First home purchase tips

Are you tired of renting and it's now time to buy a home? Maybe you're tired of living with your parents and now is the time for you to go off on your own. There are several things to consider before you should head out and start shopping for that first home. Things like down payment, qualifying for a mortgage, where you want to live and many other factors must be considered. Let’s discuss the down payment for your mortgage issue.

Having a big enough down payment can be a big problem for many individuals. But for some, there is salvation. Did you know that you can use your RRSP money towards your first time home purchase? It’s true; the federal home buyers program will allow you to use tax free money to put towards your home purchase and perhaps even towards building your first house.

Why would you want to do this? Well, the biggest benefit is that the money is there (if you have rrsps) and using this money will make your down payment bigger, lessening the bank’s risk and therefore probably getting you a better mortgage interest rate. If you put down more than 20%, you even avoid mortgage insurance because you won’t have a high ratio mortgage. Not having a high ratio mortgage means you save the mortgage insurance fees which can be significant. Also, using RRSP money means you can get going sooner, as opposed to having to save up your entire down payment.

So here’s the deal. If you have RRSPs you’ve been accumulating over the years, you can borrow up to $25,000.00 from your account, $50,000.00 if you and your spouse decide to unite and do this together.

Keep in mind that your RSPs must not be locked in. The money is all tax free as long as you honour the simple repayment plan. You should also know that there may be conditions you should be aware of, such as that you should be “under contract” before the money can be withdrawn and as well as the money should be withdrawn all at once. You should also know that you have until October 1st of the next year after the withdrawal to complete your purchase. This is important to know, especially when having a new home constructed.

Repayment of the borrowed RRSP money starts the 2nd year following the withdrawal and you must make sure you diligently repay the money on time as required. You have fifteen years to replace the money and you have to pay at least one fifteenth of the money borrowed each year of the fifteen years.

Talk to your preferred mortgage broker to build a strategy that will work best for you. It’s a simple process, done nearly everyday. Just make sure you understand the rules and procedures before you begin so you don’t run into any surprises.