Let's face it, saving money for the down payment on your first home can be an overwhelming task. These days, you are required to put down a minimum of 5% of the purchase price of your first home, the minimum that mortgage insurers CMHC or Genworth will allow.
When I meet with first time home buyers, more often than not we have a thorough discussion around the federal Home Buyers Plan. There seems to be a few misconceptions out there when it comes to the details of the plan and how it actually works. The Home Buyers Plan is an excellent way to get a "boost" from your current savings or to help you get started saving towards your down payment.
- You do not have enough money for a down payment, but have money in a Registered Retirement Savings Plan (RRSP).
- You have money for a down payment and have unused RRSP contribution room.
- If you fit into the first scenario above, you and your spouse or common law partner, can each withdraw up to $25,000 from your RRSP's to help build or buy the same first home for a combined total of $50,000.
- If the second scenario is more like your current situation, consider contributing the money you have saved into an RRSP and potentially benefit from a substantial tax refund. The contribution must be within your RRSP contribution limit, which can be found on your most recent Notice of Assessment from the Canada Revenue Agency.
As you can see, the Home Buyers Plan is a simple way to get the most from your savings and get you in your first home sooner rather than later.
Jesse Merson is a Mortgage Advisor with BMO Financial Group in Toronto. He specializes in all facets of residential financing - mortgage preapprovals, purchase financing and existing home refinancing. Email Jesse