Tuesday, March 02, 2010

Mortgage Time!

On February 16th, 2010, Federal Finance Minister Jim Flaherty announced three changes to the mortgage insurance rules, which will come into effect on April 19th, 2010.

The good news is that most mortgage consumers will not be significantly impacted by the three latest changes. The intentions of the new rules are to curb speculation housing and encourage homeowners to use their homes as a savings tool, rather than borrowing home equity to pay down loans and credit cards.

Rule #1
Minimum down payment requirements for non-owner-occupied homes will increase to 20% from 5%, and the way that rental income is considered has been scaled back as well. This rule will have the most dramatic impact of all three changes, but only on real estate investors. Being required to put more money down and being able to use less potential rental income for qualifying purposes will displace many new real estate investors (who currently only make up around 4% of all mortgage consumers in Canada).
This change is intended to avoid any kind of future housing bubble in Canada by curbing speculation building. The recent economic downturn caused builders to stop building and many new homes sat vacant through the early stages of 2009. When rates started to drop and buyers began to gobble up property that had been on the market for some time, the supply/demand ratio started to lead to higher demand and higher prices.

Rule #2
All borrowers will have to meet qualification standards for a five-year fixed-rate mortgage even if they choose a mortgage with a lower interest rate and shorter term (such as one- or three-year terms).
Current standards for mortgage qualifying are typically based on a lender’s three-year fixed rate (if you’re opting for a variable rate, home equity line of credit, or one-, two- or three-year fixed-rate product, which typically carry a lower interest rate). This qualifying standard has, in the past, been sufficient to protect consumers from rates increasing over the term (at least on paper). Essentially, the government is forcing people to prepare for a likely rate hike over the next five years.
Considering the average difference between discounted three- and five-year fixed rates is only between 0.30% and 0.49%, this should truly not have a drastic impact on the average mortgage applicant – if, in fact, the new rules intend to have mortgage applicants qualify based upon discounted rates. It is still unclear if the upcoming alterations are meant to have Canadians approved based upon “posted” five-year rates, which would mean a difference of over 2%!

Rule #3
The maximum amount Canadians can withdraw when refinancing their mortgages will be reduced from 95% to 90% of the value of their homes.
This final change will likely have the most impact on those Canadians who have a current government-backed insured mortgage and would like to take advantage of the equity in their home to do some debt consolidation in the future. In recent times, with rates at historical lows, it’s been advantageous for consumers to roll their unsecured debt into their mortgage to decrease monthly payments – so much so that the government has sought an end to this trend of high loan-to-value mortgages.
This does not, however, stop consumers from overspending and taking on large amounts of credit card debt. In some cases, the ability to borrow the equity in one’s home to pay off debt has saved people from bankruptcy and kept them in their homes. Hopefully this change doesn’t backfire on the government’s intentions.
Only time will tell if the government’s measures to curb spiking house prices and encourage equity savings will be a positive change for Canadians.
Prior to this announcement, there was wide-spread speculation that the government was going to change current mortgage policies to include a minimum 10% down payment, an increase from the current 5%, and a reduction in amortization from a maximum of 35 to 30 years. Luckily for first-time home buyers in Canada, these rumours have not proven true.
As always, if you have any questions about these new mortgage rules or your mortgage in general, I’m here to help!

If you’re self-employed, you may have a more difficult time obtaining financing for your real estate purchases than you encountered prior to the credit crisis thanks to tighter lending criteria in lieu of the recent recession. But if you can prove your income, show you’re up-to-date on your taxes and that you have solid credit, your chances are greatly improved.
There are essentially two types of self-employed or business-for-self (BFS) borrowers – those who can prove their income and those who cannot, and must instead use a stated-income mortgage product.
By providing the required documentation, you’re much more likely to be approved for a mortgage if you qualify based on your income. The trouble is that if you cannot prove your income, you pose a higher risk in the eyes of lenders. In mortgages, as in most other things, pricing is based on risk – the riskier the lender perceives you as a borrower, the higher the interest rate you will be required to pay on your mortgage.
Canada Mortgage and Housing Corporation (CMHC) offers default mortgage insurance for BFS clients through a stated-income mortgage product up to 95% loan to value (LTV) – meaning the down payment can be as low as 5% of the purchase price – but the income has to make sense based on your occupation. This is important, because the chances of finding lenders to fund this type of deal are significantly boosted if the mortgage is insured.
Lenders and insurers are well aware of the tax write-offs that BFS borrowers can leverage, but these deals are accepted or declined based on average incomes for specific fields, as well as your credit rating. It pretty much goes without saying that those with credit blemishes will have a tough time obtaining traditional mortgage financing if they’re self-employed.

