Owning a home is one of the common financial goals for many Canadians.
For people receiving benefits from the Ontario Disability Support Program (ODSP), purchasing a property as their primary residence could involve lots of complex planning.
The ODSP has many specific rules, and without careful planning in advance, any financial move could potentially affect one’s eligibility to receive the benefits.
In the past few years, I regularly receive emails regarding home purchasing for ODSP recipients.
Below are 10 steps you could discuss with your caseworker.
1) Find out your needs
Before searching for a property, it is important to understand your own personal needs first. Just because a property is suitable for someone else, it does not necessarily fit your needs. Consider the following questions:
- How many people will be living on this property?
- How many rooms and bathrooms will you need?
- Will you be driving?
- If so, how many parking spots will you need?
- If not, is the property being closed by public transit important to you?
- How much traveling time do you expect from home to work?
- Can the surrounding facilities accommodate your needs? (i.e., school, supermarkets, medical clinic, restaurants, gym)
2) Preliminary research of the properties
Now you have some understanding of your personal needs. It is time to do preliminary research about the price range of properties that fit into your categories.
To do so, visit Realtor.ca. This is a website where it contains thousands of real estate listings across Canada. It allows you to refine your search by entering the postal code of the area, number of bedrooms, number of bathrooms, type of property (i.e., condo/townhouse/house), freehold or not, and your desired price range.
One of the features I like is their demographic statistics. It shows important details that give you a better understanding of a specific neighborhood.
For example, it could show the population size, median age, average household size, income, households with/without children, number of households, education level, and the percentage of residents in the labor force.
3) Find out how much mortgage you can qualify for
A mortgage could be one of the biggest financial responsibilities for many Canadians. Therefore, it is extremely important to work with a licensed mortgage agent who can give you professional and unbiased advice.
Consider working with an individual mortgage agent who:
- Has access to a wide range of mortgage solutions from different lenders.
- Represents the client and not the mortgage lenders
- Experienced mortgage agents tend to specialize their business practice in servicing a particular niche of clients. For example, some would service self-employed business owners, while some focus on working with new immigrants. Therefore, it would be a huge value-added if the mortgage agent has a wealth of experience servicing clients who are ODSP recipients.
A lot of lenders would look at your Gross Debt Service (GDS) and Total Debt Service (TDS) ratio as one of the factors determining the amount of mortgage you can qualify for.
Here’s a Debt Service Calculator. You may plug in your income and expenses figures to get a brief idea of how you stand financially.
4) Find out the costs involved
When purchasing a property, there will be many different costs —for example, legal fees, appraisal fees, taxes, and others.
Most of the mortgage lenders I’ve personally encountered would require their borrowers have saved at least 1.5% of the property purchasing price for the closing costs.
Furthermore, before you purchase the property, find out if there will be any upcoming major repair that needs to be done to the property in the near future.
An experienced home inspector could give you a review of the condition of the property.
You should also count for other ongoing expenses after you purchase the property. For instance, utilities, condo fees, property tax, repair costs, and parking lot rental fees.
5) Review your mortgage options
Your mortgage approval depends heavily on your financial situation. It’s important to discuss with your mortgage agent which lenders can qualify your application. (i.e. : “A-lenders”? “B-lenders”? or “Private lenders”?)
Each lender has its own terms and conditions, while their underwriting guidelines could be different from one another.
For instance, some lenders could accept ODSP benefits as a source of income, while some might not even consider it.
When reviewing your mortgage options, below are some items that should be put into consideration:
- What is the term of the mortgage?
- What is the amortization schedule?
- What is the interest rate? Is this a fixed or variable term?
- What is the prepayment privilege? Is there any early repayment penalty?
- Can this mortgage be portable to another property?
- Will there be any reimbursement to help with your closing costs?
- How much down payment does the mortgage lender require?
- Do they require mortgage default insurance for a small down payment?
6) Save for a down payment
At this stage, you should have a pretty good idea of the amount of down payment you will need to purchase your property. The question is how you can save for the down payment while minimizing the impact on your ODSP benefits.
According to the Ontario Ministry of Community and Social Services, each ODSP recipient would have a limit of assets they could own.
“Under ODSP, the asset ceiling is $40,000 for a single person, $50,000 for a couple and $500 for each dependant other than a spouse.“
Quote from Ontario Disability Support Program policy directives for income support
Although the Registered Disability Savings Plan (RDSP) is exempted from the ODSP calculation, due to the claw back rules of the Canada Disability Savings Grants and Bonds, in many instances, this might not be a suitable vehicle to save for the down payment.
On the other hand, in addition to utilizing the ODSP asset limit, you may consider accumulating the down payment savings within a segregated fund policy. Once again, below is a quote from the ODSP directives:
“Life insurance policies with a cash surrender value of up to $100,000 are exempt as an asset… Annuities, deferred annuities and segregated funds are considered to be life insurance under the Insurance Act.”
ODSP directives for income support – Definition and treatment of assets
7) Work with a licensed real estate agent
In step 2, you had already done some preliminary research about the type of home you are pursuing for.
Now, it’s time to get some advice from a professional real estate agent. When choosing one, consider working with someone specializing in their business in the specific areas you are interested in.
For example, if I’m looking for a home in Sudbury, I would prefer a realtor that works and lives in that area. The reason is I always look for a real estate agent who truly knows the neighborhood inside out.
Furthermore, the realtor should be able to provide you with unbiased advice, be willing to spend time showing you different properties with patience, and not rush you into making a quick decision to purchase.
However, as a client, you should also respect their time. Stick with the plan, and do not procrastinate and be indecisive. After all, a successful work relationship always requires the effort of both parties.
8) Make an offer
After touring numerous properties, hopefully, there is one that you can envision as your future home while the price is within your acceptable range.
At this time, you should discuss with your real estate agent in placing a purchase offer. Typically speaking, a deposit is required at the time when placing a purchase offer.
The agreement will also state the purchase price, closing date, and other terms and conditions.
Depending on the flexibility of the seller, you may consider including the clauses where the purchase offer is subjected to inspection and satisfactory financing.
However, you should discuss this with your real estate agent as every situation could be varied.
9) Go through the process of getting a mortgage
Once the seller accepts your purchase offer, you should inform your mortgage agent asap so they can start working on your mortgage application.
If the closing date of this purchase is within the next 120 days, depending on the underwriting, your mortgage agent might be able to obtain the commitment documents from the mortgage lenders. An experienced mortgage agent should be able to guide you during every step of the process.
10) Go through the closing documents with your lawyer
After all the documentation required by the mortgage lender has been fulfilled, the last step is to go through the closing documents with your lawyer.
When hiring a lawyer for your real estate transaction, do not just choose one simply because they are charging the lowest fee.
Hire one that is trustworthy, easy to get a hold of, and will review your purchasing contract thoroughly with you. Your realtor or mortgage agent might be able to provide you with some recommendations, as many of them also deal with real estate lawyers on a regular basis.
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