Purchasing your first home is typically a goal for most individuals and families due to the benefits of the real estate investment both in the short term and long term.
The home buying process can be an exciting and fun experience for homebuyers, however, it can also be very stressful for first-time home buyers primarily because of their relative lack of knowledge and experience about the home buying process.
Similarly, with the housing sector globally still reeling from the effect of the COVID-19 pandemic, the housing sector in Canada is in a transition period with housing prices skyrocketing to all-time high points and rates rising, making it hard for first-time homebuyers to be able to afford homes on the market.
Therefore, first-time homebuyers must have useful information about home buyers’ mortgages, and this article contains the necessary information you need including the criteria for first-time home buyers’ mortgages, the different programs available for them, and the importance of a mortgage broker.
What is a down payment on a house and how much are you required to pay?
Down payment simply refers to the amount a prospective home buyer is required to pay upfront before purchasing a home. Typically, home buyers are only required to pay an amount smaller than the size of the mortgage.
Usually, down payments are calculated as a percentage of the property’s value, and when added to the mortgage amount, they add up to the total amount of the property’s value.
Here’s an example of how down payments are calculated and expressed; if a house is valued at $800,000, and the home buyer is making a 15% down payment, it would be $120,000. The mortgage amount for the house will be $680,000 which is 85% of the property’s value at $800,000.
In Canada, the mortgage lending rules state that a prospective home buyer is required to make an amount as a down payment which varies depending on the property’s value. For homes less than $500,000 for example, the minimum down payment required is 5%.
For homes valued between $500,000 and $999,999, the minimum down payment required is 5% of the first $500,000 of the purchase price and 10% for the portion of the purchase price above $500,000 to $999,999. For homes valued above $1 million, the minimum down payment is 20%.
Criteria to qualify as a first-time homebuyer in Canada
There are different federal programs available for first-time homebuyers in Canada, however, before accessing any one of them, you have to meet the requirements to qualify for the program.
Although most programs have their peculiar criteria, certain criteria relating to citizenship status, age, and period of home purchase are generic to all the different types of programs available.
Below are some of the general criteria;
- You must be a Canadian citizen or permanent resident
- You must have the intention to live in the prospective home as your primary residence for one year after purchase.
- You must be at least 18 years of age and above
- You must purchase a home or property in Canada
- You must have proper and complete documentation proving that you purchased the home
- You cannot have owned a home within the last four years
- If you’re purchasing the home with a partner or spouse who is not a first-time home buyer, you cannot have lived in a house that they owned within the last four years.
Programs such as the first-time home buyer’s incentive program have stricter criteria in addition to these criteria as regards your household income, minimum down payment, and the maximum amount you’re allowed to borrow.
Various programs available for first-time homebuyers
For first-time home buyers in Canada, there are different federal programs available to help increase their purchasing power and make buying a home less expensive.
The first-time home buyer incentive
This program is a federal program that was launched in September of 2019 through the government’s Canada Mortgage and Housing Corporation (CMHC) to provide first-time home buyers with access to an interest-free loan to help them make their down payment.
Also known as a shared equity program, this incentive gives eligible home buyers a loan worth 5% or 10% of the home’s purchase price in exchange for a 5% or 10% government equity on your home.
Typically, the loan isn’t due to be paid back for 25 years or until you sell the home. Any future sale of the property will require that you pay 5% or 10% of the property’s value and not the amount that you borrowed.
The home buyers’ plan
This federal government-backed program gives you access to borrow up to $35,000 out of an eligible Registered Retirement Savings Plan (RRSP) that can be used as a down payment for the purchase of the home.
Usually, any amount borrowed is tax-free but must be repaid within 15 years after taking the funds.
There are various other programs available to first-time homebuyers in Canada including; the first-time homebuyer savings account (first home savings account), first-time home buyers’ tax credit, and the first-time homebuyer land transfer rebate).
Why you should use Signature Mortgage Group Inc./The Mortgage Centre to help secure your mortgage
With the different mortgage plans and their various requirements, the choice on your very first mortgage may be quite tricky for first-time home buyers hence why you need a mortgage broker to help you make the right choice.
We are the experts who understand the ins and outs of securing your first mortgage and provide first-time home buyers with the best mortgage rates and programs to help them understand their financing options and make the right choice.
With the different processes involved in purchasing a home, we follow you every step of the way to make the process easy, stressless, and time-saving without any extra cost.
If you have any questions, reach out to us today.