Getting pre-approved
While BFS mortgage financing is viewed on a case-by-case basis, if you work with me to obtain a pre-approval, you can be confident you have access to mortgage financing and you will know how much you can spend before you head out shopping for a property.
It’s important to note, however, that there is a significant difference between being pre-approved and pre-qualified. In order to obtain a pre-approval, the lender fully underwrites the deal, whereas with a pre-qualification only the most basic details are considered.
Should a pre-approval and/or mortgage default insurance be unobtainable, the maximum mortgage amount you are likely to qualify for is between 50% and 75% – meaning you will need a much larger down payment.

Alternative financing
If you do not qualify for traditional financing all is not lost, since you may be eligible for alternative – or private – funding.
As a mortgage professional, I also have access to private investors who are willing to lend money to BFS individuals looking to obtain mortgages. Although you will pay a higher interest rate, this route may enable you to acquire funds to purchase a home.
Private financing is equity based, meaning that the lender’s decision will be based on a specific piece of real estate as opposed to just focusing on your credit score. Private lenders want to know that the property is marketable and that they will be able to easily sell it should the mortgage go into foreclosure.
When you get into the private-lending realm, not only are the rates higher, but the mortgage terms are also shorter – typically for 12 months at a time. If you do end up in a private mortgage, your goal should be to build up your credit so you can head back to a traditional lender within 12 months – where you will receive better interest rates and, overall, more mortgage options.

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Tuesday, February 02, 2010

Low Interest Sets The Stage For Lending

With interest rates at an all-time low, many Canadians can take advantage of the savings by refinancing their mortgages to consolidate debt, make home renovations, invest in real estate or other ventures, or moving up the property ladder.
Following are ways to take even further advantage of this excellent rate environment by paying down your mortgage faster.

Tip #1

Prepay early in the mortgage
Make extra payments as early as you can after getting a mortgage because the loans are interest-heavy upfront and the faster you pay down your principal, the more interest savings you will accumulate over the long run. Within the first five to seven years of your mortgage is where the largest portions of interest payments are contained. This not only will save you thousands of dollars in interest payments, but it will also increase the speed at which you are accumulating equity in your property. Many mortgage products allow you to make up to 20% more in payments per year.

Tip #2

Make an annual lump sum payment
Whether you use your tax refund, receive an inheritance or get a Christmas bonus, you should apply as much as possible directly to your principal. Most lenders allow you to pay 20% in lump sum payments per year without penalty. I can help you determine exactly how much you can prepay and what maximum percentage of your principal you are allowed to pay without penalty each year.

Tip #3

If your payments go down, don’t lower the payment amount
If you are on a variable-rate mortgage and the rates go down your payment will also often go down. Instead of making the lower mortgage payments, however, it’s best to call your lender and let them know that you would like to continue making payments for the original amount. I can help you determine if there is a charge for making the extra payment. Even with the charge, in most cases, it is still worth it and will help you pay down your principal faster.

Tip #4

Round up your payments even if it’s just a little
If your monthly mortgage payment is $776.22 and you were to round up your payment an extra $23.78 a month to $800 – that’s less than a dollar a day – you would effectively reduce your mortgage amortization from 35 years to just over 32 years right away or from 25 years to just over 23 years.

TIP #5

Increase your payments with your pay increases
If your income increases, try not to keep your mortgage payments the same. Although the disposable income is a joy to spend on unnecessary luxuries in the short-term, the long-term benefits of being mortgage free faster and saving those interest payments will far outweigh the short-term joys. Pretend that your income did not increase and maintain the lifestyle that you are currently living.

