As you know, I have curated this section especially for first time home buyers. My hope is this information will give you some insight on the programs available to you to take advantage of as you embark on this new journey. As always, my goal is to empower you with the right information so you are savvy, prepared and knowledgeable on how to best navigate home buying. Although I have touched on the Home Buyer’s Plan in the past, I have had many questions about this in the past month or so – mainly do the fact that home and condo prices are coming in higher that most have budgeted for and this is a great option to be able to make the purchase more a reality.
Home Buyer’s Plan (HBP)
Buying a home is challenging enough, but when you add into the mix the price of homes, being a first time home buyer AND experiencing the crazy hot market we are right now – it can seem nearly impossible. And trust me, I understand, on average it may take several tries before securing a property due to the sheer volume of offers to a given property. Canada’s Home Buyer’s Plan allows you to borrow from your Registered Retirement Savings Plan (RRSP) with the condition of returning those funds within 15 years. A First Time Home Buyer can withdraw up to $35,000 (a couple can borrow up to $70,000) tax-free for their down payment.
To prove you qualify for this program you must provide a signed agreement to buy or build a qualifying home. The funds also have to have been in your RRSP for at least 90 days.
Borrowing from your RRSP can provide that material difference between being able to buy a home or not. You see, this can prevent first-time home buyers from having to get costly mortgage default insurance. Mortgage insurance is mandated Federally if you have a down payment of less than 20% of the cost of your home. To give you an example, if you were to only be able to provide a 5% down payment (the minimum equity required by a regulated financial institution), the insurance premium can be as high as 3.15% of the value of your loan.
I caution you though, this is a loan not a handout; which means it must be paid back. Starting 2 years after your home purchase, you are required to make annual payments over the course of 15 years to pay back the loan to your RRSP. Failing to make those payments could ultimately cost you more in the form of income taxes.