September 06 2023
Looking to buy your first home soon? You’re in luck! Over the last few years, the Canadian government has introduced many great programs for first-time buyers to increase their home affordability. These financial resources not only assist buyers in the process of purchasing their first home, but also alleviate some of the common roadblocks when it comes to making this kind of investment. If you’re in the process of searching for your first home or want to learn more about the options available, below are some incentives to keep in mind.
The First-Time Home Buyer Incentive is a shared equity program that helps buyers across Canada purchase their first home. It offers 5% on the purchase price of resale properties and 10% on the purchase price for new builds to put toward a down payment. While there are no upfront costs for the program, it’s important to note that it’s not free. Put simply, the government is making a shared investment in your home and participating in the transaction with you, which is why this is registered as a second mortgage on the property. Buyers using this program must then pay this money back interest-free to the Canadian Mortgage and Housing Corporation within 25 years of their purchase or once the property is sold. Not only does this incentive lend a helping hand with your down payment, but it reduces your total mortgage and monthly costs.
Monica wants to buy a resale condo property for $450,000 and has saved the minimum required down payment of $22,500 (5% of the purchase price). With the First-Time Home Buyer Incentive, Monica can apply to receive an additional 5% ($22,500 in a shared equity mortgage (10% of the cost of the new home) through the program. This lowers the amount she needs to borrow and reduces her monthly expenses. Let’s say Monica sells the home six years later for $500,000. At that point, the incentive will need to be repaid as a percentage of the home’s current value. This would result in Monica repaying $25,000 (5% of the current value) at the time of selling the house.
In order to be eligible for the First-Time Home Buyer Incentive Program, you must meet the following criteria:
You have never purchased a home before
You didn’t occupy a home that you or your current spouse or common-law partner owned in the last four years
You have recently experienced divorce or breakdown of a common-law partnership
Your total annual qualifying income doesn’t exceed $120,000
Your total borrowing amount is no more than four times your qualifying income
You meet the minimum down payment requirements with traditional funds — savings, withdrawal of a Registered Retirement Savings Plan (RRSP) or a non-repayable financial gift from a family member
The Home Buyers' Plan (HBP) allows first-time home buyers to withdraw up to $35,000 tax-free from their Registered Retirement Savings Plans (RRSPs) to buy or build a qualifying home. Choosing to participate in this plan gives you the opportunity to tap into additional funds to pay your required down payment and re-contribute this money back into your RRSP within a 15-year period. This incentive lowers your mortgage amount and monthly expenses as a whole. If you plan to make an investment with someone who also qualifies for the HBP, then you could be eligible to double the maximum amount to 70,000 by both applying.
In order to be eligible for the HBP, you must meet the following criteria:
You must be considered a first-time home buyer
You must have a written agreement to buy or build a qualifying home, either for yourself or for a family member with a disability
You must be a resident of Canada when you withdraw funds from your RRSP under the HBP and up to the time a qualifying home is bought or built
You must intend to occupy the qualifying home as your principal residence within one year after buying or building it
When buying a home, there are land transfer taxes that need to be paid. Lucky for first-time buyers, there’s a Land-Transfer Tax Rebate available that helps to offset this additional cost. It’s important to note that depending on which province or city you are buying in, there are different amounts that you can qualify for. In Ontario, eligible buyers can receive a rebate equal to the full amount of their land transfer tax, up to a maximum of $4,000. Specifically, if you’re buying in Toronto, there’s an additional municipal land transfer tax and you could be eligible for a rebate up to $4,475. For first-time buyers, this refund is incredibly helpful as it can be allocated toward other costs or added into savings.
In order to be eligible for the Land-Transfer Tax Rebate, you must meet the following criteria:
You must be a Canadian citizen or permanent resident of Canada
You must be 18 years of age or older
You must be considered a first-time home buyer
You must live in the home within 9 months of purchasing it
If you have a spouse, they cannot have owned a home during the time they have been your spouse
If you’re a first-time buyer, Homewise works with over 30 banks and lenders to find you the best mortgage option. Our Mortgage Advisors provide unbiased advice and guidance to support and educate you throughout the entire home buying process.
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