Not Taking Advantage of Government ProgramsWhile most Canadians would like to own a home, one of the biggest hurdles is often coming up with a down payment. To help encourage home ownership, the government offers the Home Buyer’s Plan (HBP). Under the HBP, first time home owners can borrow up to $25,000 tax-free from their Registered Retirement Savings Plan (RRSP) for a down payment. If you are buying with another first-time homebuyer, that is a total of $50,000 you can borrow together for a down payment. What makes this program powerful is that you’ll get a tax refund on your contributions, helping you reach your down payment goal sooner rather than later.If you’re not a first-time homebuyer, you can also use a tax-free savings account (TFSA). Compared to an RRSP, you don't get tax refund from the TFSA contributions, but your money grows tax-free inside it. The other bonus of a TFSA is that you don’t have to pay income tax when you withdraw your money.
Skipping Mortgage Preapproval
Before you start looking at properties with your real estate agent, it is a good idea to get preapproved for a mortgage. A mortgage preapproval helps to tell you how much you can afford on a home. Without it you could put an offer in for $350,000 only to find out that you are only approved for $250,000.
Just because your lender preapproved you for a set amount, doesn’t mean you should spend it all on the house. It is a good idea to leave yourself some financial room just in case anything was to happen. An example of this might be mortgage rates may be higher when you apply for renewal.
Forgetting to Budget Closing Costs
If you have never bought a home before it is easy to overlook closing costs. While it may be tempting to put money towards your down payment and deposit, to lessen the size of your mortgage, it is also important to set some money aside for closing costs.
How much money should you put aside? You should try to put 1.5 to 4% of your home purchase price towards the closing costs. The most common type of closing costs is land transfer tax, real estate lawyer fees, and home inspection fees. Depending on the province you live in, you may get a partial or full rebate on the land transfer tax.