Mortgage Options For First Time Home Buyers
Buying your dream home can turn into a stressful and overwhelming experience for first time buyers. There are just too many things that you have to take into consideration all at the same time. Foremost of your concern is your readiness to make a major investment and your capability to sustain the financial burden over a longer period of time.
One of the first things that you must do is to assess your financial position. You can do this by considering your personal net worth, your total debt and your monthly expenses. Your net worth is the basic information that you will need when you apply for a mortgage. It is also essential to take into account your current credit portfolio as well as your expenses in order to determine how much you can afford to pay for your dream home on a monthly basis.
* Fixed-Rate Home Mortgage
This is the type of home mortgage plans that bear interest rates that will remain unchanged for the entire term of the home mortgage.
* Variable Rate Home Mortgage
This is also known as adjustable rate mortgage. The interest rate of this type of home mortgage follows the movements and changes of prime rates by ICICI Bank Canada.
* Conventional Home Mortgage
This type of mortgage can be equivalent to but cannot exceed 80% of the value of purchased real estate property.
* High-Ratio Home Mortgage
This type of mortgage will only require a minimal down payment which is equivalent to at least 5% of the appraised value of the real estate property. This type of mortgage must be insured with the Canada Mortgage and Housing Corporation.
* No-Down Payment Home Mortgage
First-time home buyers can now have the opportunity of buying a home without any down payment. The CMHC as well as other lending companies are now offering this no-money down option for first-time homeowners. These mortgage plans are offered to home buyers that meet the minimum Beacon score of 600. Home buyers who avail of these privileges shall only be required to raise an amount equivalent to 1.5% of the price of the real estate property to cover the closing cost.
*Home Buyers Plan
Under this program, first-time home owners can withdraw a maximum amount of $20,000 from their Registered Retirement Savings Plan (RRSP). One unique feature of this program is that it is tax free, and you and your spouse or common-law partner can apply separately to double the amount that you can raise. You can use the amount to pay the down payment of the real estate property that you are planning to purchase and other purchase-related items.
Before you finally decide on the best mortgage option, it is crucial that you take into account other intangibles. For instance, seriously consider those mortgage plans that allow you to suspend or defer payment for a few months. This will give you some elbow room to manage your finances during times of emergencies. It is also crucial for first-time home buyers to get some help from home mortgage experts so that they can properly assess their options and determine what they can actually afford before starting their hunt for their dream home.
Find even more resources for FSBO here: FSBO Sellers Packages
If you’re looking to buy a home from an FSBO listing check here: FSBO Listings
Mortgage FAQ:
Question: How does the Canadian credit system work with regards to getting a mortgage?
How long do you have to build up credit for? Do you need to have maintained a certain amount of money in the bank for a certain period of time? Basically any info you can give me on getting a mortgage in Canada would be much appreciated; I might be relocating to Ottawa and could use all the help I can get!
Answer: Having a good credit rating and some savings is very useful in getting a mortgage, but the majority of the concentration is on whether or not you will be able to pay back the amount.
If you have relationships with any banks in Canada that helps as well. I work at a bank and I am well aware that if you have been with one of the banks for a significant period of time they are far more likely to approve you for a mortgage.
You can get mortgages with no money down, but having savings in the bank for a significant period of time does help as well.
Contact a mortgage broker, as they are specialized in ensuring that you will be able to get a mortgage. The Canadian system works much in the same way as the US one but functions at a much lower risk level, resulting in a lack of a sub-prime crisis here north of the border.
Question: Can I deduct mortgage interest paid on a Canadian home?
I am a US Citizen living and working in Canada. I purchased my home in 2007 and since I cannot deduct the interest paid here in Canada, I thought maybe I could get something on my U.S. taxes? But then again, does it even make sense if I have no US income?
Answer: In most cases, you will be able to exclude your foreign earned income form US taxation – you will, naturally, have to pay Canadian taxes, which are usually higher.
If you have US income from other sources even while living abroad that you need to pay taxes on, then you can itemize to reduce it. Nothing in IRS pub 936 (Home Mortgage Interest Deduction ) or pub 593 (Tax tips for citizens living abroad) suggests that a home must be in the US for mortgage interest to be deductible.
Question: What were Canadian interest rates in 1998 for mortgage, cars, credit cards and savings?
This is for a time capsule for the year 1998, so I’m just looking for some info to get an average idea.
Answer: In your local library there are archives for 1998 and you can check in ‘Globe and Mail’ or ‘Financial Post’ newspaper. You can also visit their website and check for archives. If you live in Toronto then visit Toronto Reference Library.
Question: How does a Canadian Citizen who relocating to the US with a new job offer able to obtain a US mortgage?
How does the past credit history in Canada looked up in the US? Is there a special area in the mortgage companies that deal with this kind of situation?
Answer: You just need a Visa, Social Security Number and credit. Most of the creditors are international. Have a U.S. Lender run your credit. It is not hard to get credit onto your report.
Question: Did the Canadian government offer a bank bailout to Canadian banks?
It appears that the Canadian government has offered up to 75 billion dollars to Canadian banks in order to buy up their risky mortgages through the Canadian Mortgage and Housing Corporation (CMHC). What do you think?
Answer: I don’t consider this to be a bailout, and it would be inaccurate to classify these mortgages as “risky.”
These mortgages were already guaranteed by the CMHC, making this a virtually risk-free endeavour. Traditionally the banks would have sold these mortgages to other banks. Because of the financial crisis, interbank lending has all but stopped.
The intention then is to free up the bank’s cash so they can continue to lend to consumers. It also ensures the banks continue to be competitive on a global perspective in light of the ‘real’ bank bailouts that have been occurring around the world.
Question: How do I remove ex spouse’s name from Canadian mortgage without refinancing?
Answer: Provide the bank with the decree nisi (final divorce decree) and disposition of marital assets. If it’s all yours, then with the divorce decree they may drop your ex off the loan.
Question: Can US residents buying Canadian property deduct taxes and mortgage interest on their US tax return?
Answer: Yes. US residents buying Canadian real property can deduct taxes and mortgage interest on their US tax return, subject to the same limitations as if it were a U.S. property (i.e. mortgage interest is limited to a principal or secondary residence and up to $1 million in mortgages). In addition, if the Canadian property is your principal residence, it will qualify for the U.S. home gain exclusion of $250,000 if single/married filing separately or $500,000 if filing a joint return.
You also need to consider the Canadian tax rules if this is a rental property (i.e. you will need to file a Canadian personal income tax return. If this a Canadian residence for you, Canada does not allow the deduction of home mortgage interest, but the gain is tax free. Also look at the Canadian-US income tax treaty which could subject you Canadian tax on the sale of the property in certain instances.
Question: What are the differences between Canadian mortgages and US mortgages?
I know that one difference has to do with taxes being deductible in one and not in the other? Can someone please explain that?
Answer: In the US the interest portion of the mortgage payment on your principal residence is a tax deductible expense, but you may have to pay capital gains tax upon the sale of your home.
In Canada you can’t deduct mortgage interest (some exceptions), but you don’t pay capital gains on the sale of your principal residence.