The Benefits of Being a First Time Home Buyer

Being a First Time Home Buyer is an amazing accomplishment that comes with many responsibilities and incentives. Discussed in our previous blog The First Time Home Buyer’s Incentive Plan otherwise referred to as the FTHB is a Canadian Government program, which contributes up to 10% to the down payment for First Time Home Buyers. This is an effort to support borrowers in their first home purchase to reduce their monthly mortgage payments, without contributing to their financial burdens. As one of the Top 3 Rated Mortgage Brokers in Vancouver, we would be more than happy to assist you with understanding the Benefits of Being A First Time Home Buyer.

Another important incentive available to First Time Home Buyer’s Program reduces or eliminates the amount of Property Transfer Tax you pay when you purchase your first home. If you qualify for the program, you may be eligible for either a full or partial exemption from the tax. If one or more of the purchasers don’t qualify, only the percentage of interest that the first-time homebuyer(s) have in the property is eligible.

For example, if you acquired 60% interest in the property and another person acquired 40% interest but only you meet the qualifications, only your 60% would receive the exemption.

When you purchase or gain an interest in property that is registered at the Land Title Office, you or your legal professional must file a property transfer tax return and you must pay the property transfer tax unless you qualify for an exemption. In most cases, property transfers are completed by a legal professional. The property transfer tax is based on the fair market value of the property (land and improvements) on the day it was registered with the Land Title Office unless you qualify for an exemption or purchase a pre-sold strata unit.

Property transfer tax should not be confused with annual property taxes. Annual property taxes are paid yearly to your municipal or rural tax office for each property you have registered interest in to fund services in your area.

There are three things to consider when calculating your total property transfer tax:

1. General Property Transfer Tax

• The general property transfer tax applies to all taxable transactions.
• The general property transfer tax rate is:
• 1% of the fair market value up to and including $200,000
• 2% of the fair market value greater than $200,000 and up to and including $2,000,000
• 3% of the fair market value greater than $2,000,000

2. Further 2% on residential property over $3,000,000

• If the property has residential property worth over $3,000,000, a further 2% tax will be applied to the residential property value greater than $3,000,000.
• If the property is mixed class (such as residential and commercial), you pay the further 2% tax on only the residential portion of the property.
• If the property includes land classed as farm only because it is used for an owner’s or farmer’s dwelling, up to 0.5 hectares will be treated as residential property.

3. Additional property transfer tax

• If you’re a foreign national, foreign corporation or taxable trustee, you must also pay the additional property transfer tax on the fair market value of the residential portion of the property if the property is within a specified area of B.C.

To qualify as First Time Home Buyer and receive the full exemption, at the time the property is registered you must:

• Be a Canadian citizen or permanent resident
• Have either:
  • Lived in B.C. for at least a year immediately before the date you register the property
  • Filed at least 2 income tax returns as a B.C. resident in the last 6 taxation years immediately before the registration date
• Have never owned a registered interest in a property that was your principal residence anywhere in the world at any time
• Have never received a first time home buyers’ exemption or refund

The property must:

• Only be used as your principal residence
• Have a fair market value of $500,000 or less
• Be 0.5 hectares (1.24 acres) or smaller

You may qualify for a partial exemption from the tax if the property:

• Has a fair market value less than $525,000
• Is larger than 0.5 hectares
• Has another building on the property other than the principal residence

Foreign Buyer’s Tax:

The Foreign Buyer’s Tax is designed to limit foreign investment. Individuals who are NOT Canadian citizens or permanent residents in Canada, when purchasing property MUST pay an additional 15% Property Transfer Tax.

This tax helps lower the demand for new homes, which reduces upward pressure on home prices.

If the property transfer is within the following areas, the tax rate is 20% on the fair market value:

• Capital Regional District
• Fraser Valley Regional District
• Metro Vancouver Regional District
• Regional District of Central Okanagan
• Regional District of Nanaimo

The tax does not apply on Tsawwassen First Nation treaty lands.

There are a few incentives available federally included in the First Time Home Buyer’s program but before deciding if these products are right for you and your future, it is important to understand the ins and out of both.

If you are interested in learning more about the FTHBI Program or need information on Property Transfer Tax, please feel free to reach out and one of our Senior Broker Partners would be more than happy to assess your unique situation and give you the best advice.

