Ready to buy your first home? You’re probably familiarizing yourself with the homebuying process, from house hunting to closing—but are you at home with any programs and incentives that can make becoming a homeowner easier?
In a bid to make buying your first home more affordable, the Canadian government offers numerous incentives for first-time home buyers. First-time home buyers in some provinces and cities can qualify for a land-transfer tax rebate—and that’s just one example of many different first-time home buyer programs for which you may be eligible.
These programs may be in the form of tax benefits, rebates, tax credits, or ways to fund your down payment. Some home buyer programs, like the Canadian First-Time Home Buyer Incentive are available to Canadians nationwide while others like land transfer rebates may vary by province or region.
Let’s take a look at nationally and provincially accessible programs that make housing more accessible and affordable to Canadians looking to purchase their first home.
First-Time Home Buyer Incentive (FTHBI)
The First-Time Home Buyer Incentive provides a shared-equity mortgage from the Canadian Government, aimed at helping you buy your first home without adding to your financial burden. While you won’t make any additional monthly payments, you must meet the minimum insured mortgage down payment obligations.
Who is Eligible? Do You Qualify?
Consider these eligibility criteria to qualify for this government shared-equity incentive:
- You’re a Canadian citizen or permanent resident. Non-permanent residents who are legally authorized to work in Canada also qualify.
- You or your partner is a first-time home buyer
- Your annual household income is $120,000 or less.
- Your total borrowing should not exceed 4 times your qualifying annual income.
- You satisfy the minimum down payment obligations—5% of the first $500,000 and 10% for any amount above the home’s purchase price.
How Does it Work?
This incentive makes it easier for first-time homeowners to purchase a home and reduce their monthly mortgage payments. Being a shared equity mortgage, the government shares in the downside and upside of the property value. Just as the name suggests, this is an exclusive first-time home buyer incentive. You satisfy the first-time home buyer requirement if:
- You’ve never bought a home before.
- You haven’t occupied a home that you, your spouse or common-law partner have owned in the last four years
- You’ve recently gone through the breakdown of a common-law partnership or marriage—even if you don’t satisfy other first-time home buyer requirements.
With the First-Time Home Buyer Incentive, the Government of Canada offers first-time buyers:
- 5% for buying an existing (resale) home
- 5% for buying a new or existing manufactured home
- 5% or 10% for buying a newly constructed home.
You must pay the incentive in full—no partial payment—after 25 years or when you sell the home, whichever comes first. You can also repay it in full at any point before the maturity date without incurring a prepayment penalty. The amount you will repay depends on the property’s fair market value at the maturity date. Received a 5% incentive? You’ll repay 5% of your home’s value at repayment.
Here are a few considerations to bear in mind before getting the First-Time Home Buyer Incentive:
- It’s a loan based on your property’s fair market value.
- Although the loan is interest-free, the government shares in any losses or gains on the home’s equity.
- Should the property value take a hit, the amount you repay will be less than what you borrowed.
- You should repay the loan after 25 years of the date borrowed or when you sell your home.
RRSP Home Buyer’s Plan
A Registered Retirement Savings Plan (RRSP) can be an excellent funding source for your mortgage down payment. The Canadian government’s Home Buyer’s Plan (HBP) lets first-time home buyers take out up to $35,000 from their RRSP for a down payment, tax and interest-free.
Who is Eligible? Do You Qualify?
Here’s the criteria you must meet to qualify for the RRSP Home Buyer’s Plan:
- You’re a Canadian resident.
- You’re a first-time home buyer.
- The home you’re looking to purchase must become your primary residence
- You have a written agreement to buy or build a home in Canada that qualifies for the plan.
- The funds you want to borrow from the RRSP have been in your account for a minimum of 90 days before the withdrawal date.
- You must withdraw from the RRSP within 30 days of acquiring title of the home.
- You don’t have any outstanding HBP balance from previous uses of the Home Buyer’s Program.
If you withdraw from your RRSP but don’t satisfy the first-time home buyer requirements, your withdrawal will be taxed and must appear as taxable income in your income tax statement.
How Does it Work?
After confirming your eligibility and deciding to participate in the HBP, you’ll need to complete two forms:
- Form T1036, a request to take out money from an RRSP. You can obtain this form from the Canada Revenue Agency’s website.
