If their job is to kill your home ownership dream, the media is really crushing it. However, while they love telling you how expensive home ownership can be, they are downright awful at telling you about the many first-time home buyer programs available to help you buy your first home sooner – and for less. Those kinds of stories just don’t “click.”
Lucky for you, you’re reading this article to get educated. Good job! The good news is that if you qualify for any of these first-time home buyer programs, they can help you own your home sooner and for a lot less money. Here is my list of the top five first-time home buyer programs:
1. The First-Time Home Buyer Incentive
The First-Time Home Buyer Incentive loans you 5-10% of the purchase price of your home (though you still need to contribute at least 5% down). This works as a shared-equity mortgage. The Canadian government then owns a 5-10% stake in your home, but you benefit greatly by reducing your payment, interest and CMHC premium, because your mortgage amount is 5-10% less. When you sell your home within a 25 year window, you repay the government 5-10% of the new sale price, depending on the percentage you initially borrowed.
Under this plan, you’re considered a first-time buyer if you:
- Have never purchased a home before
- Did not occupy a home that you or your current spouse or common-law partner owned in the last 4 years
- Have recently experienced the breakdown of a marriage or common-law partnership (even if you don’t meet the other first-time home buyer requirements)
To qualify, you must:
- Make less than $120,000 a year
- Borrow no more than 4 times your income
- Be a first-time home buyer
- Be able to put at least 5% down
Depending on your scenario, this incentive alone could save hundreds on your monthly mortgage payment and CMHC premium and tens of thousands on your cost of borrowing. For full details and examples, see the official First-Time Home Buyer site.
2. CMHC Insurance
The CMHC’s mortgage insurance allows you to put as little as 5% down on a home, instead of the usual 20%. In exchange, you pay a one-time insurance premium (4.5% of the loan amount with 5% down, less if you put more down) that gets added to your mortgage, so you don’t have to pay it out of pocket. To find out how much you’d pay for any mortgage amount, use my CMHC calculator.
To qualify for CMHC’s mortgage insurance:
- The maximum amortization is 25 years
- Maximum home price is $1 million
- Total principal, interest, taxes and heating must be 32% or less of your gross household income
- Total principal, interest, taxes, heating and debt load (credit cards, loans) should be 40% or less of your gross household income
3. The RRSP Home Buyers’ Plan
If you have some RRSP’s, congratulations – you just found another way to pad your down payment. Thanks to the Home Buyer’s Plan, you may be eligible to withdraw up to $35,000 to buy or build a qualifying home. And that is per person – an important point if you and your spouse or partner buy a home together.
The advantage of this is that you don’t get taxed for withdrawing your RRSP’s, as long as you pay them back within 15 years.
To qualify as a “first-time buyer” for the HBP, you must not have owned a home that you occupied as your principal residence in the last 5 years.
4. The Land Transfer Tax Rebate
When you buy a home, you must pay the Ontario LTT. If you live in Toronto, you also pay the same amount for the City of Toronto LTT. To find out how much LTT you’d pay on a given home price, use my land transfer tax calculator.
For qualifying first-time buyers of new or resale homes, the maximum Ontario land transfer tax rebate is $4,000, while the maximum Toronto LTT rebate is $4,475. For Torontonians, this means a potential tax credit of up to $8,475.
To be eligible for this program:
- You must be 18 years old
- Occupy the home as your principal residence within 9 months of the date of transfer
- You must not have owned an eligible home, or had an ownership interest in one, anywhere in the world before.
- If you have a spouse, they must not have owned an eligible home, or an ownership interest in one, anywhere in the world, while they were your spouse.
- You must not have received an Ontario Home Ownership Savings Plan (OHOSP) refund of land transfer tax.
- You must be a citizen or permanent resident of Canada. However, if you become either within 18 months of your closing date, you may apply.
For full details on the Provincial LTT, you can call the Ontario Ministry of Finance at 1-888-668-8297. For the Toronto LTT, the number is 416-338-0338.
5. The Home Buyers’ Amount
Like tax credits? Me too. When you buy your first home, you may be eligible for a 15% income tax credit for closing costs. The home buyers’ amount allows you to claim a 15 per-cent tax credit for up to $5,000 of your home purchase costs (e.g. legal fees, land transfer taxes, etc.), for a maximum tax relief of $750, on line 31270 of your tax return.
Even if you or your spouse or common-law partner owned a home, you may still be eligible if the last home either of you owned was sold more than 4 years ago.
Honourable Mention: The HST New Housing Rebate
While HST usually does not apply to resale homes, it does apply to new homes. You may be eligible to receive a partial HST New Housing Rebate when:
- Buying or building a new or substantially renovated home. This also includes mobile and modular homes.
- You home is destroyed in a fire and rebuilt
- You buy a share of capital stock in a cooperative housing corporation.
Eligible new home buyers can apply for a 36% rebate of the federal portion of the HST to maximum of $6,300 for homes costing $350,000 or less. For homes costing between $350,000 and $450,000, the rebate is reduced proportionately, while more expensive homes are ineligible. However, the provincial portion of the HST can be rebated on any price of home to a maximum rebate of $24,000.
Combining First-Time Home Buyer Programs
It gets more interesting when you combine the different first-time home buyer programs available. Let’s assume you and your partner are both Canadian citizens or permanent residents. Neither of you have ever owned a home before. Here is the before and after on a $400,000 resale starter home in Durham Region:
Down Payment: $20,000 vs. $80,000 (5% vs. 20% down, due to CMHC insurance. An additional 5% can be borrowed under the FTHB program.)
Estimated Closing Costs: $2,355 vs. $5,875 (after credits – calculated as $896 PST on CMHC insurance, $475 LTT after rebate, $1,000 approximate legal fees, $400 approximate title insurance, less 15% Home Buyers’ Amount).
Assuming you qualify, in this scenario, that saves you $60,000 on your down payment, $3,520 on closing day, plus more on your CMHC premium, monthly payment and cost of borrowing! Now Let’s say you and your partner each have $10,000 in RRSP’s right now. Under the RRSP Home Buyer’s Plan, you could withdraw them tax-free and use them as your $20,000 down payment instead. To find out what your mortgage payment would be for this scenario at today’s rates, use my mortgage calculator.
First-Time Home Buyer Programs – Additional Incentives
In addition to these incentives, there are other programs available from both government and private sources. Please remember that program rules and eligibility are subject to change. For full information, it’s best to talk to a qualified mortgage professional, and I can happily put you in touch with a few very good ones if you contact me.