fast 24-hour mortgage funding options (subject to terms and conditions).
Mortgage Solutions in Toronto, GTA and across Ontario
First-Time Home Buyer Considerations
As a first-time home buyer there are many things to consider such as can you qualify for a mortgage, how much you can afford, how much of a down payment you may need and whether you’ll need mortgage default insurance (CMHC insurance*). Additionally first-time homebuyers need to know about other costs that they may not have included such as closing costs, legal fees and land transfer taxes.
First time Home Buyer Programs
It’s getting harder for first-time home buyers to qualify for a new home purchase in Toronto and across Ontario. The Canadian Government recognized this and established programs to help. The first-time home buyer programs were implemented to provide access to: incentives, the Home Buyers Plan, tax credits, and GST/HST rebates. There are conditions and qualifiers so its essential to speak to a mortgage expert to understand your options. Here is an overview, that may not include the conditions to meet program requirements for first-time home buyers.
First-Time Home Buyer Incentive
The First-time home buyer incentive is intended to make it easier to afford your first home. The Canada Mortgage and Housing Corporation* (CMHC) wants to help alleviate financial burdens from first-time home buyers. In order to qualify you must have the minimum down payment for an insured mortgage. Then first-time home buyers can apply to finance a portion of the home purchase through a shared equity mortgage with the Government. This program offers either 5% or 10% of the home’s purchase price for your down payment. There are criteria to qualify for this first-time home buyer incentive:
- Borrower(s) are a first-time home buyer
- Home buyers total qualifying annual income cannot exceed $120,000
- Buyers total mortgage is no more than 4 times the qualifying income
- Borrowers are Canadian citizens, permanent residents or non-permanent residents authorized to work in Canada
- Home buyers meet the minimum down payment requirements with traditional funds
Home Buyers’ Plan
Imagine a self funded interest free loan. The first-time home buyers plan* allows borrowers to withdraw funds from their registered retirement saving plan (RRSP) to buy or build a new home. Home buyers are able to withdraw up to $35,000 tax free to put towards their down payment. This means if there are two first-time home buyers, they can borrow up to $70,000 tax-free. Withholding tax will not be withdrawn. This money will need to be repaid within 15 years.
Home Buyers Tax Credit
First-time home buyers are able to access a tax credit* of up to $750 (for an eligible individual) for the purchase of a qualifying home. There are conditions to meet and this credit can be claimed the year you purchase a home.
GST/HST New Housing Rebate
First-time home buyers may be eligible for a new housing rebate* for some of the GST /HST. Newly built homes in Canada, building a major additional to your existing home or substantial renovations may qualify for this rebate.
Land Transfer Rebate
In some provinces such as Ontario, first-time home buyers can qualify for land transfer tax refund. When you buy property in Ontario, you will have to pay land transfer tax. As part of the Ontario Government* program, first-time home buyers may be eligible for a refund of all or part of the tax.
The City of Toronto** also offers first-time home buyers a land transfer tax rebate of up to $4,475. This first-time home purchase rebate applies for new construction and resale residential properties. As per the City of Toronto, borrowers must meet requirements to qualify:
- The home buyer is at least 18 years of age
- The home buyer must occupy the home as their principal residence no later than nine months after purchase
- The home buyer cannot have previously owned a home, anywhere in the world, at any time
- The home buyer’s spouse cannot have owned a home anywhere in the world while they were the purchaser’s spouse
- the purchaser is a Canadian citizen or permanent resident of Canada
*Ontario Government Land Transfer Tax Refunds for First-Time Homebuyers
**City of Toronto Municipal Land Transfer Tax Rebate Opportunities
Factors to consider
There are many factors to consider when deciding if homeownership is the right choice. As major cities in Canada like Toronto and Ottawa in Ontario, are becoming unaffordable, first-time home buyers need to have as much information as possible to make good financial decisions. Some key factors lenders and mortgage brokers review are:
- Affordability
- Credit score /history
- Down Payment
- Income/employment
- Property Location
It makes good financial sense to figure where you stand so you can make educated decisions. Being informed about your own financial situation will make an already stressful situation less so.
Affordability
Usually, mortgage lenders will look at your ability to carry debt compared to your income. This means knowing how much you really spend, versus what your income is. In addition to understanding what you spend on today, First-time home buyers should consider what is involved with housing costs. Housing costs include:
- Monthly mortgage that includes principal and interest
- Property taxes
- Heating costs
- 50% of condo fees (if applicable)
In addition to housing costs, mortgage lenders will factor in:
- Credit card payments
- Line of credit payments
- Car loans
- Other loans
- Other debt payments
Once this information is collected, it is assessed against the income earned. There are also closing costs to include when estimating how much you will need such as: home inspection and appraisal fees, home insurance, land registry fee, moving costs, repairs and renovations. First-time home buyers are encouraged to pre-qualify with a mortgage pre-approval.
Credit Score/History
It is important for first-time home buyers to know their credit score. A credit score is a reflection of your financial health and an indicator that mortgage lenders will consider as part of your application. First-time homebuyers with bad credit may still be able to qualify for a mortgage. Mortgage brokers and agents have experience in situations where borrowers may be dealing with high debt levels, bad credit or are self-employed and can help to provide alternative lending options.
In today’s housing market, prices are rising rapidly and managing bigger monthly debt payments will be challenging. If homebuyers have sufficient credit history, stable income and an established credit rating they may qualify for a lower rate mortgage. However, if any of these factors are not met, there are other mortgage financing options that could utilized to get you a first-time home buyer mortgage.
