First Time Home Buyers
Buying a home can be challenging for a first-timer. After all, there are so many steps, tasks, and requirements, and you may be anxious about making an expensive mistake. You may not be aware, but, first-time home buyers enjoy some special advantages created to encourage new entrants into the real estate market. We are experts in assisting first time home buyers and are here to answer any questions you have!
To start, we have outlined below some key incentives available for people purchasing a home in Ontario.
This house will hold our family, our treasures and our most cherished memories
FIRST TIME HOME BUYER INCENTIVE
The First-Time Home Buyer Incentive helps people across Canada purchase their first home. The program offers 5 or 10% of the home’s purchase price to put toward a down payment. This addition to your down payment lowers your mortgage carrying costs, making homeownership more affordable.
You’re considered a first-time homebuyer if:
- you have never purchased a home before
- you did not occupy a home that you or your current spouse or common-law partner owned in the last 4 years (the 4-year period begins on January 1 of the fourth year before the Incentive is funded and ends 31 days before the date the Incentive is funded)
- you 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)
NOTE: First-time homebuyers purchasing a home in the Toronto, Vancouver, or Victoria Census Metropolitan Areas are now eligible for an increased Qualifying Annual Income of $150,000 instead of $120,000, and an increased total borrowing amount of 4.5 instead of 4.0 times their qualifying income.
Recent Updates to the First-Time Home Buyer Incentive
The Government of Canada will limit its share in the appreciation of a home! Now, homeowners will pay back up to a maximum gain of 8% per annum (not compounded) on the Incentive amount from the date of advance to the time of repayment.
This means that participants may be able to keep more when their homes increase in value.
The Government of Canada will also limit its share in the depreciation of a home at the time of repayment. This is up to a maximum loss of 8% per annum (not compounded) on the Incentive amount from the date of advance to the time of repayment.
In the case of appreciation, the above Incentive repayment calculation is retroactive to the implementation date of the First-Time Home Buyer Incentive (September 2, 2019). In the case of depreciation, the above Incentive repayment calculation applies to all borrowers who have signed a shared equity mortgage agreement on or after June 1, 2022.
In addition, CMHC has contracted FNF Canada to administer reimbursements to eligible borrowers. If you are eligible, you will be contacted by FNF Canada and asked to verify your information in order to proceed with your reimbursement.
Am I Eligible for the Incentive?
These are a few criteria to determine your eligibility for the First-Time Home Buyer Incentive:
- your total annual qualifying income doesn’t exceed $120,000 ($150,000 if the home you are purchasing is in Toronto, Vancouver, or Victoria)
- your total borrowing is no more than 4 times your qualifying income (4.5 times if the home you are purchasing is in Toronto, Vancouver or Victoria )
- you or your partner are a first-time homebuyer
- you are a Canadian citizen, permanent resident or non-permanent resident authorized to work in Canada
- you meet the minimum down payment requirements with traditional funds (savings, withdrawal/collapse of a Registered Retirement Savings Plan (RRSP), or a non-repayable financial gift from a relative/immediate family member)
The Incentive is like a second mortgage on your home. Your first mortgage must be greater than 80% of the value of the property and is subject to a mortgage loan insurance premium. It also must be eligible through Canada Guaranty, CMHC or Sagen.
The insurance premium is based on the loan-to-value ratio of the first mortgage only. That is, the first mortgage amount divided by the purchase price. You don’t pay mortgage insurance on the incentive – it is included with the total down payment.
The type of home you plan to purchase plays a factor. The table indicates the type of home that qualifies for the incentive and how much of an incentive it may be eligible to receive.
LAND TRANSFER TAX CREDIT
Additional Information
When you buy land or an interest in land in Ontario, you pay land transfer tax. First-time homebuyers of an eligible home may be eligible for a refund of all or part of the tax.
To claim a refund, you must be at least 18 years of age, you cannot have owned a home or an interest in a home anywhere in the world, and your spouse cannot have owned a home or interest in a home, anywhere in the world while he or she was your spouse. Previous ownership in a home means you do not qualify for the land transfer tax first-time homebuyers refund. The method of acquiring the home (e.g., purchase, gift or through an inheritance) is not relevant.
You cannot re‑qualify as a first‑time homebuyer. This rule may be different from other federal programs for first‑time homebuyers (e.g., the Canada Revenue Agency Home Buyers' Plan).
Land transfer tax applies to all conveyances of land in Ontario. First‑time homebuyers may be eligible for a refund of all or part of the tax payable.
