Home / first time home buyers canada / Top first-time home- buyer questions - RBC Royal Bank
Top first-time home-
A home can be one of the most personally and financially rewarding investments you'll ever make.
But if you've never bought a home before, the process may seem a little overwhelming.
To help you, we've put together this special report. It provides answers to the questions most
frequently asked by our home-buying clients.
What's the best way to save for my down payment? You might also consider directing your savings to your
You'll be glad to know that there are different options Registered Retirement Savings Plan (RRSP). Under the RRSP
available depending on how much of a down payment Home Buyers' Plan, first-time home buyers can withdraw up to
you can afford: $35,000 from their RRSP, tax-free, to use as a down payment
??Conventional mortgage or RBC Homeline Plan?
on a home. The plan allows you 15 years to repay the amount
(20% down payment)
withdrawn, starting the second year after the year of the
withdrawal. For more information on this plan, visit the
??Low down payment mortgage (minimum 5% down) Canada Revenue Agency website at cra.gc.ca and search
Low down payment mortgages require mortgage default "Home Buyers' Plan" in the A to Z index.
insurance. The premium can either be paid up front or
added to the amount you borrow. How much home can I afford?
If you're saving to buy your first home, one of the most Getting pre-approved for a mortgage is a good place to start,
effective ways to put money aside is with an automatic or you can use one of the many online calculators to help you
savings plan. With this plan, an amount you specify is figure out how much home you can buy. The "How much home
automatically transferred from your bank account to your can I afford" calculator at https://www.rbcroyalbank.com/
savings account on a regular basis. You can contribute cgi-bin/mortgage/tools/howmuch/afford.pl or calculators
as little as $25 and make deposits weekly, bi-weekly, available from the Canada Mortgage and Housing Corporation
semi-monthly, monthly or quarterly -- whatever works at cmhc.ca can help you figure out an affordable range so you
best with your cash flow. can start shopping.
One of the best places to put your savings is in a Tax-Free
Savings Account (TFSA). All earnings and withdrawals
from your investment are tax-free. You can contribute
up to $6,000 in 2020 to a TFSA.
2 | Home Financing Page 2
What is a pre-approved mortgage? advice based on your needs. That includes reviewing your
Does it guarantee I'll get the financing I need? mortgage options with you and making sure you get the
A pre-approved mortgage simply means that you've reviewed mortgage that's right for you.
your earnings, assets and liabilities with a lender, who has This will allow you to shop with confidence. Once your
determined the amount of money you should be able to mortgage specialist says you are pre-approved, you are --
borrow to purchase a home. In order to proceed with a formal no last-minute surprises to worry about!
mortgage approval, the lender will want to assess the value
of the property you are looking to purchase and confirm your Is my credit good enough to be approved
income, down payment and so on, if you haven't already for a mortgage?
provided that information. One thing your lender will look at before approving you for a
Having a pre-approved mortgage is a great advantage when mortgage is your credit score -- your record for paying your
you're looking for a home. Knowing the price range that you bills and repaying loans on time.
can comfortably afford will help you narrow your search and In Canada, there are two main credit-rating agencies: Equifax
ensure you won't be let down in finding out the home of your and TransUnion. These companies keep records of missed
dreams is not within your reach. It will also signify to realtors payments and overdrawn credit accounts. If you've ever had
and vendors that you are a serious purchaser and give you a credit card or applied for an account with a major utility,
more credibility when negotiating your purchase. chances are your payment history is on record with one or
In addition, the interest rate that's quoted on your both of these companies.
pre-approval is usually locked in for 120 days,1 so you're If you have a good track record -- that is, you've always paid
protected if interest rates rise while you're looking for your bills on time and made at least the minimum payment
your perfect first home. due on your credit card bills -- you will have a good credit
rating. If your track record isn't perfect, that doesn't mean that
Why should I use a real estate agent? you won't get approved for financing. If your late payments
A real estate agent will help you find the right home and will are in the past or date back to your student years but you
offer you advice on what price to offer and any conditions have since paid your bills on time, then you may not have
you might want to consider, including in your Offer to difficulty in arranging financing. Your lender can help you
Purchase. If possible, get referrals from friends, family and assess your situation and provide advice on how to improve
co-workers. It's important to choose an agent who is familiar your credit rating to get you ready to purchase your first home.
with the area where you are searching for a home. You may You can get a free copy of your credit file by mail just by
end up spending a lot of time with your agent checking out asking. For details, visit Equifax.ca or Transunion.ca.
homes, so be sure to choose someone you feel comfortable
In some provinces, real estate agents may require that you Dreaming of owning your own home but
sign a Buyer Representation Agreement. This is a binding not sure if you qualify for a mortgage?
agreement for a given period of time that ensures that Even if your credit history is less than perfect,
the agent you are working with can represent you in your we can help you find a solution.
purchase and be compensated for doing so. Before you
sign a Buyer Representation Agreement, review the terms
of the agreement to confirm you are comfortable with it. What is mortgage insurance?