Tip #6

Increase the frequency of your payments
You can also change the way you make your payments by opting for accelerated bi-weekly mortgage payments. Not to be confused with semi-monthly mortgage payments (24 payments per year), accelerated bi-weekly mortgage payments (26 payments per year) will not only pay your mortgage off quicker, but it’s guaranteed to save you a significant amount of money over the term of your mortgage. Basically, with accelerated bi-weekly mortgage payments, you’re making one additional monthly payment per year.

As always, if you have any questions about paying your mortgage down faster, I’m here to help!

Transitioning from renter to homeowner is one of the biggest decisions you’ll make throughout your lifetime. It can also be a stressful experience if you don’t plan ahead by building a budget and saving prior to embarking upon homeownership.

Budgeting is a core ingredient that helps alleviate the stress associated with money issues that can sometimes arise if you purchase a home without knowing all of the associated costs – including down payment, closing expenses, ongoing maintenance, taxes and utilities.

The trouble is, many first-time homeowners fail to carefully think about their finances, plan a budget or set savings aside. And in this society of instant gratification, money problems can quickly escalate.

The key is to create a realistic budget based on your goals. Track your spending and make your dollars go further by sticking to your budget once it’s in place. Budgeting offers a step-by-step formula for figuring out how to best save your hard-earned money to invest in homeownership.

Start by listing your household income, then your household expenses, and review your spending habits. All of this can be done on a pad of paper or on a computer spreadsheet.

Keeping receipts for everything that you purchase will enable you to accurately keep track of where your money is going each month so that you can review and make necessary changes to your plan on an ongoing basis.

Examine all areas of your life from entertainment to the type of food you buy, where you buy your food and clothes, and how and where you travel. Also look at your spending personality and make necessary adjustments. Are you a saver, a splurger, a spontaneous shopper or a hoarder? Become smarter with your money and avoid impulse buying.

If you find you’re spending a lot of money in one area, such as entertainment for instance, set aside a reasonable amount each month and prepare to stop spending money in this area once your budget has been exhausted.

Budgeting provides you with the opportunity to re-evaluate your needs and wants. Do you really need the magazine subscriptions, the gym membership and all the other things you may spend money on each month? Although everyone needs some “me time” to wind down, could you not get that by taking a walk or reading a good book you borrowed from the library?

If you can set your budget solidly in place before you head out home or mortgage shopping, you will be far more prepared to purchase your first home.

Following are three top tips to help you prepare for the purchase of your first home:

1. Set up a savings account. You can deposit a predetermined amount into this account each pay period that you will not touch unless it’s absolutely necessary. This will enable you to put money aside for a down payment and cover closing costs, as well as address ongoing homeownership expenses such as maintenance, taxes and utilities.

2. Save up for big-ticket items. As you accumulate money in your savings account, you will be able to also save for specific purchases to help furnish your home – avoiding the buy now, pay later mentality, which can have a negative impact on your credit when you’re seeking mortgage financing.

3. Surround yourself with a team of professionals. When you’re getting ready to make your first home purchase, enlist my services as a licensed mortgage professional and find a trusted real estate agent. Experts are invaluable to you as you set out on the road to homeownership because we help first-time buyers through the home purchase and financing processes every day. Experts can answer all of your questions and set your mind at ease. I have access to multiple lenders, and can help you get pre-approved for a mortgage so you know exactly what you can afford to spend on a home before you head out house hunting, while a real estate agent will be able to match your needs with a house you can afford. Both parties will negotiate on your behalf to ensure you get the best bang for your buck. And, best of all, these services are typically free. Experts will also be able to refer you to other reputable professionals you may need for your home purchase, including a real estate lawyer and home appraiser.

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Tuesday, November 03, 2009

Contractor Warning Signs

With many homeowners opting to take advantage of the Home Renovation Tax Credit by fixing up or remodelling their homes, it’s always wise to educate yourself on signs of contractor fraud to ensure you don’t end up paying for work that never gets completed.

