Need a down payment for a mortgage? Get it from the government!

Looking to purchase a home but do not have the the required down payment? Look into the Ontario Affordable Housing Program (AHP) it could be the solution for you.

In 2005, the federal and provincial governments signed a new Canada-Ontario Affordable Housing Program Agreement (AHP). With this commitment, the federal, provincial and municipal governments will have invested at least $734 million through the Canada-Ontario Affordable Housing Program. The AHP comprises four components: Rental and Supportive, Housing Allowance/Rent Supplement,
Northern Housing and Homeownership. Under the Homeownership component of AHP, lower-income renters can apply for interest-free down-payment assistance loans to purchase a home.

What Type of Home Can I Buy?
The home can be new or resale. It may have a selling price at or below the maximum selling price set for your municipality. The home must be modest in size, relative to community standards.
A home in which the applicant – or any member of the applicant’s family – have an ownership interest is not eligible for purchase under the Homeownership component of the AHP.
Some municipalities offer down-payment assistance in partnership with local builders. Check with your municipality for affordable homeownership developments in your area.

The Application
Application forms are available from the housing department of your municipality or through an organization delivering the program in your area. Applicants must submit their application with all necessary documentation (see What You Will Need). In order to participate and be eligible for the program, applicants must be able to secure mortgage financing through a lending institution. If your primary lending institution is requesting mortgage insurance, you may be eligible for additional flexibilities through the Canada
Mortgage and Housing Corporation (CMHC).

Terms of the AHP Loan
The AHP loan is for a period of 20 years. No interest is charged on the loan.
The unit must remain the sole and principal residence of the applicant for the entire 20-year period. It may not be leased to an other party. On the 20th anniversary date of the agreement, the loan is automatically forgiven, provided there has been no default under the terms of the loan. If the home is sold before 20 years or the loan is in default, the amount of the down-payment assistance plus a percentage of the capital gain (appreciation) realized through the sale may be payable to the municipality. In most circumstances, if the house is sold for less than the original purchase price, down-payment assistance would be waived provided the unit is sold at fair market value and the purchase and sale of the unit is an arm’s-length transaction.
The loan may be paid at anytime throughout the 20-year period. The owner would be responsible for repaying the amount of the AHP loan in full, and a percentage of the appreciation of the home based on the current market value of the home at the time of repayment.

WHAT YOU WILL NEED
• Agreement of Purchase and Sale
• Proof of mortgage approval by primary lending institution
• AHP Homeownership component application form
• Photo identification
• Proof of household income

Purchasing a Home
Once the offer on the home is accepted, approved applicants must provide an Agreement of Purchase and Sale for the home and a mortgage agreement from the primary lender.

AHP Loan Agreement
The AHP loan agreement outlines the terms of the down-payment assistance. The amount of the AHP Homeownership loan will be secured on title through an AHP mortgage. No interest is charged on the loan.
On the date of closing, the AHP loan is advanced and put towards the down-payment on the home.

Am I Eligible?
An Interest-Free Loan Under the AHP, every region in Ontario has been allocated a specific amount of funding to assist low to moderate-income rental households to purchase affordable homes through interest free down-payment assistance loans. It will be up to each municipality to determine the value of the loan for each purchaser, in accordance with mandatory program requirements. Applicants must be at least 18 years old and have a combined household income at or below the maximum eligible income limit for their area. Applicants who own or partly own a property do not qualify for down-payment assistance under the Homeownership component of the AHP. 

Contact your Mortgage Professional to learn more.

The benefits of mortgage default insurance

In Canada, there are two different products commonly referred to as mortgage insurance. One is mortgage creditor insurance, which continues to pay your mortgage payments in the event of death or disability. But the other type of insurance--mortgage default insurance--also offers important benefits.

If you're buying a home and borrowing more than 80% of its value, your mortgage is required to be covered by default insurance. This insurance protects lenders from loss in case a loan isn't repaid. With this protection, lenders are willing to offer loans with very low down payments--as little as 5% of the loan amount.

For loans without default insurance, most lenders require a down payment of 20%, which is a lot of money in today's housing market. Default insurance allows you to enjoy the benefits of homeownership sooner, and insured mortgages are generally approved more quickly.

Default insurance is available from organizations like Canada Mortgage and Housing Corporation (CMHC) and Genworth Financial, who charge a premium based on the percent of your home's value that you borrow. 

Thinking of buying an investment property?

Are you thinking of buying a property to rent out to others? Perhaps even to your own adult children, to help them get a start on life? Before you decide, do your research. There’s a lot more to rental properties than buying a building and hanging out the “Vacancy” sign.

First of all, there's a wide range of choices when you're looking for income properties. For example, you can buy:

Single family homes or multi-family ones
Commercial or industrial buildings that can be rented to business people.

You can spend less than $100,000, or invest millions of dollars. The question is, will it be worth it?

Is a rental property a good investment?

This can vary, depending on a number of factors. For example:

How will you finance your purchase? It may make sense to buy your house with no money down. But taking on a huge amount of debt for the sake of rental income may lead to financial disaster.

