First-Time Home Buyers
First-Time Home Buyers’ (FTHB) Tax Credit
The costs associated with purchasing a home, such as legal fees, disbursements and land transfer taxes, can be a particular burden for first-time homebuyers who must pay these costs, as well as save money for a down payment. To assist first-time homebuyers with the costs associated with the purchase of a home, the Government of Canada introduced a FTHB Tax Credit in 2009 — a $5,000 non-refundable income tax credit amount on a qualifying home acquired after January 27, 2009. For an eligible individual, the credit will provide up to $750 in federal tax relief starting in 2009.
Expansion of the Home Buyers’ Plan (HBP)
To provide first-time homebuyers with greater access to their RRSP savings to purchase or build a home, the Government of Canada has increased the Home Buyers’ Plan withdrawal limit to $25,000 from $20,000 per person for withdrawals made after January 27, 2009.
To obtain more information on the First-Time Home Buyers’ Tax Credit and the Home Buyers’ Plan, call 1-800-O-Canada or visit the Canada Revenue Agency website at www.cra.gc.ca.
What Are Closing Costs?
Even if you get a 0 downpayment, you are still required to have access to 1.5% of the purchase price of your home for closing costs. The following is a list of possible closing expenses.
Legal Fee and Disbursements
A lawyer will charge a fee for their professional services involved in drafting the title deed, preparing the mortgage, and conducting the various searches. The disbursements, on the other hand, are out-of-pocket expenses incurred, such as registrations, searches, supplies, etc., plus G.S.T. The actual fee that the lawyer will charge will depend entirely upon the deal between you and your lawyer. Be sure to ascertain exactly what this will amount to in a worst-case situation. A typical purchase transaction for a $200,000 property with one mortgage will range between $800 to $1,200 including disbursements. We recommend you call one or two lawyers and obtain a quote directly from them including both their fee and estimates of disbursements before choosing which one you’d like to use.
You should budget for insurance on your new home. Insurance costs can include default mortgage insurance, homeowners insurance, mortgage life insurance and title insurance.
Property Tax and Prepaid Utilities Adjustments
At the time of a sale, the lawyer for the buyer must confirm that local taxes have been paid up to date. If they are, a Tax Certificate is issued, from which any adjustments can be made – usually requiring the buyer to compensate the seller for any prepaid taxes. If they are not up to date, the municipality requires that the seller pay them off from the proceeds of the sale. Therefore, remember that if the previous owner has prepaid property taxes or other utilities for the year, they will be credited the prepaid portion on closing. If they paid all their taxes by April, expect a large adjustment cost on closing! Again, your lawyer will confirm all this for you.
If your lender requires an appraisal report to be completed, it will have to be done before they hand over any mortgage money. They want to be assured that the property is worth what you are either paying for it, or valuing it for, and the cost normally ranges between $175 to $285 depending upon the location and complexity of the property.
A report commissioned by a property owner or purchaser, usually to verify the condition of a property prior to the “firming up” of a Real Estate transaction. The scope and detail may vary, but most reports indicate the specific problem and the cost to repair. Depending on the size and location of the property, a home inspection is around $300.
Interest Adjustment (IA)
If you arrange to make your mortgage payments monthly on the first day of the month, and your transaction closes after the first day of the month, your lender may charge you interest on closing up to the first theoretical payment date, called the Interest Adjustment Date (IAD). Your mortgage agent will calculate this for you. Remember, that all mortgages are paid in arrears so if your possession date is June 1st, and you choose to pay monthly, then your first payment will be July 1st. In this example there is no Interest Adjustment payable. However, if you moved in on May 29th, with your first payment on the first of the month, your first payment would still be July 1st, but there will be a three day Interest Adjustment (from May 29th to to the “official start date” of June 1st).