3 Mar

Homeowner Tax Tips

General

Posted by: Kim Lindsay

It’s that time of year when we are compiling our receipts and updating our spreadsheets to file taxes for 2019.  As a homeowner, here are some deductions and expenses you should be discussing with your accountant.

 

HOME BUYERS TAX CREDIT

You can claim $5,000 for the purchase of a qualifying home in the year if both of the following apply: you or your spouse or common-law partner acquired a qualifying home, and you did not live in another home owned by you or your spouse or common-law partner in the year of acquisition or in any of the four preceding years (first-time home buyer).  The credit is also available for homes acquired by individuals who are eligible for the disability tax credit (DTC), or by an individual for the benefit of a DTC-eligible relative, if the home is acquired to enable the individual to live in a more accessible dwelling.

 

GST/HST NEW HOUSING REBATE

The GST/HST new housing rebate allows an individual to recover some of the goods and services tax (GST) or the federal part of the harmonized sales tax (HST) paid for a new or substantially renovated house that is for use as the individual’s, or their relation’s, primary place of residence, when all of the other conditions are met.

The new housing rebate is not available to a corporation or a partnership.

 

RENTAL INCOME

Reasonable expenses you incur to earn rental income such as advertising, insurance, professional expenses (legal and accounting fees), property taxes, repairs and maintenance, travel are deductible.

 

HOME BUYERS PLAN 

Did you withdraw RRSPs under the Home Buyers’ Plan? Make sure you know when and how much to repay.

 

MOVING EXPENSES

Generally, you can claim moving expenses you paid in the year if both of the following apply: you moved to work or to run a business, or you moved to study courses as a full-time student enrolled in a post-secondary program at a university, a college, or another educational institution; and, you moved at least 40 kilometres closer to your new work or school.

 

HOME ACCESSIBILITY EXPENSES

A maximum of $10,000 per year in eligible expenses can be claimed for a qualifying individual for expenses such as building materials, fixtures, equipment rentals, building plans and permits that allow the qualifying individual to gain access to, or to be mobile or functional within, the dwelling; or reduce the risk of harm to the qualifying individual within the dwelling or in gaining access to the dwelling.

 

Please seek professional tax advice from an accountant, or visit Government of Canada Homeowners page for more details.

 

 

 

25 Feb

Down Payment – Getting it right the first time

General

Posted by: Kim Lindsay

Down payment is an essential component of every application when purchasing property – minimum amount required AND verifying the source of the money.

The federal government has imposed strict rules (FINTRAC anti-money laundering and anti-terrorist financing regime) that ALL federally regulated banks and lending institutions must follow.  This legislation came into effect as an attempt to prevent unscrupulous individuals from using cash down payments when purchasing properties as an easy way to launder money.

Link to more info here: https://www.fintrac-canafe.gc.ca/fintrac-canafe/antimltf-eng

 

Most Common Down Payment Sources:

GIFT (from an immediate family member): if you are receiving any  portion of the down payment as a financial gift we will provide you with a gift letter to be signed by the individual(s) gifting the funds, as well as confirmation funds have been deposited to your account

SALE OF ANOTHER PROPERTY:  copy of the Sale Contract and Trust Ledger OR Statement of Adjustments & Disbursements (from your lawyer) to verify net sale proceeds

“OWN RESOURCES” if funds are coming from your chequing/savings account(s), Investments (RRSPs, TFSAs, mutual funds, stocks, bonds, etc.), or an accumulation of these accounts, we require a 90-day history (3 full months)

A common hesitation we hear from clients is about their bank statements, which obviously include a lot of personal details. We understand your concerns and have policies and procedures to make sure your privacy and personal information is protected.  On this note, we require unaltered bank statements; blacked out names, account numbers, or any other details are NOT acceptable and will be rejected by the lender.

TRANSFERRING FUNDS from one account to another; any large transfers or deposits will have to show a (90-day) history/source of where the money went and/or where it came from.