Following are five red flags that may indicate a contractor is not legitimate:

  1. The company does not list a number in the phone book. This may indicate a fly-by-night operation that will be here today and gone tomorrow. They may seem legitimate in the beginning but, as soon as you make your first payment for the job, they may vanish.
  2. Asks you to pay for the entire job up front. This contractor will be long gone well before your project gets underway. Or, worse yet, the contractor may have started the project, leaving you with a ripped up home and depleted funds.
  3. Only accepts cash. A legitimate business should have the appropriate financial accounts in place to accept a variety of payment options from clients, including personal cheques and credit cards. If a contractor only accepts cash, you probably won’t see them again once they receive a payment.
  4. Solicits door-to-door. Most legitimate contractors find enough work through word-of-mouth referrals and advertising. If they need to drum up business by going door to door, they probably are not an established, local operation. Chances are this contractor is running a fly-by-night business.
  5. Offers exceptionally long guarantees. The contractor may be making promises that can’t be kept solely to sucker you into hiring them for the job. The contractor could be inexperienced or may be running a fly-by-night business.

The best way to protect yourself from contractor fraud is to seek referrals from people you trust who can vouch for the contractor including friends, family, colleagues or your mortgage or real estate professional.

It’s also important to read and understand every word of a contract before signing it. If you don’t understand something, ask for clarification.

Also keep in mind that you should never sign a contract with a service professional who makes promises that sound too good to be true. Chances are, this contractor needs to create these incentives to attract customers. If that’s the case, the contractor’s record can’t speak for itself.

Be especially wary of contractors who try to scare you into signing for repairs that they say are “urgent”. Before agreeing to any additional costly repairs, seek a second opinion.

If you’re thinking of embarking on some home improvements, feel free to call me to discuss financing options. I may even know of a trusted contractor in your area who could get the job done well.

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Saturday, March 21, 2009

Not So Fabulous Greenhouse

When we purchased our house last fall, one of the things I was most excited about was the back yard -- lots of room for a garden -- and a cement pad that looked like it was just waiting for a greenhouse.

We started keeping an eye out on Craigslist and UsedVictoria for people who might be getting rid of greenhouses and I started researching where to buy greenhouses. By the time February rolled around I was really itching to get something in place for the spring planting season. An inexpensive plastic/vinyl over aluminum frame "Deluxe Greenhouse" caught our eye while at Home Depot and we decided it would do.

Weather was not in our favour for several weeks -- we've had a rougher winter than usual -- but today, at last, we had a few hours of sunshine, enough to open the box and put it all together.

I was pleased to see that no tools are required but in hindsight, I will warn you that brute strength is needed to push some of the connections together. To get to the single page of instructions, I first had to unpack everything from the box.


The instructions were not completely clear (colour-coding would have been nice) and as a result, my first attempt at the base had to be taken apart when I realized I had used size B instead of size C in eight sections. Once I got the hang of it, I asked our daughter to help and she was able to pitch in but it took adult pressure to make sure the pieces fit properly. This became much clearer when we tried to put in the shelves which only fit when all the connections were tight.


Once the roof portion was complete, I had to get the plastic/vinyl cover on. This turned out to be a little like getting a double size fitted sheet on a queen size bed. Eventually, I got it in place and as I tried to secure it to the frame, one of the ties came off in my hand. Not a good start. Next I tied the door area to the frame, splitting another seam. When I finally got around to zipping the door shut, another seam split about an inch. Sigh. Duct tape will be added.


The last step was securing the corners to stakes that go into the ground; I had placed it close to the edge of the pad so that three of the four stakes could be put in the ground, the fourth corner is secured under a concrete stepping stone.

Even before putting it through the paces of holding plants, I wouldn't recommend this product. It was quite difficult to put together and seems flimsy. I have no idea if it will stand up to wind or rain; we should have saved up for a more fabulous greenhouse.

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Wednesday, February 11, 2009

Recession Relief For Americans: Federal Housing Tax Credit

Hopeful home owners can cash in on, newly enacted legislation providing a tax credit upto $7,500 for first-time home buyers might just be the opportunity of a lifetime.