- For agreements of purchase and sale entered into before December 14, 2007, the refund only applies on the purchase of a newly constructed home.
- For agreements of purchase and sale entered into after December 13, 2007, the refund applies to all homes, whether newly constructed or resale.
Qualifying taxpayers may claim an immediate refund at time of registration as follows:
- if registering electronically, by completing the required statements under the Explanation tab of the electronic land transfer tax affidavit, or
- if registering by paper, by filing an Ontario Land Transfer Tax Refund Affidavit For First‑Time Purchasers of Eligible Homes form at the Land Registry Office.
If the refund is claimed at the time of registration, it may offset the land transfer tax that would be payable. If the refund is not claimed at registration, the tax must be paid, and a claim for the refund may be submitted to the Ministry of Finance. No interest is paid on this refund.
Home Buyers Plan
The Home Buyers’ Plan, or HBP, allows Canadian home buyers to increase their down payment by withdrawing up to $35,000 (potentially $70,000 for couples) from their registered retirement savings plan, or RRSP. The HBP can also be used by participants who are buying or building a home for a relative with a disability.
An added benefit of the HBP is that accessing your RRSP this way is tax-free — if the amount used is paid back on time.
Who is Eligible for the Home Buyers Plan?
To participate in the Home Buyers’ Plan you must meet a variety of conditions:
- Be a resident of Canada.
- Have an RRSP with sufficient funds to withdraw.
- Be a first-time home buyer. According to the Government of Canada’s website, you are considered a first-time home buyer if, in the four-year period before you began participating in the HBP, you did not occupy a home that you owned or one that your current spouse or common-law partner owned.
- Be a repeat buyer who is purchasing or building a home for a relative with a disability.
- Plan to use the home as your principal residence within a year of building or buying.
- Have a written agreement to buy or build a home for themselves or for a relative with a disability.
- Plan to purchase a qualifying type of house, located in Canada. Most types of homes, including condo and apartments, qualify. Co-op housing doesn’t always qualify, but there may be exceptions.
Even though the Home Buyers’ Plan is intended for first-time home buyers, participants can apply to use it again so long as they have repaid the money they withdrew from their RRSP and meet all the other HBP eligibility conditions.
How does the Home Buyers Plan work?
Once you are approved for the Home Buyers’ Plan, you can withdraw up to $35,000 from your RRSP without paying any withholding taxes. Couples may each be able to withdraw $35,000, for a total of $70,000.
Your RRSP funds must have been in the account for at least 90 days, or they are not eligible for withdrawal under the HBP. You have until October 1st of the year following your withdrawal to buy or build your home.
You must also withdraw from your RRSP no later than 30 days after obtaining the title of your new home. All your withdrawals under the HBP must be made within one calendar year.
Repaying RRSP funds used for the HBP
Participants in the Home Buyers’ Plan must repay the amount they withdrew from their RRSP within 15 years. The minimum annual repayment amounts are essentially the length of time you have to pay back the loan (15 years) divided by the amount you withdrew.
For example, if you withdrew the entire allowable amount of $35,000, your minimum annual repayments would be $2,333 ($35,000 / 15). The first payment is due two years after you made your first withdrawal.
You repay the HBP by depositing the allotted amount back into your RRSP before the annual RRSP deadline. The Canada Revenue Agency sends participants a Home Buyers’ Plan account statement in their notice of assessment. The HBP statement details how much you’ve already paid back and how much you have yet to repay.
You are allowed to pay back more than you owe, which will reduce your yearly payments overall. Repayment of the HBP does not count toward your yearly RRSP deduction limits.
If you are not able to pay back the required amount in any of the years following your RRSP withdrawal, the difference becomes RRSP income for that year, for which you will be taxed by the CRA.
Home Buyers Tax Credit
If you are a first-time homebuyer and your house qualifies for the program, you can claim the non-refundable income tax credit in the amount of $5,000 The qualifying home can be an existing property, townhouse, condo unit or any other type of property.
To qualify for this program, you must not have bought a house within the last four years. This tax is entirely dependent on the federal income tax rates.
Of interest, the Federal government has proposed in the 2022 Budget Update that the Home Buyer’s Tax Credit is going to increase from $5,000.00 to $10,000.00. This increase will provide eligible first-time homebuyers with up to $1,500.00 in tax relief. This measure will apply to homes purchased on or after January 1, 2022.