Buyer's Guide » Incentive Programs
are Worth a Second Look
Whether
or not it's your first time buying a home, it pays, literally,
to investigate incentive programs that can assist you with your
purchase. Some of the programs have changed as homebuyers'
needs have changed.
When buying
a home under a conventional mortgage you will be required
to pay a minimum of 25 % of the purchase price as a down payment.
Although this amount can't be borrowed, gifts from friends
or relatives are acceptable. But people who are unable to come
up with this much cash at a moment's notice shouldn't
feel dishearten.
The Canada
Mortgage and Housing Corporation (CMHC) as well as other private
companies offer insurance on a high ratio mortgage that
provides 95% financing to the buyer. With this mortgage plan,
you pay only 5% down to purchase your home. Originally launched
as an incentive for first time homebuyers, the program was opened-up
to include all homebuyers in May 1998.
To participate
in CMHC's 5% down program, the property you intend to buy must
be less than $250,000 for the Greater Vancouver area or between
$125,000 - $175,000 for other areas in BC. You must also
have a minimum mortgage term of three years.
However,
you should also know that to take advantage of this program
you will have to pay an insurance fee that equals 3.75 % of
the mortgage as well as an application fee. The insurance fee
provides confidence to mortgage lenders that they will be paid
back by the insurer (CMHC) if you default on your mortgage.
Another
option to consider is the Home Buyers Plan. This program
allows buyers to withdraw up to $20,000 from their RRSP to buy
or build a home. The advantage of this plan is that you don't
have to pay tax or interest on the money you withdraw. Some
of the criteria that must be met include:
- You
must be a resident of Canada and this home must be your principal
residence;
- The
money must be in your RRSP for at least 90 days;
- You
and your spouse must not have owned a home within the past
5 years, together or individually;
- You
are required to pay the loan back to your RRSP in minimum
annual installments over 15 years, starting the second year
after you withdraw the money.
In the
1998 federal budget, amendments were made to the Home Buyers'
Plan to include home purchases that accommodate a dependent,
disabled relative. Also starting in 1999, homebuyers who have
already used the plan and have fully repaid their RRSP may be
eligible to use the plan a second time. So take a second look
at incentive programs for homebuyers, you might be pleasantly
surprised.
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