GST TAX ON NEW HOMES

If your thinking about purchasing a brand new home, (or one that is substantially renovated click here for more info on renovated homes ) You are also going to want to think about GST!   WHAT IS GST? The goods and services tax (GST)  is a value added tax introduced in Canada on January 1, 1991, by the government of Prime Minister Brian Mulroney. The GST replaced a previous hidden 13.5% manufacturers’ sales tax (MST);   WHAT YOU NEED TO KNOW ABOUT GST The GST tax rate for real estate in B.C. is 5% and due at the time of completion. Usually GST can be built in with mortgage, so you won’t necessarily need the cash at completion. The GST only applies to the sale of brand new properties but even then, there are some rebates. GST REBATE If your new home is going to be your permanent residence (for other qualifing info click here) and the home is under $350,000, the rebate is 36% of the GST (5%) with a maximum rebate of $6,300. Homes between $350,00 and $450,000 receive partial rebates in a significantly lower amount and homes over $450,000 receive no GST New Home Rebate. If you are planning to rent out your new home, you may be eligible for the GST New Residential Rental Rebate. Just like the above rebates, the GST NRR Rebate only applies to new homes up to $350,000. For more details on the GST NRR Rebate, click here. HOW DO I FIGURE OUT MY GST? As you now understand, the potential amount of tax to be paid on new property purchased in BC can vary greatly. Fortunately, the British Columbia Real Estate Association created a straightforward and easy to use tax calculator. It will help determine all relevant payable taxes on your property. Please note that this calculator should not be considered a substitute for professional accounting or legal advice. CLICK HERE FOR THE BCREA TAX CALCULATOR.  

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Things to Know About Mortgage Insurance

WHAT IS MORTGAGE DEFAULT INSURANCE? Mortgage default insurance, which is commonly referred to as CMHC insurance or just mortgage insurance, is mandatory in Canada for down payments between 5% (the minimum in Canada) and 19.99%. Mortgage default insurance protects lenders, in the event a borrower ever stopped making payments and defaulted on their mortgage loan.  There are three bodies responsible for providing mortgage insurance: Canada Mortgage and Housing Corporation (CMHC), Genworth Financial Canada, and Canada Guaranty. CMHC is a federal Crown corporation, while both Genworth and Canada Guaranty are private insurers.    WHAT ARE THE RECENT CHANGES? On June 4, 2020, the Canadian Mortgage and Housing Corporation (CMHC) announced changes to the eligibility rules for mortgage insurance, in the agency’s latest response to the COVID-19 pandemic.   Change 1: Less debt as a percentage of gross income Old rule: Buyers with good credit scores and reliable income could spend up to 39% of their gross income on housing (including their mortgage, property tax, heating  bill and half of condo fees); and could borrow up to 44% of gross income once credit card, car payments and other loans are included.   New rule: All buyers will be limited to spending up to 35% of their gross income on housing, and can only borrow up to 42% of gross income once other loans are included.  Change 2: New minimum credit score established Old rule: Under the old rules, in order to qualify for an insured mortgage at least one borrower (or their guarantor) needed a minimum credit score of 600, which is only “fair” credit according to standard guidelines.  New rule: The new rules raise the minimum to 680—meaning buyers will need a “good” credit score.  Change 3: No more borrowed down payments Old rule: In order to make up the minimum down payment, a home-buyer could use unsecured personal loans, unsecured lines of credit and even credit cards. The minimum down-payment is 5% for houses valued up to $500,000, and 10% of the amount over $500,000, up to $1 million.  New rule: Borrowers must provide the down payment “from their own resources,” CMHC says. These can include savings; equity from the sale of a property; a non-repayable financial gift from a relative; funds borrowed from other, liquid financial assets or against other real property; or a government grant. The “mortgage stress test” will remain unchanged. The stress test requires lenders to confirm that a borrower can still make their monthly mortgage payment even if interest rates rise.  HOW WILL THIS AFFECT YOU? The changes to the Debt service ratio could lower your buying power by 10%. For example if you where approved for $400,000 with the new rule changes it would lower your qualification to $360,000. BUT the good news is the other two mortgage insurers ARE NOT following CMHC changes. If these changes do affect you, you will have to go through either Genworth or Canada Guaranty. Most Lenders will use all three insurers but to be safe, I would contact a mortgage broker has they can bring your file to a large variety of lenders that use the the three different insures and find the best fit for you! 

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What You Need to Know About Pre Qualification vs Pre Approval

Pre Approval Vs Pre Qualificationhttps://youtu.be/nGzJPPGIMSE Austin Towne from RE/MAX Lifestyles Realty partners with Alex McFadyen, and Deryk Williamson from Thrive Mortgage Co. to discuss the difference between Pre Approval Vs Pre Qualification. Pre Approval and Pre Qualification is something people are typically confused about. Understanding the difference between the two will not only save time, but won’t cost you your dream house.

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