At GLM Mortgage Group, we are with our clients for the entire journey. From the beginning, we can identify client needs, any possible roadblocks, and give a variety of tailored solutions.

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Rent to Own Mortgage

A Rent to Own contract could be the answer for someone who is renting but is also having a hard time getting their down payment together. Rent to Own contracts usually are between 1 and 5 years long and can give the client the time they need to implement strategies on increasing their down payment or even improving their credit.  As one of the Top 3 Rated Mortgage Brokers in Vancouver, we would be more than happy to assist you with understanding Rent to Own Mortgages.

In the Lower Mainland, Rent to Own is becoming more popular as housing prices are increasing, and renting seems inevitable. In fact, there are properties that are being built with Rent to Own financing in mind.

Initially, the contract is signed just between the renter (the buyer) and the Landlord (the seller) that states an agreed price, length of time of Rent to Own, and market rent (typical rent of a similar property) with the excess going toward down payment (usually $200 – $400/month). The lender is not involved yet.

For example, market rent for your property goes for around $1000.00. You agree to pay the Landlord $1400.00/month. The extra $400/month goes into an account that the Landlord has in place for you for the down payment. This is a great example of  a Rent to Own situation.

Regardless of the lender, the Landlord must keep pristine records of the extra money coming in and can show the history of any excess deposit. When the Rent to Own is registered on title, there will be a clear indication as to how much of the monthly payments are directed toward the deposit.

The client will want to work with a team of property purchase professionals that will strategize Action Steps to make a seamless Rent to Own experience. The client`s team would be:

1. MORTGAGE PROFESSIONAL

• Get pre-approved! In the pre-approval process, the Mortgage Professional will be able to advise on improving credit or the need to increase employment income if need be.
• As well, the Mortgage Professional understands lender policies and guidelines for Rent to Own contracts and will be able to advise on how to properly set up the Rent to Own.

2. SOLICITOR/LAWYER

• Make sure that your lawyer is familiar with Rent to Own contracts and that they work closely with the Mortgage Professional who knows what the lender is going to expect. This relationship is very important and one that should not be overlooked.

The down payment continues to grow over the life of the Rent to Own contract. At any time, you can add lump payments to the down payment, simply by giving the Landlord a bigger rent check. Keep in mind, the Rent to Own contract could stipulate that the down payment is non-refundable. Make sure you read the fine print and work closely with your mortgage professional and lawyer so that you clearly understand the terms of your Rent to Own contract.

The bank does not get involved until the time the renter (the buyer) makes an offer to purchase to the Landlord (the seller). The person paying for the rent to own does not have to qualify for a mortgage at this point because the Landlord continues to carry the mortgage on the property.

Rent to Own Properties can also be facilitated through a company such as a condominium developer. For example, the developer could offer a Rent to Own contract when entering a rental lease with an owner-occupied property that the client wants to rent.

The client may be charged a contract fee upfront (for example $10,000) to enter the Rent to Own contract. At times all or a portion of this contract fee can be used toward the down payment pending on what has been negotiated within the Rent to Own contract.

Over the course of the Rent to Own some of the obstacles to financing you will consider are:

• How to improve your credit rating
• Consider applying for an RRSP loan to further establish credit and take advantage of tax benefits
• Consider refinancing any outstanding credit
• Consider job changes to increase employment income
• Consider other sources to increase down payment

Rent To Own contracts are more than just paying rent to the Landlord and applying the rent toward the purchase of the property. There are details that you need to know when entering into a Rent To Own Contract. If you need help setting up a Rent to Own contract or for more information regarding this topic please reach out.

GLM Mortgage | Dominion Lending Centres is here to walk your mortgage planning path with you. Give us a call at 604-259-1486 and find out what your mortgage options are!

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Bridge Financing

Bridge Financing, also commonly referred to as a “Bridge Loan”, is a way to help literally bridge the gap between closing on your current house and your new place. This product allows you to carry the mortgage on two properties for a specified amount of time and for typically a maximum of 90 days. As one of the Top 3 Rated Mortgage Brokers in Vancouver, we would be more than happy to assist you with understanding Bridge Financing.

How does Bridge financing work? These short-term loan products use your current home’s equity to cover some of the costs of your new home (for example, could be used for a down payment.) That way, you don’t have to miss out on your dream home while waiting on the cash from the sale of your current house.