How much income can this property generate? What are rents like in the same area? Vacancy rates? Local market conditions determine the rents you are able to charge. Look for a place where the rental income covers the cost of buying the property and paying for it.

How much will it cost to maintain this property? You can buy a building that needs a lot of work, or one that is newly renovated and will need minimal repairs. You can buy a property that you can manage on your own, without extra help. Or, for larger properties, you can hire an onsite superintendent or a property management company.

What are the advantages of a rental property investment?

You can deduct certain expenses from your income reducing the taxes you owe. The list includes:
- Mortgage interest
- Property taxes
- Insurance
- Maintenance/upgrades
- Property management
- Utility bills (if you include them in the rent)

Losses from your rental property can turn into tax relief. If your expenses exceed your rental income, you can subtract that loss from any other sources of income you have. This could reduce your total tax bill.

You will get regular monthly income. Most other investments that offer interest or dividends pay out only once or twice a year. As long as your tenants pay on time, you know exactly what income you will have and when you will receive it.

Property values will likely be more stable than the stock market. With stocks, you can buy and sell shares very easily and quickly. So, share prices can fluctuate very wildly. It is not unusual for the share price of a company to change as much as 5 per cent in just one day.

Property owners, on the other hand, tend to view real estate as a longer term investment. It takes longer to buy and sell. Even when market conditions change, you don’t see the overnight market crashes and massive sell outs that you sometimes see in the stock market.

What are the drawbacks of a rental property investment?

You may have to deal with problem tenants. Working with non-paying tenants can be challenging and stressful if cash flow is tight. Of course, you can try to screen your tenants. But it’s not always easy to tell who may one day fall behind on paying rent, damage property or cause other problems.

It may be hard to sell your property later. Real estate is not a liquid investment. That means it can take time to sell, depending on market conditions. It can also be costly to sell due to real estate and legal fees.
It can be hard to finance your purchase. Under Canada’s new mortgage rules, your down payment must equal at least 20 per cent when you buy a second property. You may also need a mortgage. And, you will have high monthly expenses to cover when you own a building. Of course, you hope the income you receive from your tenants will cover this.

To get approved for a mortgage, your “total debt ratio” must fall within lender limits. At the risk of oversimplifying, your “total debt ratio” is generally your total monthly expenses divided by total monthly income from all sources, including rentals.

That sounds simple, but you need the right advice. A borrower’s ability to qualify often depends on how much of the rental income the lender recognizes.

You’d think that if a tenant pays you $1,000 a month, you could add that $1,000 to your income when qualifying for a mortgage. But in many cases, lenders will credit you with only 50 per cent of the rental income you receive, making it harder for you to qualify.

One last thing to keep in mind about debt ratios. Different lenders have different limits. Some lenders let you have a 42 per cent total debt ratio. Most others permit just 40 per cent. That extra 2 per cent can make a big difference , especially for folks with mortgages on multiple properties.

Being a landlord is not for everyone. Rental units need repair – sometimes on an emergency basis. You might find it difficult to keep up. Or, you simply would not want the hassle of dealing with tenants. ou could hire a property manager. But this will reduce your income from the property.

Remember: Buying a rental property is an investment. It’s vital to do your research before you commit your dollars.

Here are a few things to consider before purchasing a rental property.

1. Do you have enough saved for the down payment?

Under Canada's new mortgage rules, you must come up with a down payment of at least 20 per cent for a small rental property holding from one to four units. This rule does not apply to borrowers whose principal residence also includes rental units. You can purchase a secondary home if it is owner or family occupied with only 5% down. Ask your mortgage professional for details.

2. How much income will the property generate?

You will need to do some research into the neighbourhood. What does rent typically cost, and what is the vacancy rate in that area? Don't assume that you will always have a tenant -- according to the Canada Mortgage and Housing Corporation (CMHC), the average vacancy rate in Canada's 35 major centres is 2.5 per cent. To be safe, assume a four or five per cent vacancy rate into your financial projections, and don't forget to calculate potential costs, such as repairs and maintenance.

3. Can you be a successful landlord?

Being a landlord is a second job. It's not just about finding a tenant and letting the money come in every month. Not only do you have to be available to field emergency calls and keep up with maintenance such as routine fixes, yard work and even shovelling snow, but if you rent to the wrong tenant, you might have even bigger problems to deal with, such as non-payment of rent. Hiring a property manager can help, but that will greatly reduce your monthly profit from the property -- and you never want to be in a negative cash-flow situation.

4. How will deductions affect your profits?

By deducting certain expenses from your income, you can reduce the taxes that you owe. Applicable expenses include mortgage interest, property tax, insurance, property management, maintenance and utility bills. You can also deduct any losses from your rental property. If your expenses exceed your rental income, you can subtract your losses from any other source of income you have coming in.

Purchasing a rental property can be a great way to diversify your investment portfolio, but it is a big commitment. Being a landlord is time-consuming, and not for people who are interested in an easy, passive income stream.

Want to learn more? Check out the Canada Revenue Agency's Rental Income Guide, where you can get more information on deductible expenses, and most other issues regarding rental property.

Sources: Globe and Mail