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FIRST-TIME HOME BUYER
INCENTIVES
The costs associated with homeownership can be especially challenging for first-time homebuyers. To help ease some of the financial burden, the Canadian Government has created several first-time homebuyer incentive programs to help make homeownership more affordable.
HOME BUYERS' PLAN
The Home Buyers’ Plan allows a First-Time Home Buyer to withdraw up to $35,000 from their RRSP on a tax deferred basis, to use toward the purchase of a home in Canada. If the First-Time Home Buyer is purchasing the home with a spouse or common-law partner who also qualifies under the plan as a First-Time Home Buyer, both parties can withdraw up to $35,000 from their RRSP for a combined total of $70,000.
To qualify as a First-Time Home Buyer, the Buyer must not have lived in a home they owned, or a home owned by their current spouse or common-law partner, in the previous four years. The four-year requirement is waived if the purchase is for an accessible home to be occupied by an individual eligible for the disability credit. The program also requires the Buyer to have a written agreement to purchase or to build a home that they intent to occupy as their principal residence. The Home Buyers’ Plan does not extend to the purchase of a cottage or commercial property.
Money withdrawn from RRSPs under the Home Buyers’ Plan is considered a loan and must be repaid within 15 years.
FIRST-TIME HOME BUYER INCENTIVE
The latest government-sponsored First-Time Home Buyer program is the First-Time Home Buyer Incentive. The Incentive operates as a shared-equity mortgage with the Government of Canada to help qualified Buyers’ finance part of their down payment in exchange for a share in the appreciation (or depreciation) of the home.
Interest-free incentives of 5% of the purchase price are available for resale homes and new and resale mobile/manufactured homes; and up to 10% for a new construction home.
Reimbursement of the First-Time Home Buyer Incentive is based on the property’s fair market value at the time of repayment. If the Buyer received a 5% incentive, 5% of the home’s current value must be reimbursed. If the Buyer received a 10% incentive, 10% of the home’s current value would be repaid. The First-Time Home Buyer Incentive must be repaid after 25 years or when the property is sold, whichever is first.
To be eligible for the Incentive, the Buyer must not have lived in a home they owned, or a home owned by their current spouse or common-law partner in the previous four years; and to have a minimum down payment of 5% of the purchase price. Regulations also require the Buyer to have an annual income of less than $150,000, and to borrow no more than 4.5 times their annual income.
HOME BUYERS' AMOUNT
The Home Buyers’ Amount (formerly known as the First-Time Home Buyers’ Tax Credit) was introduced in 2009 by Revenue Canada to help First-Time Home Buyers recover a portion of the closing costs associated with purchasing a home. Buyers are eligible for a 15% income tax credit on a maximum of $5,000 ($750) of home purchase costs including legal fees, disbursements, and land transfer taxes.
To be eligible, the Buyer must not have lived in a home they owned, or a home owned by their spouse or common-law partner in the previous four years. The home must be located in Canada, and the Buyer must occupy the home within one calendar year of the purchase date.
LAND TRANSFER TAX REBATES
First-Time Home Buyers are also eligible for rebates of their Ontario and Toronto land transfer taxes. Buyers purchasing in Toronto are eligible to receive a maximum Ontario land transfer tax rebate of $4,000 and a maximum Toronto land transfer tax rebate of $4,475, based on the purchase price.
To qualify for an Ontario and Toronto land transfer tax rebate, the Buyer must not have owned a home before, or have a spouse or common-law partner that has owned a home while together; and the First-Time Home Buyer must occupy the purchased home as their principal residence within nine months of the closing date.
CMHC LOAN INSURANCE
In Canada, Home Buyers must purchase loan insurance when their down payment is less than 20% of the purchase price.
Canadian Mortgage and Housing Corporation (CMHC) Loan Insurance protects mortgage lenders against mortgage default, and helps Buyers purchase a home with a minimum down payment of 5% for homes $500,000 or less, or 10% for home $500,000 or more. Homes purchased over $1,000,000 do not qualify for mortgage loan insurance, a 20% down payment is required.
Mortgage loan insurance premiums are calculated based on the percentage of the home’s purchase price that is financed. The premium can be paid in a single lump-sum or it can be rolled into the homeowner’s mortgage payments.