What is the cost of Bridge Financing? You will be charged an interest rate on the amount of funds you are borrowing. This will be based on the lender’s prime rate and will vary. You can expect to pay prime plus 2-5%. You can also plan to pay an administrative fee. This will vary pending on the lender and can range from $200-$695.

Similar to most other financial decisions, there will always be advantages and disadvantages for Bridge financing. Here are a few things you should be aware of:

One of the most popular advantages of acquiring Bridge financing is financial flexibility. With this product, you will be able to use the equity you’ve built in your current home to secure the new purchase of your dream home. Since you will be able to access those funds via equity, you won’t have to stress about the sale closing of your current home before you close on your new home.

Although most terms for Bridge financing products are short, the interest rate will be similar to open rate mortgages, which are often higher than the interest rate you may have locked in with your current mortgage. If for some reason your sale agreement falls through on your current house, you may have to make up for the payments until a new sale is finalized.

To qualify for Bridge financing you will need:

• Have a current mortgage in good standing with equity
• A copy of the Sale Agreement for the home you’re selling
• A copy of the Purchase Agreement for the home you’re buying
• Valid pre-approval (with document review) with the lender of your choice

Like your home buying situation, your home financing needs are unique. Bridge financing may be the right solution for you if you would like the following…

• You’ve found your dream property and do not want to wait on submitting your offer
• You can’t afford a down payment without the money from your current home’s equity
• You want time between closing dates

If you’re a homeowner aged 55 and over, rather than taking out a regular Bridge loan, you could take out a CHIP Open Mortgage with HomeEquity Bank. The CHIP Open Mortgage can assist you in purchasing a new home when your existing property has not yet been sold.

Let’s have a look at this case study together…

• Meet the Ellis family, a couple in their early 70s who live in the Greater Vancouver Area in a home worth $1.3 million. Looking to downsize, they’re keeping an eagle eye on available properties on Vancouver Island, and finally find their dream home at a price tag of $550,000. Afraid to lose it, they act quickly to purchase the new place before selling their existing home — but don’t qualify for a large enough traditional loan, putting the dream they have for their future in jeopardy.
• This product is a CHIP Open Mortgage (A Reverse Mortgage with no pre-payment penalties) The couple was able to access $600,000, allowing them to purchase their new place outright and cover the costs of their move. With no repayments, the couple were able to properly prepare their home for sale and repaid the CHIP Open in full once the house sold.

Please reach out and one of our Senior Broker Partners would be more than happy to assess your unique situation and give you the best advice. At GLM Mortgage Group, we are with our clients for the entire journey. From the beginning, we can identify client needs, any possible roadblocks, and give a variety of tailored solutions.

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First Time Home Buyer’s Program

The First Time Home Buyer’s Program otherwise referred to as the FTHBI is a Canadian Government program, which contributes up to 10% to the down payment for First Time Home Buyers. This is an effort to support borrowers in their first home purchase to reduce their monthly mortgage payments, without contributing to their financial burdens. This program is a “shared equity” mortgage with the government of Canada, where you put 5% down on an existing home and they match your down payment and put another 5% down for you without any out-of-pocket or upfront costs.  If you are looking at purchasing a newly constructed home, there are options for down payments from 5-10%.

As one of the Top 3 Rated Mortgage Brokers in Vancouver, we would be more than happy to assist you with understanding the First Time Home Buyer’s Program.

To be eligible for this government incentive program you must:

• Be a first-time homebuyer
  • Exception if you have been renting and NOT owned a property for the last 4 years
• Total household income must be under $120,000
• You must have the minimum 5% down payment from your own resources
  • This means that the 5% down payment cannot be from a line of credit, loan, or gift.

Some limitations to the program that are non-negotiable are:

• Must be owner-occupied (no rentals)
• Property must be in Canada
• Must be owner-occupied year-round
• Must be an insured mortgage (less than 20% down payment)
• Mortgage can be maximum four times your annual income (or the maximum amount of $480,000 plus down payment)
• Must pay back the “shared-equity” at the time of property sale or within 25 years (whichever comes first)

This program is a popular option in BC with property values coming in at an all-time high and mortgage rates at an all-time low. Although this can be helpful in reducing your monthly mortgage payments, it does come with a few catches. Since the government of Canada will be matching your 5% down payment, they now own 5% equity in YOUR home.

