Back
First-time buyers have access to a couple of options that help fund their home purchase
May 19, 2017

by Todd Lewys

As a centuries-old saying so aptly notes, knowledge is power.

Consequently, the more first-time home buyers know about the different options available to them, the better off they’ll be when they pull the trigger on homeownership.

The first option first-time buyers need to take better advantage of is using their RRSPs to fund a home purchase, according to Accredited Mortgage Professional (AMP) Diane Macpherson.

“It’s a great option. The main stipulation regarding using RRSPs for that purpose is simple — the money has to have been in the RSP for 90 days.

“Once that’s confirmed, you can withdraw up to $25,000 out of your RRSP.

“And if there are two people making the purchase and each has an RRSP, they can each take out as much as $25,000,” she explained, which makes for a total withdrawl of $50,000.

Here’s the kicker when it comes to using RRSPs: the money withdrawn can be used to cover expenses that fall outside the down payment on a home.

“What you do with the money is up to you,” said Macpherson, “It doesn’t have to be used just for a down payment.

“You can use it to cover closing costs and other expenses that arise, such as buying appliances, furniture or a lawn mower.”

That said, there is a caveat to using your RRSPs to purchase your first home.

 “You must repay the amount you withdrew from your RRSP at one-15th of the total amount over a period of 15 years (repayment period starts the second year after you withdrew the funds).

“If you don’t make that repayment, you will be taxed on that amount when the time comes to do your yearly taxes.”

If you’ve been funnelling your savings into a Tax-Free Savings Account (TFSA) instead of an RRSP, that’s a mistake, she added.

“I’ve met with many first-time buyers with TFSAs and other accounts, but no RRSPs. If you’re looking at buying your first home, it would be smart to take that TFSA worth $12,000 and put it into an RRSP.

“That would lower your taxes by as much as $4,000, and you’d have the $12,000 available to use for a down payment.

“The $4,000 could then be used to buy appliances or furniture. This is an opportunity you don’t want to miss out on,” Macpherson added.

Likewise, first-time buyers don’t want to miss out on another opportunity, which is a purchase-plus-improvements mortgage, according to Blair Sonnichsen, the president of WinnipegREALTORS®.

“It’s an option that can benefit buyers, whether they’re purchasing a resale or new home,” he explained. “A purchase-plus-improvements mortgage allows you to blend in as much as $40,000 in renovations into your mortgage at a lower interest rate that can be amortized over a period of 25 years.”

Sonnichsen said the option is advantageous to home buyers for two reasons.

“For example,” he explained, “with an older home, you can address any deficiencies in a short period of time (i.e., upgrading/modernizing the home).

“With new homes, a purchase-plus-improvements mortgage will allow you to blend the cost of a new deck, garage or fence into your mortgage at a low interest rate.

“There’s no need to live in a home with deficiencies and spend after-tax dollars on an extra loan payment,” he added.

Most important, Sonnichsen said, buyers can move into a contemporary, upgraded home in the community of their choice.

“Instead of waiting for the perfect home to come available in the area they want to live in, buyers can do some minor revisions and get into a home exactly where they want to live.

“I think it would be a good idea for more Realtors to get familiar with this option, as I believe it would assist them in showing fewer homes to clients, while clients purchase a home in the area they want to live in,” Sonnichsen added.

For more information on the purchase-plus-mortgage option and putting your RRSPs toward the purchase of your first home, contact your local Realtor as well as an accredited mortgage professional.