Large or unusual deposits need to be verified as an acceptable source for down payment:

  • Received a gift from an immediate family member? Easy, we’ll provide you with a gift letter to be signed by the individual who gave you the funds
  • Sold a vehicle? Easy, provide bill of sale
  • Tax refund from CRA?  Easy, provide Notice of Assessment confirming amount
  • Transfer from your TFSA to chequing account?  Easy, provide the 90-day history for the TFSA along with withdrawal
  • *CASH DEPOSITS* less than $1,000, fine, but cash deposits over $1,000 that you cannot provide confirmation for?  Lenders will ask for source of funds.  Money that is “under the mattress” could be a deal breaker.  Funds must be deposited into a Canadian account at least 90 days prior to you placing an offer on a property.  Please talk to us BEFORE making any deposits, we will guide you on how to handle this properly.

 

CONVENTIONAL vs HIGH RATIO MORTGAGE

If your down payment is LESS THAN 20% of the purchase price, your mortgage is considered a High Ratio / Insured. These mortgages require mortgage default insurance, and the insuring companies (CMHC, Genworth, or Canada Guaranty) charge an insurance premium which is added to and paid along with your mortgage.

If your down payment is 20% OR MORE of the purchase price, you will have a Conventional Mortgage, and mortgage default insurance is not required.

 

TRADITIONAL vs NON-TRADITIONAL DOWN PAYMENT

A traditional down payment comes from sources such as savings, RRSPs, the sale of a property, or a non-repayable financial gift from an immediate family member.

Planning on borrowing money from a friend, credit card, unsecured line of credit, or personal loan?  This is considered non-traditional down payment. Additional qualifying criteria applies, we need to know this up front.

 

RRSP / HOME BUYERS PLAN

Qualifying home buyers can withdraw up to $35,000 from their RRSPs to assist with the purchase of a home – tax-free and interest-free – as long as those funds are repaid into the RRSP over 15 years. If you do not repay the amount due for that year (i.e. $35,000 / 15 years = $2,333.33 per year), it will be added to your (taxable) income for that year.

If you buy a qualifying home together with your spouse or partner, each of you can withdraw up to $35,000. The funds are not required to be used only for the down payment, but for other purposes to assist in the purchase of a home.

 

FIRST-TIME HOME BUYER INCENTIVE PROGRAM

This program launched in September 2019 to help qualified first-time homebuyers reduce their monthly mortgage payments by offering additional 5% down payment for a purchase of a resale (existing) home or up to 10% additional down payment for purchase of a newly constructed home.  It is a shared-equity mortgage with the Government of Canada; the effect of the larger down payment is a smaller mortgage, and ultimately, lower monthly costs.  The homebuyer will have to repay the Incentive based on the property’s fair market value at the time of repayment – after 25 years OR when the property is sold, whichever comes first.  The government shares in both the upside and downside of the property value at time of repayment.

 

MONEY FROM OUTSIDE CANADA

Using funds from outside of Canada is acceptable, however, you need to have the money on deposit in a Canadian financial institution for at least 30 days before your closing/possession date.

 

CLOSING COSTS

In addition to your down payment, lenders want to see that you have additional funds available for closings costs; such items as land transfer tax*, legal fees, GST/HST-if required, property tax adjustments, and interest adjustments.  The general guideline for closing costs is 1.5% of the purchase price.

*We do not have land transfer taxes in Alberta and it is highly unlikely that your closing costs will actually be 1.5% of the purchase price.  But, keep in mind that this number is commonly used by lenders when accessing overall risk/fallback, and to approximate funds that they want to see, in addition to the down payment.

 

Please be upfront with your broker and discuss your down payment at the beginning – doing so will save everyone time and stress later in the process 😊

 

4 Feb

How to Verify Your Down Payment When Buying a Home

General

Posted by: Kim Lindsay

HOW TO VERIFY YOUR DOWN PAYMENT WHEN BUYING A HOME

Saving for a down payment is one of the biggest challenges facing people wanting to buy their first home.
To fulfill the conditions of your mortgage approval, it’s all about what you can prove (hard to believe – but some people have lied in the past – horrors!).
Documentation of down payment is required by all lenders to protect against fraud and to prove that you are not borrowing your down payment, which changes your lending ratios and potential your mortgage approval.