In summary, this means that when you sell your house (or after 25 years) you will be paying 5% of that equity back to the government. This can feel unfair to some people as the value in their home increases, so does the 5% “shared home equity”. If your property is worth more at 25 years (or sells for more than the time of purchase) the “shared home equity” also increases, meaning they could potentially require you to pay back MORE than the original amount they lent to you at the time of purchase.

Let’s have a look at this case study:

• Joe Smith is looking to make his first-time home purchase with his annual income of $85,000. The property he is looking at has a purchase price of $325,000, with his 5% down payment he can put $16,250 down. That brings his requested mortgage amount to $308,750 leaving him with monthly payments of $1,405.
• If Joe Smith decided to use the FTHBI with his annual income of $85,000 to put down $16,250, the government of Canada would chip in the same 5% of $16,250 and now Joe has a down payment of $32,500. Joe’s requested mortgage amount would then be $292,500 leaving him with monthly payments of $1,331.
• If Joe Smith utilized this FTHBI program, he would be saving $22,200 over the life of his mortgage.

FTHBI is a federal government initiative to help first-time homebuyers into the housing market. It is important that you understand the ins and outs of this product and work with a professional Mortgage Broker. Your Mortgage Broker will be able to look at your individual situation and walk you through your options and advise if this product would be of benefit to you.

If you are interested in an First Time Home Buyer’s Program, please click this link, and feel free to use the free tools to help answer any questions you may have.

https://www.placetocallhome.ca/fthbi/first-time-homebuyer-incentive

Please reach out and one of our Senior Broker Partners would be more than happy to assess your unique situation for First Time Home Buyer’s Program and give you the best advice.

At GLM Mortgage Group, we are with our clients for the entire journey. From the beginning, we can identify client needs, any possible roadblocks, and give a variety of tailored solutions. If any, please reach out and one of our Senior Broker Partners would be more than happy to assess your unique situation and give you the best advice.. 

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Increasing Your Purchase Power

Most individuals that we connect with to discuss a Mortgage Pre-Approval also want to know how we can go about Increasing Your Purchase Power. More often than not, those individuals could afford to make mortgage payments. Usually, they already pay monthly rent in the same amount as a mortgage, or perhaps even more! As one of the Top 3 Rated Mortgage Brokers in Vancouver, we would be more than happy to assist you with your Purchasing journey.

Part of our process as Mortgage Brokers at GLM Mortgage Group is to connect with new clients with a Discovery Call, which involves key questions on important factors of a Mortgage Approval. We spend 10 minutes gathering information on income, credit, and down payment and with that, can provide a possible purchase price, and a piece of mind to shop within one’s budget.

Sometimes at the end of the conversation, we find that an individual may not be able to purchase within the price range they had planned to and brings us back to the drawing board to discuss options and a gameplan for the Increasing Your Purchase Power in the future.

Now, the reason that someone may not qualify for a mortgage that they could afford payments on, is due to the Stress Test, which newest rules were released in June 2021 and decreased borrowing power by 25%. To pass the mortgage Stress Test, you need to qualify at the contract mortgage rate plus 2% or the benchmark rate of 5.25%, whichever is higher. The purpose of the Stress Test is to ensure that should interest rates rise – a borrower will still be able to afford their mortgage payment.

This is a tactic by the Bank of Canada to ensure that consumers can withstand rising interest rates, as well as tackle household debt issues in Canada by preventing consumers from getting into further debt – but it greatly affects your purchase power, as you will qualify for less.

There are a few options to consider, that can help Increasing Your Purchase Power, potentially bypass the Stress Test and qualify for the purchase you are hoping to make.

First, down payment – if you have 20% down payment, this can provide various options that will allow you bypass the Stress Test, which will increase purchase power. Local credit unions are provincially regulated and therefore can allow you to bypass the Stress Test, although this comes with a slight rate premium. Secondly, having a 20% down payment can also make Alternative Lending an option – but be sure you understand this, as it may be easier to qualify, but these interest rates will be higher and could cost you more in the long run.

Nonetheless, with a 20% down payment – there are two viable options to Increasing Your Purchase Power in the Pre-Approval stage.