How can a mortgage specialist help me? If your down payment is less than 20% of the purchase price of
Working with an RBC Royal Bank? mortgage specialist has a your home, you will require a mortgage that's insured against
number of advantages, especially if you are a first-time home default. This insurance protects the lender in case you default
buyer. RBC Royal Bank mortgage specialists have access to on your mortgage payments and is required by law.
the entire RBC? network of resources to draw from on your There are three mortgage insurers in Canada (the Canada
behalf. They'll not only help with your pre-approval but also Mortgage and Housing Corporation, Genworth Financial
look at your whole financial picture and provide personalized Mortgage Insurance Company Canada and Canada Guaranty
Top first-time home-buyer questions | 3
Mortgage Insurance Company). The cost will vary depending ??Fixed-rate mortgage. With a fixed-rate mortgage, your
on the total amount borrowed. The amount is usually added to interest rate is locked in for the term of your mortgage
your mortgage, and the cost is added to your regular payment. contract, protecting you if interest rates go up over the
term you have chosen.
What are "closing costs," and how much money
should I set aside for them? How long will it take to pay off my mortgage?
Closing costs are those additional expenses that come due The length of time needed to pay off your mortgage
when you complete the purchase of your home. They typically completely is called the amortization. Many first-time
include: buyers opt for a 25-year amortization, but your amortization
??Lawyer's or notary's fees. When you buy a home, you need
can be shorter or longer depending on your needs.
to hire a lawyer to complete a title search (to make sure Choosing a longer amortization requires that you have a down
there are no outstanding liens against the property and payment of at least 20% of the purchase price of the property
that the vendor actually owns the property), ensure all the you are purchasing.
documentation has been accurately completed, register Choosing a longer amortization will lower the amount of your
your mortgage and register you as the new owner of regular payments, but it means you'll be paying more interest
the property. over the life of your mortgage. Shortening your amortization,
??Land transfer tax. Most provinces (and some on the other hand, increases your regular payment but saves
municipalities) charge a fee for documenting a change you interest overall and means you'll be mortgage-free sooner.
in ownership of real estate.
??Disbursements. These are costs that the seller has paid in
An easy way to shorten your amortization and pay less
advance, such as property taxes and utilities. You reimburse
interest overall is to choose an accelerated weekly or
the seller for any prepayments that come into effect after
bi-weekly payment schedule rather than a monthly schedule.
you take possession of the home. Essentially, your regular monthly payment will be divided
into four (or two). Because some months in the year have
The amount of these costs will vary, depending on where five weeks rather than four, over the course of the year,
you live and what kind of home you're buying. As a guideline, you'll make the equivalent of an extra month's payment.
you can estimate that closing costs will be about 2.5% of the
purchase price of your home, though this may vary greatly, How can I protect my mortgage payments?
especially if HST applies to your purchase. This may be one of the biggest financial commitments you'll
In addition to closing costs, remember that you may also ever make, which is why it's important to make sure that
need to budget for appliances (if not included with the home), you and your family will be able to continue to make your
utility hook-up, redecorating and paying a professional mover. mortgage payments should the unexpected happen.
What are the best mortgage options for me? HomeProtector? mortgage insurance2 can provide a financial
safety net to help you pay for your mortgage precisely when
When choosing your mortgage, you'll need to decide whether you and your family need it most:
you want a variable or fixed rate. The option that is right ??Life Insurance can help pay off or reduce up to $750,000 of
for you will depend on your situation and your personal
preferences. Here's a look at how they stack up: your outstanding mortgage balance in the event of death.
??Variable-rate mortgage. With a variable-rate mortgage,
??Disability insurance can provide up to $3,000/mth for
the interest rate you are charged fluctuates based on your
24 months to help you make regular mortgage payments
bank's prime lending rate. In times of declining interest
in the event of a disability.
rates or stable low interest rates, a variable rate is usually ??Critical illness insurance can help you pay off or reduce
the most inexpensive. With a variable rate mortgage, the up to $300,000 of your outstanding mortgage balance in
payment you make is fixed; however, if interest rates rise, the event you are diagnosed with a covered critical illness.
more of your payment will go towards paying interest. If By having insurance that's dedicated to your mortgage, any
interest rates decrease, more of your payment will go additional income, such as employer's benefits, is preserved
towards paying off your principal. to take care of your family's other expenses.
Who qualifies as a first time home buyer? In laymans terms, the definition of a first-time buyer is an individual who has never owned a property before. To put it another way someone getting a mortgage who isn’t a homeowner, homemover, buy-to-let investor or just remortgaging is classed as a first-time buyer. However, there are a few nuances which make it a bit more complicated than that.
Creator: Adobe InDesign 14.0 (Macintosh)
Producer: Adobe PDF Library 15.0
CreationDate: Fri Jan 17 15:17:00 2020
ModDate: Fri Jan 17 15:17:01 2020
Page size: 612 x 792 pts (letter) (rotated 0 degrees)
File size: 2563080 bytes
PDF version: 1.4