The Housing and Economic Recovery Act of 2008 authorizes a $7,500 tax credit for qualified first-time home buyers who purchase homes after April 8, 2008 and before July 1, 2009. Here are some questions and answers about the tax credit. You should consult a qualified tax advisor or legal professional about your individual situation and how this tax credit may impact your ability to get a home. It's important to keep in mind that the tax credit is no substitution for being able to afford to pay for a mortgage and maintain a house.

  1. Who is eligible to claim the $7,500 tax credit?
  2. What is a "first-time home buyer"?
  3. How can you claim the tax credit?
  4. What types of homes will qualify for the tax credit?
  5. Instead of buying a new home from a home builder, can I hire a contractor to construct a home on a lot that I already own?
  6. What is "modified adjusted gross income"?
  7. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
  8. What's an example of how the partial tax credit is determined?
  9. Does the credit amount differ based on tax filing status?
  10. Are there any circumstances for which buyers whose incomes are at or below the $75,000 limit for singles or the $150,000 limit for married taxpayers might not be able to claim the full $7,500 tax credit?
  11. Is the tax credit refundable?
  12. What is the difference between a tax credit and a tax deduction?
  13. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
  14. Does the credit have to be paid back to the government?
  15. Why do I have to pay back the money? I want to keep the cash!
  16. If the money must be repaid, isn’t the first-time home buyer program really a zero-interest loan rather than a traditional tax credit?
  17. If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
  18. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?
  19. Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2008 tax return?

  1. Who is eligible to claim the $7,500 tax credit?
    First time home buyers purchasing any kind of home are eligible for the tax credit, whether it's a new home or a resale. To qualify for the tax credit, a home purchase must occur after April 8th, 2008 and before July 1st, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs.

  2. What is a "first-time home buyer"?
    In the US, the law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. If you have a vacation home or rental property, but it isn't your principal residence then you still may disqualify a buyer as a first-time home buyer.

  3. How can you claim the tax credit?
    Easy: claim the tax credit on your federal income tax return when file your annual report after the purchase. No other applications or forms are required. Pre-approval is not necessary. Prospective home buyers will want to make sure they qualify for the credit under the income limits and first-time home buyer tests.

  4. What types of homes will qualify for the tax credit?
    Any home purchased by an eligible first-time home buyer will qualify for the credit. The home must be used as a principal residence and the buyer has not owned a home in the previous three years. This includes single-family detached homes, attached homes like townhouses and condos, mobile homes and houseboats.

  5. Instead of buying a new home from a home builder, can I hire a contractor to construct a home on a lot that I already own?
    Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after April 9, 2008 and before July 1, 2009.

    In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.

  6. What is "modified adjusted gross income"?
    Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. Look for this on the forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). The AGI includes all forms of income: wages, salaries, interest income, dividends and capital gains.

    To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for applicable education costs.

  7. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
    You may still qualify: it will depend on your income. Partial tax credits are available for some taxpayers whose MAGI exceeds the limits. The credit is not available for individual taxpayers with a modified adjusted gross income of more than $95,000 and for married taxpayers filing joint returns with an AGI of more than $170,000.

  8. What's an example of how the partial tax credit is determined?
    Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $7,500 by 0.5. The result is $3,750.

    Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $7,500 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,625.

    Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.

  9. Does the credit amount differ based on tax filing status?
    No. The credit is in general equal to $7,500 for a qualified home purchase, whether the home buyer files taxes as a single or married taxpayer. However, if a household files their taxes as "married filing separately" (in effect, filing two returns), then the credit of $7,500 is claimed as a $3,750 credit on each of the two returns.

  10. Are there any circumstances for which buyers whose incomes are at or below the $75,000 limit for singles or the $150,000 limit for married taxpayers might not be able to claim the full $7,500 tax credit?
    In general, the tax credit is equal to 10% of the qualified home purchase price, but the credit amount is capped or limited to $7,500. For most first-time home buyers, this means the credit will equal $7,500. For home buyers purchasing a home priced less than $75,000, the credit will equal 10% of the purchase price.

