My First Mortgage
First Time Home Buyers Q & A
Are you looking to purchase your first home? You probably have a lot of questions. Your first stop in the process should be to speak with a mortgage broker. Most likely your realtor, if you already have one, will want you to be pre-approved before you start the house hunting process. We will take a look at your income, credit, debts and what you have for a down payment to determine what you can afford. We would also work within your budget to make sure you are comfortable with your mortgage requirements. If you are missing a key component to mortgage approval we will work to find a solution for you that gets you into your home sooner.
Costs Involved in Purchasing a New Home
NEW: You may be eligible for a tax credit of up to $750 from the Federal Government to help with the closing costs of purchasing your home. Please discuss this with your accountant to get full details.
NEW: The Federal Government has increased the limit on the Home Buyer’s Plan to $25,000 from $20,000 per person. See Below for more information.
Please keep in mind that these costs are only estimates and may vary from province to province.
FIRST: At Mortgage Planning Central we do not charge any fees to help arrange your mortgage (OAC). We are paid by whichever lender you choose to deal with. In some circumstances (poor credit or job stability), we have to arrange mortgages through private lenders. In this instance we will charge a fee. This fee will be fully disclosed up front, prior to submission of the deal.
PURCHASE PRICE: This is the first thing to figure out. Try our Mortgage Qualifier to give you an idea of what you can afford. Please do not hesitate to contact us to get specific details on how much you can afford.
1. Lawyer’s Fees
- Lawyer fees vary widely across Canada. You should be able to find a lawyer in the price range of $1000 - $1500 plus disbursements. The best thing to do is get a referral to a lawyer from family or friends, your mortgage broker or realtor, this way you will know that they are experienced. Then call them to find out what they charge and make sure they are available the week before your possession date to handle the sale. Also, please remember the old saying that you often get what you pay for.
2. Land Transfer Tax
- This is a tax payable to the Provincial Government by the purchaser upon the transfer of title. Not all provinces have a Land Transfer Tax. Please check with your Realtor or Lawyer for your province’s fees. Alberta does not currently have a land transfer tax.
4. Registration Fee
- These are fees that are paid to the provincial government for recording the transfer of title and mortgage registration with the local authorities. These prices are based on the purchase price of the home and also vary across Canada
5. Mortgage Default Insurance
- This allows many people in Canada to purchase their first homes with less than a 20% down payment. CMHC and Genworth Canada charge a sliding scale of fees depending on the amount of down payment being put towards the purchase as well as the amortization. This fee can be paid up front or added to the mortgage. Your mortgage broker will be able to give you a quote based on your down payment and purchase price.
6. Property Taxes
- At the time of the sale, your lawyer will determine if the taxes have been paid up to date or in advance. If the seller has paid their property taxes in advance your lawyer will determine how much the buyer must compensate the seller. If they are not up to date the seller is required to pay them. You must be prepared to pay an adjustment at the time of property transfer. Your lawyer will be able to give you the details of the amount required, if any.
7. Mortgage Appraisal Fees
- If the lender requests an appraisal of your property, it is your responsibility to cover the cost. The fees usually range between $300 - $350 unless your property is exceptional. If your mortgage is high ratio and insured by CMHC or Genworth Canada than they will cover this cost for you.
8. Home Inspection
- This is a very wise choice when buying a new property. It is a report that will state the condition of the property prior to firming up the deal. The majority of reports will indicate any problems and provide a cost to repair them. Qualifications for home inspectors may vary as well as the cost associated with this. Please verify the inspectors experience before making your selection as a person does not have to be licensed to say they are a home inspector. Most realtors have great referrals for home inspectors.
9. Title Insurance
- Many lenders are requiring title insurance upon closing. Title insurance protects against any defects in the registration of the home. The cost averages around $200 but is based on the value of the home. There is also a free title insurance offered by the Alberta Law Society called Western Protocol. Not all lenders or lawyers use this so please ask them up front. The lawyer will be able to give you the exact cost of title insurance if required.
The down payment can be the most difficult and challenging part of buying a new home. If you are having trouble raising money for a large down payment you can still qualify with as little as 5% down.
In this instance, your mortgage will have to be insured by CMHC (Canada Mortgage and Housing Corporation) or by Genworth Canada. If you have less then 20% to put down, your mortgage is considered to be high ratio. High ratio mortgages insured by CMHC or Genworth Canada are charged a one time insurance premium of up to 3.75% of the total mortgage amount, depending on the size of your down payment and amortization. This amount can be paid in full at the lawyer’s office or added to the total cost of your mortgage. Most home buyers simply add this to the top of their mortgage and have it included in their mortgage payments.
Your down payment can come from several sources:
- It can come from savings
- It can come from investments
- It can be given to you from family
- It can come from your RRSP’s under the Home Buyers Plan
- It can come from the sale of goods
No matter where it actually comes from the lender will want to see documentation on it. Bank statements for savings, investments or RRSP’s. A letter from the family member giving you the down payment. Or, a bill of sale if you have sold a car or personal goods. It can also be any combination of the above. Please let your broker know where the down payment will be coming from so that they can tell you exactly what documentation will be required.
Home Buyer's Plan
You may be able to withdraw up to $25,000 tax-free from your Registered Retirement Savings Plan (RRSP) under Canada Customs and Revenue Agency’s Home Buyer’s Plan to add to your down payment or to cover other purchasing costs. Your spouse or partner can do the same for a combined total of $50,000. To avoid paying tax on your withdrawal, you must repay the funds to your RRSP within 15 years. You must meet the following conditions in order to qualify for this program:
- You have to make your withdrawal request in the same year you wish to participate in the Home Buyer’s Plan.
- You have not participated or owned a home within the last 5 years.
- You are a resident of Canada
- You have to enter into a valid written agreement to purchase or build a qualifying home.
Please click here to take you directly to the government Home Buyer’s Plan web page.