DOCUMENTATION REQUIRED BY THE LENDER TO VERIFY YOUR DOWN PAYMENT

This is a government anti-money laundering requirement and protects the lender against fraud.

1. Personal Savings/Investments: Your lender needs to see a minimum of 3 months’ history of where the money for your down payment is coming from including your: savings, Tax Free Savings Account (TFSA) or investment money.

  • Regularly deposit all your cash in the bank, don’t squirrel your money away at home. Lenders don’t like to hear that you’ve just deposited $10,000 cash that has been sitting under your mattress. Your bank statements will need to clearly show your name and your account number.
  • Any large deposits outside of “normal” will need to be explained (i.e. tax return, bonus from work, sale of a large ticket item). If you have transferred money from once account to another you will need to show a record of the money leaving one account and arriving in the other. Lenders want to see a paper trail of where your down payment is coming from and how it got into your account.

 

2. Gifted Down Payment: In some expensive real estate markets like Metro Vancouver & Toronto, the bank of Mom & Dad help 20% of first time home buyers. You can use these gifted funds for your down payment if you have a signed gift letter from your family member that states the down payment is a true gift and no repayment is required.

  • Gifted down payments are only acceptable from immediate family members: parents, grandparents & siblings.
  • Be prepared to show the gifted funds have been deposited in your account 15 days prior to closing. The lender may want to see a transaction record. i.e. $30,000 from Bank of Mom & Dad’s account transferred to yours and a record of the $30,000 landing in your account. Bank documents will need to show the account number and names for the giver and receiver of the funds. Contact me for a sample gift letter.

3. Using your RRSP: If you’re a First Time Home Buyer, you may qualify to use up to $35,000 from your Registered Retirement Savings Plan (RRSP) for your down payment.

  • Home Buyers Plan (HBP): Qualifying home buyers can withdraw up to $35,000 from their RRSPs to assist with the purchase of a home. The funds are not required to be used only for the down payment, but for other purposes to assist in the purchase of a home.
  • If you buy a qualifying home together with your spouse or other individuals, each of you can withdraw up to $35,000.
  • You must repay all withdrawals to your RRSP’s 15 years. Generally, you will have to repay an amount to your RRSP each year until you have repaid the entire amount you withdrew. If you do not repay the amount due for a year (i.e. $35,000/15 years = $2,333.33 per year), it will be added to your income for that year.
  • Verifying your down payment from your RRSP, you will need to prove the funds show a 3-month RRSP history via your account statements which need to include your name and account number. Funds must be sitting in your account for 90 days to use them for HBP.

4. Proceeds from Selling Your Existing Home: If your down payment is coming from the proceeds of selling your currently home, then you will need to show your lender an accepted offer of Purchase and Sale (with all subjects removed) between you and the buyer of your current home.

  • If you have an existing mortgage on your current home, you will need to provide an up-to-date mortgage statement.

5. Money from Outside Canada: Using funds from outside of Canada is acceptable, but you need to have the money on deposit in a Canadian financial institution at least 30 days before your closing date.  Most lenders will also want to see that you have enough funds to cover Property Transfer Tax (in BC) PLUS 1.5% of the purchase price available in your account to cover your closing costs (i.e. legal, appraisal, home inspection, taxes, etc.).

  • Property Transfer Tax (PTT) All buyers pay Property Transfer Tax (except first-time buyers purchasing under $500,000 and New Builds under $750,000). This is a cash expense, in addition to your down payment.
    Property Transfer Tax (PTT) cannot be financed into the mortgage

Buying a home for the first time can be stressful, therefore being prepared with the right documentation for your down payment and closing costs can make the process much easier.
Mortgages are complicated, but they don’t have to be. Contact a Dominion Lending Centres mortgage professional near you.