Down Payment
A key determinate in how much you can spend on a new house is the amount of your down payment. A down payment is the amount of money that is put towards the purchase of your home. In Ontario, first-time home buyers have to put a minimum down payment based on the value of their property.
The minimum down payment in Canada depends on the purchase price. The Financial Consumer Agency of Canada provides the following table for reference:
The minimum down payment based on the purchase price of your home
Purchase price of your home | Purchase price of your home |
|---|---|
$500,000 or less | 5% of the purchase price |
$500,000 to $999,999 | 5% of the first $500,000 of the purchase price 10% for the portion of the purchase price above $500,000 |
$1 million or more | 20% of the purchase price |
Mortgage lenders will also consider loan to value or LTV when evaluating your ability to qualify. LTV is the amount of the loan compared to the value of the home.
How to calculate loan to value: mortgage loan amount ÷ home value * 100
Usually mortgage lenders, including private lenders, will approve first-time home buyers with an LTV that is typically 80% or less with some lenders approving up to 95% of LTV.
Income/Employment
Having regular income or consistent cash flow for the self-employed is vital. Mortgage lenders want to know that you will have the ability to payback the loan. Often lenders assess the duration of your employment or source of cash flow. First-time home buyers with consistent income will have an easier time proving financial stability that makes simpler to qualify for a mortgage. Have your letter of employment, most recent paystubs or if self-employed your notice of assessments ready.
Property Location
Location! Location! Location! Well known in the real estate industry, location is everything. It’s usually pretty easy to get a mortgage for a home in cities like Toronto. Some mortgage lenders will not consider certain cities or towns so its best to contact a mortgage broker in advance for a pre-approval.
Questions about first-time home buyer mortgages
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Other Mortgage Options
Other mortgage options
Homeowners have choices and can consider options to leverage their home equity. Depending on the product, these options may have slightly higher interest rates.
Home Equity Line of Credit (HELOC)
There are different products that provide flexibility for the most suitable mortgage loan options such as home equity lines of credit or HELOC. A HELOC still enables access to the home’s equity, just in a different way. Instead of a single (or lump sum) payment, a HELOC provides on-going access to a certain amount of money, similar to a credit card, with a lower rate. The amount of the HELOC depends on the value of the home.
The benefit of a line of credit is that payments are interest-only payments and homeowners can access it when needed. Downsides include variable interest rates and access to the total amount of the HELOC, which could lead to more unwanted mortgage debt. That being said, there are opportunities to lock in rates to protect monthly mortgage payments.
Private Mortgage
When homeowners cannot qualify for a mortgage to refinance through a bank mortgage debt consolidation or a home equity line of credit (HELOC), private mortgages may be an alternative. Since private mortgage lenders will secure a mortgage debt consolidation against a home, the interest is usually lower than high interest debts like credit cards.
Private lenders usually charge a higher interest rate and fees than a bank, given the higher level of risk, however, this option still reduces interest costs over time. This is because these lenders understand that situations exist such as quick turnaround for financing, bad credit, stated income, and non-conventional properties.
Typically, private mortgages are shorter-term products and only require the interest portion to be repaid. Private lenders evaluate risk differently than traditional lenders and will consider the borrower’s ability to repay which is beneficial to self-employed and people with bad credit. Private lenders can also provide debt consolidation options through second mortgages.
Second Mortgage
Borrowers unable to qualify for a mortgage refinance leveraging equity, could consider a second mortgage. A second mortgage will provide the option to consolidate loans with higher interest into a lower rate option. While interest rates for second mortgages tend to be higher, it will save money on interest costs over time. Speak to a mortgage broker to understand the costs associated with a second mortgage.
Reverse Mortgage
An option available to homeowners 55 and older are reverse mortgages that provide access to the home’s equity without having to sell. Reverse mortgages allow homeowners to borrow up to 55% of the value of the home. The concept of this mortgage is essentially a reverse loan that means there are no payments required. Payments will be made either in monthly payments or in a lump sum payment to homeowners. Homeowners will pay the reverse mortgage loan when they move, sell or the last borrower dies. Typically, the interest rate is higher, and there are fees additional associated with reverse mortgages.
Debt Consolidation Mortgage
To understand if a debt consolidation mortgage or a HELOC could be suitable options to consolidate debts, and help get your life back on track, contact Square Capital Mortgage Brokerage. We understand each case is unique and there are many factors to consider including homeowners with bad credit or low income. Unlike traditional lenders like banks and financial institutions, with very strict lending terms, Square Capital works with over 50 lenders, including private lenders, to find the right solution for our clients. Our expert mortgage brokers and agents will help to find solutions to lower your monthly payment and reduce or stop the interest on your debt. Lower monthly payments every month reduces the chances of financial default while improving your credit and managing your money wisely.
Learn more about leveraging home equity for products such as mortgage refinance, home equity lines of credit (HELOC), and second mortgages.
Budget Planning and Expense Tracking
While products like debt consolidation mortgages, HELOCs, and private mortgages are tools to financial freedom, managing debt is the key to success. Practicing better money management in daily life like budgeting, monitoring spending, and saving. There are many free online apps that can support homeowners to achieve financial freedom and get better at managing money.
Start Your First-Time Homebuyer Mortgage
Due to the challenges involved in applying for a first-time homebuyer mortgage, Square Capital can help you get the best first-time homebuyer mortgage options for you. We can help you lock your rate and know exactly how much you can afford. Start your first-time homebuyer mortgage online.
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