A important message and reminder at tax time from Real Estate lawyer Jonathan G. Griffiths...
" It's getting to be tax time again! If you have first time buyer clients who bought a home last year you may want to make sure that they know about line 359 on their income tax return. Its called the First Time Home Buyer’s Tax Credit and it allows for a tax credit of up to 15 percent of closing costs to a maximum of $5,000.00 so effectively $750. Where more than one person purchases the $750 is shared. It seems that closing costs include CMHC fees so most people would qualify for the maximum. Its the broader Federal government definition of first time buyer, and the buyer or spouse must intend to occupy within a year of acquisition as principal residence to qualify for the credit. If any of your first time buyers were unaware of this credit and have not claimed the credit in previous years, my accountant says that it is possible to go back four years to claim the credit by filing a T1 Adjustment for the year in question."
Before you set out to meet with mortgage lenders, we recommend that you order a copy of your credit report to make sure it doesn't contain any errors because lenders will check it before approving you for a mortgage. A credit report is a summary of your financial history and shows whether or not you have had any problems in the past paying off debts.
The Financial Consumer Agency of Canada (FCAC) - a federal government agency - is an independent body working to protect and inform consumers of financial products and services.
Click here to be re-directed to their website for some great tips and how to order your own credit report.
Last week, Minister of Finance Jim Flaherty announced four measures to become effective July 9, 2012, for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent:
- Reduce the maximum amortization period to 25 years from 30 years.
- Lower the maximum amount Canadians can borrow when refinancing to 80% from 85% of the value of their homes.
- Fix the maximum gross debt service ratio ( GDS ) at 39% and the maximum total debt service ratio ( TDS ) at 44%.
- Limit the availability of government-backed insured mortgages to homes with a purchase price of less than $1 million.
Since this will likely be the most important purchase of your lifetime, smart financial planning is necessary from the start. Doing the necessary prep work will ensure a smooth transition into your new home.
Setting your financial guidelines and limits will be one of the first things you consider. You will need to talk with your financial institution or a mortgage company/broker to get yourself pre-approved for financing so that you know exactly how much you can afford to spend comfortably. When in discussion with your financial representative be sure to ask them to explain the various mortgage options available to you. Most people focus only on the interest rate and the term of the mortgage but you should be aware that there are many other components of a mortgage such as amortization length, repayment options, pre-payment penalties, transferability that can affect the overall cost and value of the mortgage.
Please note that being "pre-approved for financing" does not mean that you can place firm offers on any suitable property within your price range. The pre-approval is an assurance that you can qualify for a mortgage up to a certain point, but your lender will still need to be assured that the property in question is suitably assessed for value by their team before they approve the release of any money. It is always wise to make all offers to purchase Conditional on Financing approval. Note: Sometimes buyers are challenged in multiple offer scenerios and they will remove this condition to help ensure their success in negotiating the sale. We advise caution here. You need to fully understand your financial position and the possible repercussions if the lender's appraised lending value is less than the purchase price. A substantial down payment is advisable in these situations to afford flexibility.
You will need to make sure that you have funds available for a deposit when it is time to put in an offer. You must be able to access these funds quickly. Requirements for the deposit can vary depending on the Seller's request, but generally it must be delivered within 24 hours of an accepted offer in the form of a certified cheque or bank draft. It is not uncommon that the Seller requests a certified cheque or bank draft accompany the offer at presentation. This is very common in multiple offer scenerios.
You will also want to establish a reserve fund for closing costs ( we'll chat about these in another posting ), renovations/improvements and unforseen repairs. Not too often does anyone move into a new home without doing something to the home to give it their special touch.
Once you have your financials in place you are ready to start!