KELLY HUDSON, Dominion Lending Centres – Accredited Mortgage Professional
30 Oct

Bank of Canada Holds Policy Rate Steady Amid Global Uncertainty

General

Posted by: Kim Lindsay

 

It is rare for the Bank of Canada and the US Federal Reserve to announce rate decisions on the same day, but today’s announcements highlight the stark differences in policy in the two countries. The Bank this morning announced they would maintain their target for the overnight rate at 1.75% for the eighth straight meeting. The Fed is widely expected to cut its target for the fed funds rate by another 25 basis points, taking it below the key rate in Canada for the first time since 2016. More than 30 central banks have cut interest rates in the past year and the Bank of Canada in today’s Policy Statement highlighted the weakening in the global economic outlook since the release of its July Monetary Policy Report (MPR).

In today’s MPR, the Bank revised down its forecast for global economic growth this year to below 3.0%, reflecting a downward revision in growth in the United States to 2.3% (from 2.5%), the Euro area (to 1.1% from 1.2%), oil-importing emerging market economies and the rest of the world. China’s growth pace remains at a 30-year low of 6.1%.

Trade conflicts and uncertainty are weakening the world economy to its slowest pace since the 2007-09 economic and financial crisis. The slowdown has been most pronounced in business investment and the manufacturing sector and has coincided with a contraction in global trade (Chart 1). Despite the manufacturing slowdown, unemployment rates continue to be near historic lows in many advanced economies, as growth in employment in service sectors has remained resilient.

Growth is projected to strengthen modestly to around 3.25% by 2021, with a pickup in some emerging-market economies (EMEs) more than offsetting slower growth in the United States and China.

 

Canada has not been immune to these developments. Commodity prices have fallen amid concerns about global demand. Despite this, the Canada-US exchange rate is still near its July level, and the Canadian dollar has strengthened against other currencies.
Growth in Canada is expected to slow in the second half of this year to a rate below its potential. This reflects the uncertainty associated with trade conflicts, the continuing adjustment in the energy sector, and the unwinding of temporary factors that boosted growth in the second quarter. Business investment and exports are likely to contract before expanding again in 2020 and 2021. At the same time, government spending and lower borrowing rates are supporting domestic demand, and activity in the services sector remains robust. Employment is showing continuing strength and wage growth is picking up, although with some variation among regions. Consumer spending has been choppy but will be supported by solid income growth. Meanwhile, housing activity is picking up in most markets. The Bank continues to monitor the evolution of financial vulnerabilities in light of lower mortgage rates and past changes to housing market policies.

Canadian Economy Boosted By Housing

The Canadian economy grew at a moderate pace over the past year, supported by a healthy labour market and the recent turnaround in housing. However, global trade conflicts and related uncertainty dampened business investment and export activities, and investment in the energy sector continued to decline. The impact on growth of both global headwinds and energy transportation constraints is expected to diminish, and the pace of economic expansion should gradually pick up in 2020 and 2021.

In 2020 and 2021, Canada’s economy is anticipated to grow near potential. Consumer spending is projected to increase at a steady pace, and housing activity to continue its ongoing recovery. Overall, investment and exports are anticipated to grow moderately. In the energy sector, investment is forecast to stabilize, and oil exports should improve as pipeline and rail capacity gradually expands.

In today’s MPR, the Bank states that housing resales have been catching up to underlying demand (see chart 7 from the MPR). Housing markets generally reflect regional economic conditions. Housing starts and resales have been particularly robust in Quebec and Ontario, where labour markets have been strong. These provinces will likely continue to be the main drivers of the growth in residential investment. In Alberta, where the oil industry is expected to stabilize, modest improvements in housing are expected. In British Columbia, residential investment has recovered in recent months and should remain near current levels, reflecting the creation of new households.