  11. Is the tax credit refundable?
    The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

    For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 after he or she files their income tax return. If the taxpayer qualified for the $7,500 home buyer tax credit, the taxpayer would receive a check for $6,500 ($7,500 minus the $1,000 owed).

  12. What is the difference between a tax credit and a tax deduction?
    A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $7,500 in income taxes and who receives a $7,500 tax credit would owe nothing to the IRS.

    A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $7,500 in income taxes. If the taxpayer receives a $7,500 deduction, the taxpayer’s tax liability would be reduced by $1,125 (15 percent of $7,500), or lowered from $7,500 to $6,375.

  13. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
    No. The tax credit cannot be combined with the MRB home buyer program.

  14. Does the credit have to be paid back to the government?
    Yes, the tax credit must be repaid. This will not be something you can keep. Home buyers must repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is filed. If the home owner sold the home, then the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven.

  15. Why do I have to pay back the money? I want to keep the cash!
    Congress’s intent was to provide as large a financial resource as possible for home buyers in the year that they purchase a home. In addition to helping first-time home buyers, this will maximize the positive impact on the housing market. The goal is to kick-start the economy use the same mechanism that seized it up. The goal of the program is to increase home sales. The repayment requirement reduces the effect on the Federal Treasury and assumes that home buyers will benefit from stabilized and, eventually, increasing future housing prices.

  16. If the money must be repaid, isn’t the first-time home buyer program really a zero-interest loan rather than a traditional tax credit?
    Yes. Because the tax credit must be repaid, it operates like a zero-interest loan-- one the bank cannot call you on when they fall on hard times. Assuming an interest rate of 7%, that means the home owner can save the equivalent of up to $4,200 in interest payments over the 15-year repayment period. Compared to $7,500 financed through a 30-year mortgage with a 7% interest rate, the home buyer tax credit saves home buyers over $8,100 in interest payments. The program is called a tax credit because it operates through the tax code and is administered by the IRS.

  17. If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
    Yes. The law allows taxpayers to elect to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.

  18. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?
    Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit may be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount for you and your family.

  19. Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2008 tax return?
    Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding from their payroll deductions. Reducing tax withholding (up to the amount of the credit) will enable the future home buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the down payment. Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.

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Monday, February 09, 2009

Recession Help for Canadians : The Renovation Tax Credit

To provide needed stimulus in these challenging economic times, the Harper government has a plan to stabilize the construction industry and cushion its potential for a free fall.

Home Renovation Tax Credit

Home renovations can represent a smart investment in the long-term value of a home and generate broad-based economic activity. They can also reduce energy consumption and the long-term cost of owning a home. To support economic growth during these challenging times, Budget 2009 proposes to introduce a temporary Home Renovation Tax Credit (HRTC).

The HRTC will provide a temporary incentive for Canadians to undertake new renovation projects or accelerate planned future projects, thus providing timely stimulus to the Canadian economy while boosting energy efficiency and the value of Canada’s housing stock.

How the Temporary HRTC Will Work

The proposed HRTC will provide a temporary 15 percent income tax credit on eligible home renovation expenditures for work performed, or goods acquired, after January 27, 2009 and before February 1, 2010, pursuant to agreements entered into after January 27, 2009. The credit may be claimed for the 2009 taxation year on the portion of eligible expenditures exceeding $1,000, but not more than $10,000, and will provide up to $1,350 in tax relief.

Who Can Claim the HRTC

The HRTC will be family-based. For the purpose of the credit, a family will generally be considered to consist of an individual, and where applicable, the individual’s spouse or common-law partner. Family members will be able to share the credit.

The amount eligible for the credit will be based on the total value of eligible expenditures incurred across all eligible dwellings. A dwelling will generally be considered eligible if it is used for personal purposes. This will include a house, a cottage, and a condominium unit.
It is estimated that about 4.6 million families in Canada will benefit from the HRTC.

Benefits of the Temporary Home Renovation Tax Credit—Examples

The following examples illustrate how homeowners can benefit from the HRTC.

