Tips on Saving for a Real Estate Down Payment

For many first-time home buyers, the thought of saving a substantial amount of money for a downpayment can seem overwhelming. But there are several ways to make a down payment a lot easier and have you into your new home faster than you’d ever imagine. Published in the New Home Buyers Guide January 19 – February 02, 2007 on Page 22.

Invest in yourself first
No doubt you think that paying your monthly bills is an important financial commitment. Like most people, you may also consider savings or investments to be purely optional.

However, if you can commit yourself to paying everyone else, you can make the same commitment to yourself. Set up a savings or investment plan and start making payment to it, just as you do for other creditors.

Re-organize your finances and you may find the money you need to collect for the purchase of your first home. Often times, finding some extra money for savings is as easy as reorganizing your budget. Managing your money a little differently perhaps by consolidating your debts, can sometimes free up the extra money you need.

Consider tapping into your RRSPs
RRSPs are a good way to secure your financial future while enjoying the tax benefits today. As a first-time home buyer (or if you haven’t owned a home in the previous five calendar years) you may qualify for the government approved RRSP Home Buyers Plan that allows you to use your RRSP savings toward the purchase of a home. If eligible, you and your spouse may withdraw up to $20,000 each from funds that have been in your RRSPs for at least 90 days.

The funds aren’t taxed as long as you repay the total amount to your RRSP over the next 15 years. Your payments don’t have to start until the second year after the initial withdrawal.

Use GICs to help you save
GICs offer you competitive rates of return and offer a safe, secure way to grow your savings. For flexibility, you can choose from a variety of terms. Choose non-cashable GICs and your money will be securely tucked away for the term you choose and you won’t be tempted to dip into it.

Another government approved program allows you to have less tax deducted from your regular pay cheque. You’ll benefit from a tax refund each month rather than one lump sum next year.

Every month you’ll have extra cash on hand to add to your downpayment savings on your new home or real estate property and then once you own your home, you’ll be able to make your regular mortgage payments or contribute to your RRSP more easily.

First Time Home Buyer Info

The first time real estate home buyer property purchase tax exemption. First time buyers are exempt from paying the property purchase tax under the following conditions:

1. Price of real estate property is $325,000 (Lower Mainland of Vancouver) or less. For homes between $325,000 and $350,000 an exemption is available on the sliding scale. Above $350,000, there is no exemption available.
2. Mortgage loan to value ratio is 70% or higher.
3. Mortgage term must be for one year or longer.
4. Mortgages held by parents do not qualify.
5. Maximum amount of real estate principal buy down in the first year is $13,000, in the Lower Mainland.
6. Home buyers must not have owned a house anywhere in the world before. If only one client qualifies then only their portion of the home purchase will be eligible for the exemption.
7. Home buyers must have been a resident of B.C. for at least one year, or have filed tax returns as a resident of B.C. for two of the last six years.
8. If home purchasers move out of the home prior to their one year anniversary, a portion of the Property Tax will be payable.

The price and savings for this tax exemption for first time home buyers of real estate properties:
$325,000 = $4,500
$275,000 = $3,500
$250,000 = $3,000
$200,000 = $2,000
$150,000 = $1,500
$100,000 = $1,000
$50,000 = $500

For more information about Real Estate Checklists and Tips for Real Estate Investment Condos in the United States and Canada, click here.

The Facts and Breakdown of Mortgages and Pre-Approval for Mortgages

Another useful article written for the New Home Buyers Guide (HomeBase.ca magazine in the Lower Mainland), this breakdown goes through the different types of mortgages available on the market these days for home buyers, first time purchasers and how to get the best pre-approval for your home buying situation and how to secure your mortgages with banks. Originally presented in the December 08, 2006 to January 05, 2007 edition of the New Home Buyers Guide, you can read more about current real estate developments and mortgage bank information online at the www.homebase.ca HomeBase website today.

There is no such thing as “just a mortgage” these days. Today’s home owners have a special needs and widely varied financial circumstances. Because of this, there are numerous types of mortgages, mortgage pre-approvals and bank payment options designed to meet the unique requirements of every home owner. In addition to the HomeBase.ca definitions, we have also include the Real Estate Board of Greater Vancouver mortgage definitions too. The fundamental components of a bank mortgage wherever you live include:

Mortgage Principal
The amount of money you need to borrow, usually the difference between the selling price of the real estate property and the down payment. The bank mortgage is the amount initially borrowed or the portion still owing on the mortgage. Interest is calculated on the principal amount.

Interest
The amount you will pay for borrowing money for your principal real estate amount.

Mortgage Payment
A regular instalment, usually made up of principal and interest, by which you repay the mortgage over its term to maturity.

Amortization Period
The actual number of years it will take you to repay the entire mortgage, generally a period anywhere between fifteen and twenty five years. A table showing the amounts of principal and of interest comprising each level payment due at regular intervals and the outstanding principal balance of the loan after each level payment is made.

Amortized Mortgage
A bank mortgage requiring periodic payments which include both a partial repayment of the debt and interest on the outstanding balance.

Mortgage Term
The length of time which a specific mortgage agreement covers generally being between six month and twenty years (although twenty five year terms have recently been introduced). When the term matures or expires, the balance of the mortgage is generally renegotiated for another term at prevailing rates and conditions in effect at that time.

Home Equity
The value of the real estate property over and above all claims, generally being the different between market value and the outstanding principal of all mortgages relating to the property. Essentially the difference between the price of which a real estate property can be sold and the mortgage(s) on the property. Home equity is the owner’s stake in the property.

Conventional Mortgage
A mortgage loan that is seventy five per cent or less of the loan to value ratio; and does not require insurance by CMHC or other private insurer.

Debt Service Ratio
The percentage of a borrower’s income that can be sued for housing costs.

Gross Deb Service (GDS) Ratio
The amount that a lender will permit a borrower to use from his/her gross income in order to qualify for a loan for housing costs, including mortgage payment and taxes (and condominium fees, when applicable).

Total Debt Service (TDS) Ratio
The maximum percentage of a borrower’s income that a lender will consider for all debt repayment (other loans and credit cards, ect.) including a mortgage.

High-Ratio Mortgage
A bank mortgage that exceeds seventy five percent of the loan to value ratio; must be insured by either the Canada Mortgage and Housing Corporation (in Canada also known as CMHC) or a private insurer (in the United States and Canada) to protect the lender against default by the borrower who has less equity invested in the property.

Mortgage Insurance
Government backed or private-backed insurance protecting the lender against the borrower’s default on high-ratio (and other types of) mortgages.

Open Mortgage
A mortgage that can be prepaid or renegotiated at any time and in any amount, without penalty.

Variable Rate Mortgage
A bank mortgage for which payments are fixed, but whose interest rate changes in relationship to fluctuating market interest rates. If mortgage rates go up, a larger portion of th epyament goes to interest. If the rate goes down, a larger portion of the payment is applied to the principal.

These definitions and information on mortgages is brought to you by HomeBase.ca and the Real Estate Board of Greater Vancouver.