First-Time Homebuyer Programs
Every homeowner was once a first-time homebuyer. Unfortunately, with housing markets heating up across Canada, it's never been tougher to get onto the property ladder for the first time. Luckily, there are a range of first-time homebuyer programs in Canada that aim to make it easier to buy your first home.
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 homebuying process.
Programs for First-Time Homebuyers in Canada
Here are some of the main first-time homebuyer incentives and rebates you should be aware of.
RRSP Home Buyers' Plan
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 Buyers' 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 RRSP Home Buyers' 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. You will have a 15-year period to complete the repayment process.
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Land Transfer Tax Rebate
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 homebuyers, 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.
First Time Home Buyers' Tax Credit
The First Time Home Buyers' Tax Credit, introduced in the 2009 federal budget, allows first-time homebuyers 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 Buyers' 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.
First Home Savings Account
This new savings vehicle was announced in the 2022 federal budget, and is expected to be available starting in early 2023. It combines features from both TFSAs (Tax Free Savings Accounts) and RRSPs (Registered Retirement Savings Plans), but has advantages over both. Your contributions to your First Home Savings Account (FHSA) are tax-free, and you don't have to pay yourself back when you take out money from your FHSA to purchase your first home. You can learn more about the First Home Savings Account on our blog.
Provincial first-time homebuyer programs
Most first-time homebuyer 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 homebuyers.
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 homebuyers
Below are some other general tips on how to buy a house as a first-time homebuyer in Canada. Check the links in each section 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%.
Mortgage default insurance
Mortgage default insurance, also sometimes known as CMHC Insurance (although CMHC is just one of three mortgage default insurance providers in Canada), 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%.
Mortgage default 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.