 

Bottom Line

The dovish tone of today’s policy statement suggests that the Bank of Canada has become more cautious in its holding pattern amid a weakening global economy. The central bank “is mindful that the resilience of Canada’s economy will be increasingly tested as trade conflicts and uncertainty persist,” policymakers led by Governor Stephen Poloz said in the statement. “In considering the appropriate path for monetary policy, the Bank will be monitoring the extent to which the global slowdown spreads beyond manufacturing and investment.”

The statement and the fresh batch of more pessimistic growth forecasts will raise questions about the central bank’s commitment to a neutral stance on rates, particularly in the face of global easing in many other countries that has made the Bank of Canada an outlier. If the Federal Reserve lowers its interest rates later today, as expected, the Bank of Canada would have the highest policy rate in the industrialized world.

It may well be that the Bank of Canada cuts rates early next year. Mitigating this prospect is that the Bank was more bullish on consumption and housing–fueled by the robust labour market. Another source of future growth is additional fiscal stimulus from Prime Minister Justin Trudeau’s newly elected Liberal government, which has promised to implement new spending and tax cuts next year. For now, the Bank is maintaining a neutral stance.

 

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres
drcooper@dominionlending.ca
13 Dec

The Property Flip

Mortgage Tips

Posted by: Kim Lindsay

Flipping properties can be a very lucrative business — if done correctly!
Many clients have the vision and come across great opportunities, but their main obstacle is often CASH — finding the funds to get started.

Typically when you are purchasing a property that you do not intend to occupy as your primary residence, you’ll need a minimum 20% down payment to proceed (based on the purchase price OR current appraised value of the home, whichever is lower). If your credit, income, or “debt ratios” don’t fit standard guidelines, there are more flexible lenders out there, but prepare to increase your down payment from 20% to 25-40%.

In addition to credit, income/employment, the property itself must also be in fairly good condition for a bank to provide financing.

If the property is a ‘fixer upper’, ‘handy man special’, ‘foreclosure’, ‘former grow-op’, ‘under construction’, ‘environmental factors’, etc etc etc, it WILL be an issue for the lender … BUT it’s usually in these situations that a buyer can snag a good deal for a flip!

Introducing, THE PROPERTY FLIP MORTGAGE, an exclusive financing solution that allows borrowers to leverage their real estate up to 80% of the AFTER-RENOVATED Property Value and get in with as little as $10,000 DOWN PAYMENT!

In other words, keep the rest of your capital for the renovation costs and then SELL for a profit OR refinance the renovated property (if the property will be kept as a rental).

This type of mortgage could also be used if you were looking to renovate your own property and then sell at a much higher price — you’ll be in a position to make much more on the sale of your property to help with your next purchase.

Here is an example to illustrate how these clients kept $50,000 in their pocket to complete a successful flip:

TYPICAL FINANCING:
Purchase Price: $300,000
Down Payment (20%): $60,000
Cost of Renovations: $30,000
Total OUT OF POCKET Expenses: $60,000 + $30,000 = $90,000 (plus carrying costs)
Improved Property Value $400,000

PROPERTY FLIP MORTGAGE:
Purchase Price: $300,000
Down Payment: $10,000 (leaving $50,000 in your pocket for the improvements!)
Cost of Renovations: $30,000
Total Out of Pocket Expenses: $40,000 (plus carrying costs)
Improved Property Value: $400,000

Our lender conducts their own in-house No Fee Valuation to save you money and take advantage of quick closings, plus their mortgage is OPEN (no payout penalties when the property sells). They also provide a fantastic flip analyzer spreadsheet which is designed to calculate and budget all the costs and variables in a flip to ensure the deal is profitable and to decide:
A) If based on a certain profit objective, what the maximum purchase price can be for the property, or
B) If it is profitable enough at a certain purchase price

Profitability is the first underwriting filter; will the borrower make money?
If the answer is YES and the deal makes sense, let’s get to work!

Give me a call find out more.

Kim Lindsay
Mortgage Broker
780-221-0132
kim@kimlindsay.ca