1. Sally and Ed are a couple who have recently purchased a house. To take advantage of the temporary HRTC, they decide to replace their windows and improve the insulation in their home in 2009, instead of waiting, incurring $10,000 in expenditures. After taking account of the $1,000 minimum threshold, a 15-per-cent credit will be available on $9,000 in eligible expenditures, providing tax relief of $1,350.

2. William and Marie are a couple who are planning to purchase a more energy-efficient furnace for their home, and build a deck at their cottage sometime later. To take full advantage of the temporary HRTC, they decide to do both projects in 2009 rather than waiting. They pay $5,000 for the furnace and $3,500 for the deck. They also decide to have the area around the deck landscaped for $2,500, bringing their total costs to $11,000 ($5,000 + $3,500 + $2,500). Marie claims a credit of $1,350 on the maximum allowable amount of $9,000. This credit is in addition to the ecoENERGY Retrofit grant that William and Marie expect to receive for installing a more energy-efficient furnace.

3. Karen and Heather are sisters who share ownership of a condominium unit. They each incur $7,500 in expenditures renovating the kitchen in the condominium, in part to provide access for Heather’s wheelchair. Karen and Heather each claim a $975 credit on eligible expenditures of $6,500 ($7,500 – $1,000).

This credit is in addition to the Medical Expense Tax Credit that Heather may claim on the portion of expenses eligible for that credit.

Expenditures Eligible for the HRTC

It is proposed that the HRTC be claimed for renovations and alterations to a dwelling or the land on which it sits that are enduring in nature. For example, homeowners will be able to claim expenditures for major renovation projects such as finishing a basement, renovating a kitchen, or building an addition. Costs associated with such projects will be eligible for the credit, including permits, professional services, equipment rentals and incidental expenses.

Routine repairs and maintenance normally performed on an annual or more frequent basis (e.g. cleaning, lawn fertilization, and snow removal) will not qualify for the credit.

The cost of purchasing furniture, appliances, audio-visual electronics and construction equipment will not be eligible.
Individuals will need to keep receipts for expenditures, and may claim the HRTC when filing their income tax returns for 2009.

Examples of HRTC-Eligible and Ineligible Expenditures


  • Renovating a kitchen, bathroom or basement
  • New carpet or hardwood floors
  • Building an addition, deck, fence or retaining wall
  • A new furnace or water heater
  • Painting the interior or exterior of a house
  • Resurfacing a driveway
  • Laying new sod


  • Purchase of furniture and appliances (e.g. refrigerator, stove, and couch)
  • Purchase of tools (I totally need a reciprocating nail gun!)
  • Carpet cleaning (I need to live in squalor?)
  • Maintenance contracts (e.g. furnace cleaning, snow removal, lawn care, and pool cleaning)

    The HRTC will complement support provided by the Government for Canadians to undertake energy-saving improvements to their homes. Federal grants paid through the ecoENERGY Retrofit program will not reduce the value of claims made for these expenditures under the HRTC.

    Eligible renovation expenditures claimed under the Medical Expense Tax Credit may also be claimed under the HRTC.

    The effectiveness of the HRTC will be enhanced to the extent that retailers also encourage homeowners to undertake renovations to their properties.

    It is estimated that this measure will cost $500 million in 2008-09 and $2.5 billion in 2009-10. It's ONLY eligible for work carried out this year. So hire the guys and tell them to bring their hammers. It's Building Time!
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    Wednesday, October 08, 2008

    Bridge to a New Home

    Are you moving from your current fabulous home to your next? If you already own a home, chances are you are going to need to consider bridge financing to purchase your next home to make ends meet between selling your current home and buying the next.

    Bridge loans are secured loans, requiring you to pledge your property as collateral. The lender will approve an amount of up to the full value of the property. This way, you can borrow greater amounts for purchasing a new home.

    Residential bridging loans are short-term financial arrangement. This implies that the money is borrowed for few weeks to a year. It is when you have found the money from own source like by selling some old property that you can repay the principal amount in one time. Until then, you have the option of making the interest payments only.

    However, despite being secured loans, interest rate is generally higher. This is because these are short-term loans.

    See the full original article by Eva Baldwyn.

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