As a first-time homebuyer, it’s a good idea to be familiar with any programs that apply to your situation, be they rebates, tax benefits, ways to fund your down payment, or the minimum you must put down for your home purchase. Read on for information on these programs, as well as some more general information about the home buying process.
Programs for first-time home buyers in Canada
Here are some of the main first-time home buyer incentives and rebates you should be aware of.
If you haven’t purchased a home within the last four years (or lived in a spouse’s home in the same timeframe), you may qualify for the RRSP Home Buyer’s Plan. With this plan, you may borrow up to $35,000 tax-free from your RRSP to fund your down payment. Just keep in mind that the money must be in your RRSP at least 90 days before the purchase of your house.
The First Time Home Buyer’s Plan is advantageous for Canadians because generally speaking, early withdrawals from RRSPs are considered taxable income. In this case, they’re exempt but you must start repaying the amount borrowed from the RRSP two years after you buy over a 15-year period.
Some Canadian provinces charge a land transfer tax when you buy a house. This is generally between 0.5% and 2.0% of the purchase price of the property, and represents the largest closing cost you’ll have to pay. In an effort to help first-time home buyers, several provinces rebate some or all of this tax if you’re eligible.
You can receive a rebate on some of the land transfer tax you pay if you live in British Columbia, Ontario, or Prince Edward Island. Homebuyers in the City of Toronto are also eligible to receive a rebate on the city’s land transfer tax, in addition to the provincial rebate.
The First-Time Home Buyer’s Tax Credit, introduced in the 2009 federal budget, allows first-time buyers in Canada the opportunity to recover some of the costs associated with their purchase. It helps offset legal fees, inspections, and other similar closing costs. The First-time Home Buyer’s Tax Credit is a non-refundable credit and is valued at $750.
GST/HST New Housing Rebate
The GST/HST New Housing Rebate offers money back to Canadians who buy a newly built home, substantially renovate an existing home, or rebuild a home that was destroyed due to fire. In all three cases, an individual will incur GST/HST on their purchase. The GST portion of a new home purchase or renovation can be rebated to all Canadians who qualify.
Provincial first-time home buyer programs
Most first-time home buyer programs are found at the federal level, but there are several provinces that have their own programs as well (along with the land transfer tax rebates we mentioned earlier). Quebec, for example, offers an additional tax credit (max $750) to first-time home buyers.
To properly understand what you’ll be eligible for in your province, it’s worth speaking to a mortgage broker near you – consultations are free.
More information for first-time home buyers
Here are some other general tips on how to buy a house as a first-time homebuyer in Canada. Check the links for more information on any of these topics.
For first-time home buyers, the down payment is probably the main thing you’ll need to think about for your first purchase. In Canada, you must put down a minimum of 5% as a down payment for homes less than $500,000. If the purchase price is between $500,000 and $1 million, you’ll need 10% on the amount between $500,000 and $1 million. For houses over $1 million, the minimum down payment is 20%.
CMHC Insurance (mortgage default insurance)
Mortgage default insurance, also known as CMHC Insurance, may seem like a strange concept, but it’s relatively straightforward. If you have a down payment of less than 20% of the home’s value, you must purchase mortgage default insurance. But this doesn’t act as insurance for you. Rather, it protects your lender in case you don’t make your mortgage payments. It’s designed to make financial institutions comfortable with lending to individuals who don’t have a large down payment.
Mortgage insurance is calculated as a percentage of the value of the mortgage amount. If your down payment is between 5% to 9.99%, the mortgage insurance will represent 3.6% of the mortgage amount. For down payments of 10% to 14.99%, the mortgage insurance will cost 2.40%. And for down payments of 15% to 19.99%, mortgage insurance costs 1.80%.
CMHC insurance isn’t available for homes with a purchase price of more than $1 million. As a result, anyone buying a house in excess of this amount must have at least 20% as a down payment on their purchase.