Further advice that we share with new clients, when we find they may not qualify for what they hoped is bringing a Co-signor to the mortgage. This could be a friend or family member that will be on the mortgage with you, and on the title of the property as little as 1%. We would be able to factor their income, assets, and debts into the equation to increase the purchase power. The primary borrower is still responsible for making mortgage payments, but the co-signor is there as a back up, and is required to make payments should the primary borrower default.

Another solution to Increasing Your Purchase Power is to increase the down payment.

This could mean putting your plans to purchase on hold for another 12 months while you continue to save, perhaps withdrawing RRSP or other Investments or even a gift from a family member may be possible. Given the current market conditions, we are seeing family members offer financial aid to their kids and grandkids to make home ownership possible for them.

Lastly, to help with Increasing Your Purchase Power, you can INcrease household income and DEcrease household debt. Although these options have a positive effect on purchase power, it takes time to see these effects take place. Perhaps obtaining a second part time job is possible, to increase income – but keep in mind, lenders will want to see this sustained for 2 years to consider the income. Also, decreasing debt will increase purchase power significantly.

For every $14,000 of debt that we carry, or $400/month payment, our borrowing power is decreased by $100,000. If you have a significant down payment, it’s always more advantageous for qualifying, to use a portion to pay down debts. It’s important to understand tips like this as they will contribute to Increasing Your Purchase Power.

At GLM Mortgage Group, we are with our clients for the entire journey. From the Discovery Call, we can identify client needs, any possible roadblocks, and a variety of solutions. Our brokers know how to Increasing Your Purchase Power and know how to assess your unique situation, giving the right advice so you can best move forward in your plans to purchase a home.

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Here’s a quick rundown of the two types of grants available:

1. Basic Grant

The basic grant is available to all those who have a primary residence in B.C. This does not apply to rentals or investment properties. This basic grant allows you to claim up to $570.00 off the price of your property taxes. Do you qualify? Here are the nuts and bolts:

• Are you a Canadian citizen or permanent resident?
• Live in BC?
• Registered owner of the property?
• Occupy the property as your principal residence?
• Value of the home is $1,525,000 or less?

2. Additional Grant

The additional grant can be applied for those who are 65+. Again, this does not apply to rental or investment properties and the property must be your principle residence. The additional grant allows you to claim up to $845.00. Here are the qualification perimeters for this grant:

• Are you 65 or older in the current year?
• Live in BC?
• Registered owner of the property?
• Occupy the property as your principal residence?
• Value of the home is $1,525,000 or less?

Remember, YOU MUST APPLY FOR THESE GRANTS EACH YEAR. Do not forget to apply for them before you file your property taxes. On the note of property taxes, here are a few key details for you to remember.

• The Due Date is July 2^nd 2020, however, it is best to pay a few weeks early, as there is a 5% penalty that will be added to current taxes unpaid after July 2, 2020, and penalty increases by another 5% if not paid by November 3, 2020.

• You have three (potential) payment options available to you.
  • You can pay in one lump sum either online at the provided URL on your property tax notice or write a cheque and send to the described address on the property tax notice.
  • You may have the option of paying monthly by making a pre-payment installment plan with city hall. This way monthly payments come right out of your bank account. Contact your city hall for more information.
  • Bundle it with your mortgage. Your mortgage lender will be able to arrange for the city tax payments to be withdrawn from your bank account along with your mortgage payment. Contact your mortgage lender to see if this bundling option is available for you.

That’s everything you need to know about property taxes and the homeowner’s grants! Don’t forget to mark it on your calendar to pay them off before July 2^nd, and don’t forget to apply for any of the above grants that are applicable to your property. If you have any questions, please let us know! We are here to help you.

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• Property taxes are due in full by the due date indicated on your tax notice. This is typically July 1st.

Are my property taxes included in my mortgage payment?

• Property taxes are never included in the mortgage loan. However the monthly payment can be collected by the lender who then pays the property tax on your behalf but that is set up with the notary at time of signing with them.
• If you can’t remember if you have your lender set up to take monthly payments on your behalf you will need to contact them.
• If your lender is taking monthly payments on your behalf don’t forget to claim the home owners grant. Your lender will not do that for you.

Where can I pay my taxes?

• In person at City Hall
• Through your bank or financial institution
• Through your mortgage agreement
• By mail or courier
• Some cities have the option to pay online

 
If you have any questions regarding your property taxes contact your city for further information.

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