D Smith: Help to purchase your first home

The price of homes in Kelowna have increased over the last decade, leaving many people to ask themselves: “How will I ever be able to buy a home when such a large down payment is required?”

The price of homes in Kelowna have increased  over the last decade, leaving many people to ask themselves: “How will I ever be able to buy a home when such a large down payment is required?”

Many people purchase their first home using the government sponsored Home Buyers Plan  option.

There are rules that apply to withdrawing RRSP funds under the HBP. You have to be considered a first-time homebuyer.

You are considered a first-time home buyer if you or your spouse or common-law partner did not own a home that you occupied as your principal place of residence during the period beginning Jan. 1 of the fourth year before the year of withdrawal and ending 31 days before your withdrawal.

The HBP program allows you to withdraw up to $25,000 from your registered retirement savings plan (RRSPs), to buy or build a qualifying home for yourself or for a related person with a disability.

Only the annuitant (the RRSP owner) can withdraw funds from a RRSP. You can make withdrawals from more than one RRSP.  Your RRSP issuer does not withhold tax on these amounts.

Your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the HBP.  Example if you contribute to a RRSP on March 1, you must wait 90 days to withdraw these same funds under the HBP guidelines.

You have to enter into a written agreement to buy or build a qualifying home for yourself, for a related person with a disability, or to help a related person with a disability buy or build a qualifying home.

You have to intend to occupy the qualifying home as your principal place of residence no later than one year after buying or building it.

Over a period of no more than 15 years, you have to repay the amount withdrawn back into your RRSP.   Generally, for each year of your repayment period, you have to repay 1/15 of the total amount you withdrew, until the full amount is repaid to your RRSPs. Your first repayment starts the second year following the year you made your withdrawals.  You can repay the full amount at any time.

Each year, CRA sends you a Home Buyers’ Plan Statement of Account, on your notice of assessment. This notice provides details of your participation in the HBP.

Online calculators will help you determine how much you can afford for a home.  You can also speak with a mortgage specialist who will help you determine how much you qualify for and other options available.

Make sure you take other costs into consideration, example closing costs, legal fees, land transfer tax, property insurance, etc.

These costs can up to thousands of extra dollars of your home purchase budget. When calculating closing costs, you may need an additional 1.5 per cent of the purchase price.

Purchasing a house under the HBP guidelines can allow you to purchase your first home.  Owning your first home is an exciting experience.

Doreen Smith is a Certified Financial Planner and Life Insurance Broker with Capri Wealth Management Inc.




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