- An authorization letter instructing how the funds should be sent – through Electronic Funds Transfer or cheque.
Remember that any funds you withdraw for the HBP must have been in your account for 90 days before the withdrawal. Also, don’t forget to withdraw the funds within 30 days of taking title of the new home, otherwise you’ll pay tax on the amount withdrawn.
A HBP withdrawal is considered a loan by the government and must be repaid to your RRSP account within 15 years. After withdrawing your funds, the Canada Revenue Agency will give you a “Notice of Assessment” highlighting your loan balance and the minimum amount you should pay. You have up to two years to make the first payment—which should be done within 60 days of the year after the contribution is due.
Repaying this loan isn’t entirely different from contributing to your RRSP. Making a repayment is as simple as making your contribution and declaring the amount as a repayment when you file your taxes. You must make the minimum payment every year. You can calculate the minimum payment by dividing the total loan balance by the number of years left. For a $35,000 loan, your minimum yearly payment is ($35,000/15 years) = $2,333.
Withdrawing funds from your RRSP means that you’re forgoing your investment income and its related tax-deferred compounding during the period the money would have been in the RRSP. This means that you reduce the income available to you during retirement.
If you don’t pay back the full loan amount within 15 years, any amount outstanding is subject to tax when you file your income tax return the following year.
Land Transfer Tax Rebate
First time home buyers in Canada can also turn to the land transfer tax rebate, which is available in select cities and provinces in the country. This rebate is available to first-time home buyers in the city of Toronto and the provinces of BC, Ontario, and PEI.
Who is Eligible? Do You Qualify?
You must be a first-time home buyer in the provinces of BC, Ontario, and PEI as well as the city of Toronto to participate in this program. And although eligibility criteria differ by province, here are the standard requirements for all regions:
- You must be at least 18 years old
- You must be a permanent resident or Canadian citizen
- You can’t have owned a home before
- If you have a spouse, they shouldn’t have owned a home during the time you’ve been together.
How Does it Work?
Here’s how the land transfer tax rebate works in the respective regions.
Ontario Tax Rebate
Besides the standard eligibility requirements mentioned above, you must also live in the home within nine months of buying it to qualify for the tax rebate. You can receive a rebate equal to the total amount of your land transfer tax—up to $4,000.
The rebate covers the entire tax amount up to a maximum home buying price of $368,333. If your home exceeds this price, you’ll still qualify for the maximum tax rebate but will need to pay the remaining land transfer tax.
BC Tax Rebate
You must have lived in BC for 12 months prior to registering your property. The BC land transfer tax rebate equals the full amount of your property tax, not exceeding $8,000. According to the provincial property transfer tax rates, this rebate covers the total tax amount for a maximum home price of $500,000.
You qualify for a partial rebate if your home purchase price is between $500,000–524,999. Home purchase prices above $525,000 don’t qualify for a tax rebate—you must pay the full amount.
PEI Tax Rebate
You must have lived in PEI for six consecutive months prior to registering your property to qualify for the provincial tax rebate. It covers the full amount of your property tax, up to $2,000. The 1% property transfer tax rate in the region means that the exemption covers a $200,000 maximum home purchase price.
No rebate is available for a purchase price of more than $200,000—you must pay the full tax amount. Home purchases of $30,000 or less don’t incur property transfer tax.
Toronto Tax Rebate
You must live in your home within nine months of buying it to qualify for the Toronto land transfer rebate—typically equal to the total amount of the municipal land transfer tax, up to $4,475. The rebate applies when you buy a house, condo or townhouse in the City of Toronto, and covers a maximum home price of $400,000. Purchases exceeding $400,000 qualify for the maximum rebate, but will pay the remaining land transfer tax.
A land transfer tax rebate may offset the land transfer payment if claimed at time of registration. Remember, the rebate covers the total tax amount up to a certain maximum home purchase price—beyond which you must pay the full property transfer tax due.You must download and submit the First Time Home Buyers Declaration form to apply for the property transfer tax exemption.
First-Time Home Buyers Tax Credit
The First-Time Home Buyers Tax Credit (HBTC) helps reduce the federal tax payable by first-time home buyers.
Who is Eligible? Do You Qualify?
