Purchasing your First House in 4 Easy Steps
Purchasing your first house is most certainly a major step in your life. Here’s how to make it easier in 4 steps:
Maximizing your capital
- The Home Buyer’s Plan (HBP) allows any individual buying his first house with the intention to live in it, to withdraw 25 000$ from his Registered Retirement Savings Plan (RRSP). The participant in the HBP then has 16 years to refund his RRSP. For those who do not have such an amount in your RRSP (which is quite a few people), know that you can borrow or transfer these funds as long as they stay in the account for at least 90 days prior to the HBP. Are you buying your house as a couple? Then both of you can participate in the HBP, and receive approximately 20 000$ in tax return from the government!
- Still short of the cash down you need? Most permanent and some universal life insurance products carry a cash value from which you can borrow. If you are healthy and young, you could also sell your existing insurance to cash in the full net value and then begin investing in a new policy.
Using tax credits and deductions
- Federal and provincial tax credits when buying a new house.
- Montréal’s Home Ownership Program: If eligible, your could receive between 2 250$ and 6 250$ and even have your duties on transfer reimbursed.
- Federal tax credit when purchasing your first house (626$).
- Provincial home renovation tax credit LogiRénov.
Increasing your purchasing power
While the maximum loan-to-value ratio for a mortgage is set at 80%, you can purchase a mortgage loan insurance with either CHMC, Genworth or Canada Guaranty to increase this ratio up to 95%, as long as you intend to live in the property. More precisely, houses with 1 or 2 apartments can be financed up to 95% while the financing for triplexes and fourplexes is capped at 90%. This is certainly interesting if you plan on buying an income property, not so much for a single-family home. Why?
- When reducing your cash down for an income property, you are actually increase your return on investment.
- When reducing your cash down for a single-family home, not only are you increasing the loan amount, but you are also increasing the liability linked with a potential interest rate increase (which are currently historically low).
Reducing your payments
This is probably the best part of having tenants. Not only are you collecting rent, but you can also deduct any expense incurred to produce these revenues, in a proportion equal to the area occupied by your tenants.
For instance, if you live in one of your fourplex’s units and rent the other 3, you could deduct 75% of the following expenses:
- Interest portion of your mortgage payments
- Renovations on the building (75%) or in the rented units (100%)
- Home insurance
- Municipal and school taxes
- Miscellaneous (notary, lawn maintenance, etc.)
You now have an overview of the strategies that can be implemented to facilitate your first house purchase! Obviously, every situation is unique and there is no universal strategy or method. Please do not hesitate to contact us should you have any questions, concerns or desires. Till next time!