What are savings strategies we can undertake to facilitate savings and increase the amount to offer as a down payment?
Saving for a down payment requires discipline and determination, whether your goal is the minimum down payment or a payment greater than 20%. The vast majority of first-home buyers tend to use a minimum payment required, but even investors who already know well the rules require strategies to raise initial funds to access mortgage financing.
The first step is to open and use a bank account for the purpose of gathering that fund. Well, as soon as you can open a bank account for this purpose, to start saving, you may save a little at every opportunity, even from your tax return paychecks.
The trick is to start thinking about where you can obtain a little or a lot of the funds that you can save, and also the additional funds, to deposit them in your down payment saving account.
Two different forms of the aforementioned personal effort are the following:
First. Donor or gift from a third party. Perhaps a relative is willing to fund your down payment, that would be a great support. For this, the following important requirements must be taken into account: first that your lender must be one of your parents or some other blood relative, such as your grandparents. Whatever the case, you will need to have a signed gift letter stating that the funds are a gift and that you are not obligated to return the money in any time; In other words, that money cannot affect your present or future equity, or your income during the life of the loan, so that the mortgage credit will not be affected.
Second. Another way is to pool the funds with the tax benefits offered by Canada's own financial and tax system with the RRSPs Retirement Savings Plan, (Registered Retirement Saving Plan).
Therefore, if you already have this savings now, put it to good use, and what better way than to buy your home, because that money can be withdrawn to make your dream come true, as determined by the Government of Canada, which allows any resident who has RRSP in any financial institution to withdraw this money tax-free, through the HBP First Buyers Plan (Home Buyers Plan), to which a person or couple who have not acquired a house in the last 4 years can apply. This Federal program works as follows:
First-time home buyers withdraw up to $ 25,000 tax-free from their RRSP, provided the money has been in that account 90 days prior to disposition. If you have the fund available this way, you can take what you have saved for your down payment on the house or down payment up to $ 25,000, and put it in your RRSP just before the deadline for any tax refunds you have, because that will increase even more the funds you have available for your purchase. After 90 days you can return your funds to your HBP.
If you are buying a home with a partner, both of you can withdraw from their RRSP up to a total of $ 50,000 towards the purchase of the home, of course, both of you must be first time home buyers under the HBP Plan.
Of course, eventually, funds withdrawn from the RRSP account must be reimbursed to the HBP account according to a repayment plan; otherwise, you will pay income tax. The term granted by the Government is 15 years to return it, with the possibility to extend it two more years. After that period without having returned or partially returned, that amount will be added through an annual formula to the corresponding annual income for the payment of income tax.
As we can see, there are good options to save for that down payment, so if you are in the savings stage to prepare to be a homeowner, this is a good time to start designing your savings strategy.
In the next Podcast, we will talk about how to verify or what documents the buyer is required to prove the ownership and origin of the funds for this initial payment.
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