I'M READY TO BUY A HOME... NOW WHAT?
You think that this would be an easy question to answer, that there would be some easy step by step guide you could follow, but with everyone’s situation in life being so different, each buyer has to be treated individually to suite and serve you best.
Calling and talking with a knowledgeable realtor like myself will enable me to understand your situation. I pride myself on keeping up to date with the latest housing policies, government changes & incentives/grants, and what the market is like in my area. I also work closely with industry leaders, such as Mortgage Brokers & Lawyers to make sure that all your legal and financial options are weighed out, resulting in you getting the best possible deal on a house and potentially saving you thousands of dollars.
Asking questions is the best way to find out information, and a good question to ask first when buying a home is, “is there a difference between a down payment and a deposit?”
- Answer: YES! And you will need both! (Both will be applied towards the house's purchase price) but having a deposit is what will be needed first.
What is a deposit?
You found a home, you love it, and it’s time to write the purchase and sale agreement...
Along with the purchase price, closing day and when we write your offer to the Seller; to buy a house in Ontario, you may have to bring money to the table and so, I will ask you, “What is the amount you will be giving to the Sellers as a deposit to secure the property?”
This is to show good faith that you are serious, you are committed to buying their house and you are ready to take on some financial risk (as you can lose this amount if you walk away from the deal or refuse to close).
In most cases, this deposit will have to be given within 24 hours upon acceptance of the purchase and sale agreement. It can be made by certified check, bank draft, wire transfer or (check with the listing agent) for other form of payment. This will be placed into the Listing Agent's Real Estate Brokerage trust account.
Usually the deposit is about 5% of the purchase price, however using your own discretion the deposit can be anywhere from $1,000 dollars to $50,000 - $100,000 dollars. Whatever the amount is, make sure you feel confident and comfortable giving it. When your closing date comes, this deposit will be deducted from the final price by the Lawyer. But, if you have conditions on financing or other conditions in your purchase agreement and those conditions are not met, your deposit will be returned, in full, without any deductions.
- Please note that when you sign a contract, you are bound to it. There is an expectation of good faith on your part to uphold your word, and it is wrong to just back out of a deal simply because you changed your mind because if this is challenged by law you could potentially lose all your deposit.
What is a down payment?
This is the amount of money that will go towards the purchase of your home. It will be deducted from the final sale price on your closing date.
Typically your down payment can range anywhere from 5 - 20% of the home’s purchase price.
- For example: a purchase price of $500,000: You will have to save between $25,000 - $100,000 dollars.
The Government of Canada has set up measures specifically help first-time home buyers.
- The First-time home buyer Incentive: Funded through the Government of Canada & the Canada Mortgage and Housing Corporation (CMHC) this incentive can essentially double your down payment to eligible first-time home buyers, which will lower the amount you need to borrow on a mortgage as well as your monthly payments (qualifying for this however, still requires you to come up with the initial 5% of the house price).
- The Home Buyers' Plan (HBP): This plan allows you to withdraw up to $35,000 from your Registered Retirement Savings Plan (RRSP) to purchase or build a home, without having to pay tax on the withdrawal (you have to have money for at least 91 days in your RRSP to qualify) so planning head is important, everything takes time.
- Provence specific & Community based: Depending on where in Ontario you are planning on buying, there are several tax credits, rebates & programs also available to first-time home buyers (there are too many to list here) that can be applied to help you with your down payment or be given to you as future savings or money back.
In conclusion, the deposit is the amount of money you pay first to SECURE the house; and then the down payment is the money you need to FINANCE THE PURCHASE of the house.
Congratulations, you are now on the road to becoming a first time home buyer in Ontario.