Deposit & Deposit Financing

Michael Hallett • Apr 25, 2019
A deposit is a sum of money, which represents a portion of the purchase price, paid as good faith to the seller. Sellers and real estate professionals want buyers to be serious when they make an offer, so they will ask for the deposit. Typically, but there is no rule, deposits are equal to approximately 5% of the purchase price. For example, if the agreed to purchase price was $650,000 then the deposit paid would be $32,500.

In BC most deposits are paid when all subject clauses (financing, inspection, strata documents, etc..) have been removed and it’s now a firm and binding contract.

The deposit amount is made payable to the selling Realtors firm ‘IN TRUST.’ If it’s a private sale where there is no Realtors involved, the deposit will most likely be made payable to the sellers Lawyer’s trust account. Trust accounts are highly regulated and extremely safe.

During the conveyancing process for the purchase, the deposit will show up on the statement of adjustments prepared by the lawyer. It will display the purchase price as well as any debits/credits related to the transaction. The deposit will appear on the statement of adjustments as a credit to the buyer.

The DEPOSIT makes up a portion of the total down payment. The difference is made up by the mortgage financing that will total the purchase price.

Simple math outlining a 20% down payment for a purchase of $500,000.

  • Purchase Price:                              $500,000
  • 5% Deposit:                                    $25,000
  • 15% Down Payment:                    $75,000 ($100,000 = 20%)
  • 80% Mortgage Financing:            $400,000

Common sources of deposits are:

  • Cash savings account
  • Line of Credit
  • Convert investments to cash (TFSAs, RRSPs, Stocks, GICs, mutual funds)
  • Gift from an immediate family member (mom, dad, brother or sister)

Deposit Financing is available for someone that has a firm offer with all relevant ‘subjects’ removed on the home for sale. As well, they have received a firm and binding offer to purchase on the new home. Deposit financing allows a person to access the equity for a purchase before the sale completes.

Once all the deposit conditions have been met the deposit lender will the transfer the funds directly to the borrower within 24-36 hours.

Here is an example of the cost to obtain deposit financing.

  • Deposit Amount Requested                           $25,000
  • Lender Fee                                                         $  1,250
  • Total Loan                                                          $26,250
  • Term Funds Required (days)                               14
  • Per Diem Interest                                              $       8.63
  • Interest Paid for Loan Term                            $    120.82
  • Total Financing Charges                                   $ 1,370.82
  • Total Loan and Interest Paid                           $26,370.82
  

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Understanding the Recent Housing Affordability Measures in Canada

By Michael Hallett • 18 Apr, 2024
In recent years, housing affordability has become a significant concern for many Canadians, particularly for first-time homebuyers facing soaring prices and strict mortgage qualification criteria. To address these challenges, the Canadian government has introduced several housing affordability measures. In this blog post, we'll examine these measures and their potential implications for homebuyers. Increased Home Buyer's Plan (HBP) Withdrawal Limit Effective April 16, the Home Buyer's Plan (HBP) withdrawal limit will be raised from $35,000 to $60,000. The HBP allows first-time homebuyers to withdraw funds from their Registered Retirement Savings Plan (RRSP) to use towards a down payment on a home. By increasing the withdrawal limit, the government aims to provide young Canadians with more flexibility in saving for their down payments, recognizing the growing challenges of entering the housing market. Extended Repayment Period for HBP Withdrawals In addition to increasing the withdrawal limit, the government has extended the repayment period for HBP withdrawals. Individuals who made withdrawals between January 1, 2022, and December 31, 2025, will now have five years instead of two to begin repayment. This extension provides borrowers with more time to manage their finances and repay the withdrawn amounts, alleviating some of the immediate financial pressures associated with using RRSP funds for a down payment. 30-Year Mortgage Amortizations for Newly Built Homes Starting August 1, 2024, first-time homebuyers purchasing newly built homes will be eligible for 30-year mortgage amortizations. This change extends the maximum mortgage repayment period from 25 years to 30 years, resulting in lower monthly mortgage payments. By offering longer amortization periods, the government aims to increase affordability and assist homebuyers in managing their housing expenses more effectively. Changes to the Canadian Mortgage Charter The government has also introduced changes to the Canadian Mortgage Charter to provide relief to homeowners facing financial challenges. These changes include early mortgage renewal notifications and permanent amortization relief for eligible homeowners. By implementing these measures, the government seeks to support homeowners in maintaining affordable mortgage payments and mitigating the risk of default during times of financial hardship. The recent housing affordability measures announced by the Canadian government are aimed at addressing the challenges faced by homebuyers in today's market. These measures include increasing withdrawal limits, extending repayment periods, and offering longer mortgage amortizations. The goal is to make homeownership more accessible and affordable for Canadians across the country. As these measures come into effect, it's crucial for homebuyers to stay informed about the changes and their implications. Consulting with a mortgage professional can help individuals explore their options and make informed decisions about their housing finances. If you're interested in learning more about these changes and how they may affect you, please don't hesitate to connect with us. We're here to walk you through the process and help you consider all your options and find the one that makes the most sense for you.

A First Home Savings Account (FHSA)

By Michael Hallett • 18 Apr, 2024
Dreaming of owning your first home? A First Home Savings Account (FHSA) could be your key to turning that dream into a reality. Let's dive into what an FHSA is, how it works, and why it's a smart investment for first-time homebuyers. What is an FHSA? An FHSA is a registered plan designed to help you save for your first home taxfree. If you're at least 18 years old, have a Social Insurance Number (SIN), and have not owned a home where you lived for the past four calendar years, you may be eligible to open an FHSA. Reasons to Invest in an FHSA: Save up to $40,000 for your first home. Contribute tax-free for up to 15 years. Carry over unused contribution room to the next year, up to a maximum of $8,000. Potentially reduce your tax bill and carry forward undeducted contributions indefinitely. Pay no taxes on investment earnings. Complements the Home Buyers’ Plan (HBP). How Does an FHSA Work? Open Your FHSA: Start investing tax-free by opening your FHSA. Contribute Often: Make tax-deductible contributions of up to $8,000 annually to help your money grow faster. Withdraw for Your Home: Make a tax-free withdrawal at any time to purchase your first home. Benefits of an FHSA: Tax-Deductible Contributions: Contribute up to $8,000 annually, reducing your taxable income. Tax-Free Earnings: Enjoy tax-free growth on your investments within the FHSA. No Taxes on Withdrawals: Pay $0 in taxes on withdrawals used to buy a qualifying home. Numbers to Know: $8,000: Annual tax-deductible FHSA contribution limit. $40,000: Lifetime FHSA contribution limit. $0: Taxes on FHSA earnings when used for a qualifying home purchase. In Conclusion A First Home Savings Account (FHSA) is a powerful tool for first-time homebuyers, offering tax benefits and a structured approach to saving for homeownership. By taking advantage of an FHSA, you can accelerate your journey towards owning your first home and make your dream a reality sooner than you think.
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