Credit to Author: Amit Sadhu| Date: Wed, 25 Mar 2020 23:06:23 +0000
Buying a home is an exciting milestone for many Canadians – including many new Canadians. In fact, a recent poll by Royal LePage found that one in five homes purchased in Canada in 2019 were purchased by newcomers.
Finding the right home in the right neighbourhood is often top of mind for prospective buyers as they begin their search. But being properly prepared financially is a necessary first step to make the leap into home ownership. The home-buying process may different from what you are used to back home but setting incremental goals can help you succeed on your path to home ownership in Canada.
Here are some tips to help you get started:
1. Meet with a financial advisor
Having a good sense of your current financial situation will help you understand how to achieve future goals like owning a home. Speaking with a professional – including a financial advisor or a mortgage specialist – can get you on the right path with a budget and clear attainable goals.
2. Start saving
Savings and investment tools are a great way to set aside money for your home. As soon as you arrive in Canada, you can start contributing to a Tax-Free Savings Account (TFSA). This is a savings tool with annual contribution limits (currently $6,000 per year) that allows you to save and invest tax free and withdraw the funds at any time. If you are employed in Canada, an alternative savings tool available to you is a Registered Retirement Savings Plan (RRSP). RRSPs are tax-deferred; you don’t pay tax until you make withdrawals. As a first-time home buyer, you are entitled to withdraw up to $35,000 tax-free from an RRSP through the Home Buyers’ Plan to put towards your home and you have 15 years to repay what you withdraw.
3. Learn about government programs
Did you know the Canadian government has incentives for first time home buyers? Programs like the First Time Home Buyer Incentive, The Home Buyers’ Amount and the GST/HST Housing Rebate extend savings and incentives to those purchasing their first home. Visit the Canada Mortgage and Housing Corporation (CMHC) website, placetocallhome.ca, for more information on program eligibility.
4. Be prepared for the “hidden” costs of home ownership
As you consider home ownership, it is important to factor in all the associated costs and fees. Costs like land transfer tax, legal fees and realtor fees are all part of the larger financial picture. Factoring them into your budget will help curb any last minute surprises when it comes time to make the big purchase. And don’t forget the ongoing costs of home ownership! Home insurance, property tax and utility bills should all be added to your budgets.
5. Know the rules
Familiarize yourself with the rules surrounding home ownership including mortgage stress tests – a set of tests designed to help Canadian homeowners know if they are buying a home they can afford now and in the future. Having a firm understanding of what is required from you as a prospective homebuyer will help you better understand how big of a mortgage you are eligible for and how a change in interest rates may impact affordability for you.
Using the right tools and resources you will be able to arm yourself with the information you need to get started on your journey to home ownership.