13 Jul

How tenants can help pay your mortgage

Buying a Home

Posted by: Garth Chapman

The single most common and often most significant road to financial security for Canadians is paved by home ownership.  And for first-time home-buyers often the largest barrier to getting started is the monthly cost.  So why not consider a home with a rental suite that would allow you to have a tenant who pays rent, which would lower your home ownership costs?  Such a property might not be the home of your dreams, but if it gets you into the game then it might just be a great way in.  After all, down the road you could move up and keep that first property – now with two renters covering all the costs and then some.

And if it works well for you, then why not have 2, or 3 or more such properties.  It doesn’t take many to, once paid off in say 25 years, to fund your financial freedom.

And for seniors and those on fixed incomes, or those living in high-price markets, the rental unit can make it much easier to stay in your home far longer than you might otherwise be able to.

Read more here: How tenants can pay your mortgage

12 Feb

First Time Home Buyer Tax Incentives and Credits

Building a New Home

Posted by: Garth Chapman

The good news begins with a generous definition of who is a first time home buyer: to qualify as a first-time home buyer, which generally means you and/or your spouse (whoever will be on the Title and Mortgage for the home) must not have owned a home in Canada for 4 years. And now, to the two plans currently available to Canadians.

 

First-Time Home Buyer’s Tax Credit (HBTC)

The First-time Home Buyers’ Tax Credit was introduced to assist Canadians in purchasing their first home. It is designed to help recover closing costs, such as legal expenses, inspections, and land transfer taxes, so you can save more for money for a down payment.

The Home Buyers’ Tax Credit, at current taxation rates, works out to a rebate of $750 for all first-time buyers. After you buy your first home, the credit must be claimed within the year of purchase and it is non-refundable. In addition, the home you purchase must be a ‘qualified’ home, described in more detail below. If you are purchasing a home with a spouse, partner or friend, the combined claim cannot exceed $750.

You will qualify for the HBTC if:

  • you or your spouse or common-law partner acquired a qualifying home; and
  • you did not live in another home owned by you or your spouse or common-law partner in the year of acquisition or in any of the four preceding years.

Program in overview http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns360-390/369/menu-eng.html

Fact Sheet http://www.cra-arc.gc.ca/nwsrm/fctshts/2010/m01/fs100121-eng.html

 

The RRSP Home Buyers’ Plan – for first-time home buyers (HBP)

The Home Buyers’ Plan (HBP) is a program that allows you to withdraw funds from your registered retirement savings plan (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability. You can withdraw up to $25,000 in a calendar year. You must qualify as a first-time home buyer, which generally means you and/or your spouse must not have owned a home in Canada for 4 years.

Your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the HBP, or they may not be deductible for any year – see here http://www.cra-arc.gc.ca/E/pub/tg/rc4135/rc4135-e.html#P233_15310

Generally, you have to repay all withdrawals to your RRSPs within a period of no more than 15 years. You will have to repay an amount to your RRSPs each year until your HBP balance is zero. If you do not repay the amount due for a year, it will have to be included in your income for that year.

All the info here http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html

And here’s some more info on how long the money must be in your RRSP before you withdraw it for the HBP.  Let’s say a qualified first-time home-buyer contributed to his RRSP near the end of February.  The buyer then finds a home with a willing seller, but is unable to get a possession date late enough to meet the following requirement: “Your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the HBP, or they may not be deductible for any year.”

It turns out that the client actually has 30 days after possession to still take out his money from his/her RRSP and use it for the Home Buyer’s Plan.

Moreover CRA does not care if the buyer uses that money to buy a car, go on vacation or spend it on anything else, as long as he/she buys a qualified home and is a first time buyer.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/cndtns/wn-eng.html

19 Jun

On Buying and Financing a Vacation Home

Buying & Refinancing a Home

Posted by: Garth Chapman

Questions to ask before buying a vacation home………

Buying a home is a big step in life that requires financial planning, saving and lots of upkeep. And yet, many people find that they like being a homeowner so much that they want to purchase a second home as a recreational or vacation spot. For those who are financially secure enough to do so, a vacation home can be a great investment for the entire family and increase wealth as property values continue to climb. Before jumping in with both feet, here are a few questions to ask yourself before applying for a loan or making an offer on a second home:
What will I use it for?

If you’re looking to purchase a property that you will only visit a few weeks out of the year, then it might not make financial sense to buy. Instead, you could consider renting during the time that you want to spend away from home. For the person who will be able to spend at least two months or more at their second property, it can be a good investment.

Beyond your personal or family use, you can consider buying a home that will be rented out as a vacation property. Instead of leaving the house vacant all year round, you can lease it to make some money or help pay off the mortgage. However, this may require additional insurance or coverage options to ensure that you are protected when someone else is staying in your second house.

Are you preapproved?
Before shopping for a home, the best way to see if you are financially able to purchase is by getting preapproved for a home loan by a lender. Taking on a second mortgage is a big responsibility, but you may have options to consolidate your debt. If you are financially secure enough for a second mortgage, you may keep them separate. Furthermore, you need to be confident that you can make a down payment. For a second mortgage, you may not have the same types of options for a home loan, which means you may need to make a down payment up to 20 percent. Other costs need to be accounted for as well, including maintenance, homeowners insurance and mortgage insurance (if required).

Are you sharing ownership?
It’s not uncommon for family, friends, or even business partners to go in together on a property for shared ownership. This can help cover all the additional costs if you can’t afford a second recreational house on your own. In theory, splitting up the expenses and sharing property sounds like a great idea. However, in practice, it can be complicated and stressful. For instance, if there are upgrades or repairs that need to be completed on the home, all owners might not agree on what should be done, while others might be unwilling to pay. In these instances, it may be unclear who will cover the cost, which can strain relationships and finances. Carefully consider these situations before agreeing to a joint ownership.