Cost Savings for First-Time Homebuyers

Wednesday Aug 25th, 2021


Buying a home is the most expensive purchase you’ll likely ever make. For those who are making the purchase for the first time, it can be especially daunting. In addition to understanding what you can comfortably afford, there are some programs available specifically for first-time homebuyers to help them successfully enter the housing market. Below I share a brief overview of some programs and incentives to keep in mind if you’re purchasing a home for the first time.

The Home Buyers’ Plan

A down payment for a new home can be hefty. Fortunately, if you have money set aside in a Registered Retirement Saving Plan (RRSP) you can withdraw up to $35,000 of these funds to be used towards a down payment to buy or build a home. This withdrawal for eligible first-time homebuyers is interest free but must be paid back within 15 years.

Offered through the Government of Canada, there are some criteria and conditions to be eligible to participate in the Home Buyer’s Plan. For example, you must be a first-time homebuyer, have a written agreement to buy or build a home, be a resident of Canada, and intend to live in the home as your primary residence within a year of buying or building.

It’s important to note that funds need to be in an RRSP for at least 90 days before they can be withdrawn for the purposes of the Home Buyers’ Plan. Also, there may be cases where you are not able to withdraw your RRSPs, such as investments that are “locked in” or group RRSP investments. It’s best to review how your RRSPs are invested with your financial advisor to see if withdrawing them is an option. To learn more about The Home Buyer’s Plan, click here.

The First-Time Home Buyer Incentive

Available to all eligible Canadians, the First-Time Home Buyer Incentive aims to make it more affordable to own a home. A portion of your mortgage is essentially shared with the Government of Canada, allowing for a larger down payment, smaller mortgage and a reduced monthly payment amount. At the time of sale, or after 25 years, you must pay back the percent that was initially contributed but at your home’s worth at the time.

Newly constructed home purchases, resale home purchases and mobile/manufactured home purchases are all eligible, with a government contribution of most often 5% of the purchase price of the home. There are also some additional qualifying criteria such as income level, income relative to borrowing amount, and location of the home.

It’s important to note that the home can not be an income property, there may be additional lawyer fees as the incentive portion is treated as a second mortgage, and the full amount can be paid back earlier without penalty. To learn more about the First-Time Home Buyer Incentive, click here.

Land Transfer Tax Refund

Much like most of the rest of Canada, when you buy land in Ontario you must pay Land Transfer Tax. Land Transfer Tax is determined based on the purchase price of the home and where the home is located as some municipalities have additional taxes. It’s calculated using various tax rates, ranging from 0.5% to 2.5%, for corresponding price ranges.

Fortunately for first-time homebuyers, you may be eligible for a refund that is equal to the total amount of land transfer tax up to a maximum of $4,000. This means the taxable amount is fully refundable for homes costing up to roughly $368,000 whereas for homes costing more the homebuyer will only need to pay a portion of the Land Transfer Tax.

To be eligible, you must be a Canadian citizen or permanent resident of Canada that is over 18 years of age, haven’t previously owned a home, and you must live in the home within nine months from the purchase date. There are a few other conditions to note if your partner has previously owned a home. You can claim your refund at the time of registration by either registering electronically or completing the appropriate paperwork at the Land Registry office. To learn more about the Land Transfer Tax Refund, click here.

The Home Buyers’ Amount

The Home Buyers' Amount is a tax credit that is claimed when you submit your income tax return. It’s intended to help cover some of the costs of buying a home and first-time homebuyers are eligible for a tax credit of up to $750. 

As with the other programs, there are specific eligibility requirements that must be met. For example, you must not have lived in another home purchased by you or your spouse in the last four years, the home must be located in Canada, and the home must be registered appropriately. The Home Buyers’ Amount does include purchases of both new homes and resold homes. To learn more about the Home Buyers’ Amount, click here.

Purchasing a home is costly and being able to benefit from some additional savings can certainly help. If you’re a first-time homebuyer, it’s recommended to discuss these available programs with the appropriate financial expert to determine which may be best for you.

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