You must be a first-time home buyer to qualify for this tax credit. Other eligibility requirements include:
- Your home should be a new or existing one within Canada.
- You must intend to live in the house within one year of purchase.
- The qualifying home is registered in your name or your spouse’s name. The home can be a single-family house, semi-detached house, mobile home, townhouse, condominium, or apartment.
How Does it Work?
The First-Time Home Buyers Tax Credit is meant to recover house closing costs like inspections and legal expenses. It provides up to $5,000 in tax credit that you may claim against personal income to receive a one-time $750 reduction (multiply $5,000 by the lowest personal tax bracket of 15%). You may claim it on line 369 of your personal income tax return in the year you buy a house.
You may split the $5,000 tax credit between yourself and your spouse or common-law partner provided it doesn’t exceed $5,000. This tax credit could also be split between people who decide to jointly buy a property. Persons with disability can claim the Home Buyer’s Tax Credit without fulfilling the first-time buyer eligibility requirement.
The First-Time Home Buyer’s Tax Credit is non-refundable and you must claim it within the year of buying your home. The combined claim on the tax credit can’t exceed $750, whether you’re buying a home alone, with a spouse, or friend. Your eligibility for this program won’t change whether or not you partake in the RRSP Home Buyer’s Plan—you may participate in both if you qualify.
Other Provincial First-Time Home Buyer Programs
The City of Ontario—through its Mortgage Assistance Programs—provides up to $58,000 for every eligible household to be used towards down payment for buying a home. It’s intended for lower income buyers who can meet their monthly mortgage payments but don’t have enough to clear the initial house buying down payment.
This program is considered a 30-year deferred payment loan with a 1% simple interest rate. You must repay the full loan amount plus interest 30 years from the date you bought your home.
Citizens or permanent residents of BC may enjoy various programs that support homeownership—administered by the Government of BC. Some of these programs include:
- Newly Built Home Exemption helps eliminate or lower the property transfer tax you’re required to pay on a newly built home worth $750,000 or less.
- Home Owner Grant reduces the amount of property tax you pay for your principal residence. It’s available to homeowners who pay property taxes to a municipality or the province if they live in a rural area.
Quebec also runs a Home Ownership Program that’s intended at facilitating new homeownership for individuals and families in Montreal, Quebec. Households with at least one child under 18 years can get up to $15,000 whereas those without children qualify for up to $5,000.
Residents of PEI can also take advantage of the Down Payment Assistance Program, which helps qualified residents with modest incomes buy a first home. Eligible applicants can get a conditionally interest-free loan of up to five percent of the home purchase price, up to a maximum of $12,500. The loan proceeds are strictly for the down payment and can’t go into financing or closing.
Move Closer to Your Homeownership Dream
First-time home buyer programs may be a big help if you’re ready to dive into the Canadian housing market. Between national and provincial programs, you could easily feel overwhelmed—that’s understandable. Your search for a first-time home buyer program should start with an assessment of the eligibility requirements. This will help you find programs that are a good fit for your needs.
Qualify for two programs? That’s excellent—you can take part in two programs. Participating in one program won’t impact your eligibility for another program. After all, your dream of owning your first home might be closer than you think.
Additional Resources for First-Time Home Buyers
First-time home buyer? You probably have a lot on your mind. Thankfully, the financial sages behind MoneyWizard have got the resources, tips and financial support to help you on your journey!
- Start here! This step-by-step guide includes all the up-to-date information you need to help you make informed decisions and understand the home buying process in Canada… [Read more]
- Mortgage pre-approval is not only easier but faster than the mortgage approval process. It also expedites closing on a mortgage when you’re ready. In other words, a mortgage pre-approval is your true first step to owning a home. Learn how to get pre-approved today… [Read more]
- While some suggests that you can spend ~32% of your income on housing and still be in good financial standing, not everyone should take this advice. Are you ready to own a home… [Read more]
- Depending on your strategy, successfully saving up for a down payment can be one of the most important steps in securing your financial future. It’s time to take the first step—we’ll show you how… [Read more]
- Lower credit scores attract higher rates—sometimes above ~10%. Regardless, you can still pursue your dream without waiting for your credit score to improve. And the financial sages behind MoneyWizard can help you obtain a mortgage—even with ‘bad’ credit…. [Read more]