For first time home buyers, any form of financial or planning incentive is a great way to make home buying easier and memorable. Investing in one’s first home is a big financial commitment, something that takes some first time home buyers a number of years to make into a reality. The Canadian government, on all levels, has created a number of programs that first time home buyers can take advantage of. What these provide is accessible resources to help make buying a first property easy and manageable.
Take a look at the various programs below.
First Time Home Buyer’s Tax Credit (HBTC)
The first time home buyer’s tax credit is a non-refundable tax credit, based on an amount of $5,000, for certain home buyers that acquire a qualifying home after January 27, 2009 (i.e., generally means that the closing is after this date). By entering $5,000 to one’s personal taxes on line 369, home buyers receive a rebate of $750. This amount must be the total claimed amount between you and your spouse.
The credit is designed to help first time home buyers with various expenses related to home buying, such as closing costs, inspections, legal work, taxes, etc. To qualify for the HBTC, you or your spouse has acquired a qualifying home and you did not live in another home owned by you or your spouse in the year of acquisition or four years prior. A qualifying home is described as “a housing unit located in Canada acquired after January 27, 2009, which can be existing homes or those being constructed”. A share in co-operative would also qualify.
Home Buyers’ Plan for First Time Home Buyers
The Home Buyer’s Plan by the federal government provides home buyers, especially first time home buyers, the ability to withdraw money from their registered retirement savings plan (RRSPs) tax free to buy or build a qualifying home. Home buyers are eligible to take up to $25,000. However, contributions must remain in the RRSP for atleast 90 days before you can withdraw under the Home Buyers’ Plan, and no deductible can be made for any year.
The following requirements must be met to withdraw funds from your RRSP:
- Qualifying home cannot be owned for more than 30 days before the withdrawal is made, by you or your spouse.
- A maximum of $25,000 can be withdrawn
- You have to be a resident of Canada.
- You have to complete Form T1036 for each eligible withdrawal.
- You have to receive all withdrawals in the same calendar year.
It is important to point out that if you are buying a house with a spouse, the spouse is eligible to take out $25,000 as well. Any funds taken out from an RRSP must be repaid within 15 years, with 1/15 being the payment amount per year. Payments begin the second year from which the funds were withdrawn.
The home buyers’ plan provides first time home buyers with the must needed financial flexibility when purchasing a new home. The $25,000 – or $50,000 if taken by the spouse as well – can be used towards the down-payment of a first home, a required step towards owning a home for first time home buyers.
Land Transfer Tax Refunds for First Time Home Buyers
The Government of Ontario provides a refund program for first time home buyers who purchase a home in the province. This interest-free refund is on the land transfer tax in Ontario, with a maximum sum of $2000. Applications for this refund must be made within 18 months after the date of the transfer. To qualify, home buyers must meet the following requirements:
- must occupy the home as your principal residence within 9 months of the date of transfer
- must be at least 18 years of age
- you cannot have ever owned a home, or an interest in a home, anywhere in the world. This applies to your spouse during the period which she/he is your spouse
- in the case of a newly constructed home, where the agreement of purchase and sale was entered into before December 14, 2007, you must be entitled to a Tarion New Home Warranty
The City of Toronto provides its own Municipal Land Transfer Tax rebate, which comes into affect on top of the provincial land transfer tax. First time home buyers are eligible for this rebate on the purchase of newly constructed or resale property, with a maximum of $3,725 in rebate available.
Canada Mortgage and Housing Corporation Programs
The Canada Mortgage and Housing Corporation – CMHC for short – provides a range of home buying programs that aid both first time home buyers and investors when purchasing real estate. Their mortgage insurance program is of particular value to first time home buyers because the program provides home buyers with the option to purchase a new home with as little as 5% down, which is a major financial relief for first time home buyers with tight budgets.
In addition, the CMHC provides a number of other programs that help take the burden off the cost of buying and ownership. From renovation to simple payment options, the CMHC is a good resource when one needs to the balance the finances relating to a new home.