This is your crucial first step in the buying process, even before going out to see homes. Having a pre-approved mortgage will give you the confidence of knowing exactly what you can spend on a home before you start looking. You will also be protected against interest rate increases while you look for your new home. This is also important when we present our offer to the seller – as it means a condition can be removed.
Examples of good mortgage brokers to call will answer your questions and help you determine which financing terms and options are right for you. Your mortgage specialist/banker will help you select the best financing just as we will help you select the right home! If you currently have RRSP’s, please be sure to ask your lender about the federal government’s Home Buyer’s Plan which allows you to put up to $25,000 of your RRSP (per person) toward a down payment on a first home.
The basics of the plan are as follows:
- The funds have to be in your RRSP account for 90 days prior to withdrawal for the Home Buyer’s Plan — i.e. if you purchase a house that is closing on July 15, the funds have to have been in your RRSP for 90 days prior to July 15.
- Eligible withdrawals are not included in your income, and tax is not withheld on these amounts.
- You can withdraw a single amount or make a series of withdrawals in the same year, as long as the total is not more than $20 000.
- Some conditions have to be met — you have to be a first time home buyer, entered into a written agreement to buy a home (not just a pre-approved mortgage, but an actual offer to purchase), and the home has to be your principal place of residence.
RRSP'S from A-Z
- You cannot own the home more than 30 days before making the withdrawal from the RRSP, and you have to buy or build the home before October 1 of the year after making the withdrawal.
- There are important exceptions for people with disabilities – see the website at www.cra.gc.ca for details.
- To make a withdrawal for the Home Buyer’s Plan, you must complete a Form T1036, available from your RRSP insurer, who must complete a section of the form. Tax is not withheld and the funds are provided to you as you choose, for example, placed in your chequing account. They will send you a T4RSP slip showing the amount you withdrew, so you can attach it to your income tax return.
- If using the RRSP Home Buyer’s Plan for the 5% deposit (as opposed to using it for the remainder of the down payment) please check with your bank to make sure that they can facilitate the withdrawal within 24 hours. An accepted offer means that the 5% deposit must be provided to the listing agent’s office within 24 hours of acceptance. If your bank cannot ensure that your RRSP funds will be available to you in the form of a certified cheque or bank draft within 24 hours of your request, you might want to consider getting a line of credit so you have 5% of the purchase price available to you (see The Major Elements of an Offer, in this section, for more information on the 5% deposit)
- You have 15 years to repay your own RRSP the full amount withdrawn, to avoid tax penalties. The payments are split up into yearly amounts that are easy to pay.
- The funds don’t have to be used strictly for the down payment, but can be used for such things as furniture, closing costs and renovations – or any purpose you choose so long as you have bought a house, condo, etc.
Finalizing Your Mortgage
Once you’ve found the home you want to buy, there are some documents you’ll probably be asked for in order to finalize your financing. They will include:
- A copy of the real estate listing of the property, including details of the lot size & location. We can arrange to fax or e-mail these documents to your lender.
- A copy of the Offer to Purchase. Our office will fax or e-mail this to your lender as well as any relevant amendments and/or waivers, once they have been signed.
- Documents to confirm employment, income and source of pre-approval.
- If you have a pre-approved mortgage, it’s a simple matter of finalizing a few details which your mortgage specialist or banker will explain to you.