5 Programs the Government Can Help You to Buy Your 1st Home
Are you feeling overwhelmed by the difficult real estate market? You're not alone. If you're a first-time homebuyer, the current market conditions, financial limitations, and recent Bank of Canada rate increases may seem intimidating and could delay your plans of becoming a homeowner.
However, owning your first home doesn't have to be an impossible dream. To make homeownership more attainable and facilitate entry into the real estate market, different levels of government have created various initiatives and programs specifically for first-time homebuyers.
1. RRSP Home Buyers’ Plan
The Home Buyers' Plan (HBP) by the Federal Government helps first-time homebuyers enter the real estate market by using their Registered Retirement Savings Plan (RRSP). Through this program, first-time homebuyers can withdraw up to $35,000 from their RRSP without facing any tax penalties, making it easier to use their existing savings for a down payment instead of waiting to save more money outside of their RRSP. However, the withdrawn funds must be repaid into the original RRSP account within 15 years.
To be eligible for the HBP, you must be a Canadian resident, purchasing a home that will be your primary residence, and a first-time homebuyer. The program also allows you to use the HBP to assist a relative with a disability in buying or building a qualifying home.
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2. First-Time Home Buyers’ Tax Credit
Qualifying homebuyers can save money when buying their first property through the First-Time Home Buyers' Tax Credit (HBTC). To be eligible for this incentive, you or your spouse/common-law partner must have purchased a qualifying home and not owned another home in the past four years, both in Canada and abroad. Qualifying homes include new and existing single-family houses, townhouses, mobile homes, condos, and apartments. You must also occupy the home within one year of purchase.
The HBTC provides a rebate of up to $1,500 on your tax return. This rebate is calculated by multiplying $10,000 by Canada's lowest personal income tax rate, which is 15%. The non-refundable tax credit can be used for expenses like maintenance, renovations, or anything else you choose.
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3. First Home Savings Account
The First Home Savings Account (FHSA) is a program that was introduced in the 2022 federal government's budget and it is a way to help first-time homebuyers save towards their downpayment.
As of April 2023, the FHSA is a registered savings plan in which Canadians can save $8,000 annually, up to $40,000 tax-free for their first home. You may withdraw your FHSA funds tax-free when you are ready to buy or build your home. The FHSA provides both tax-deduction benefits and enables tax-free growth on investments. You must use your funds within 15 years of creating your account, or before turning 71, whichever comes first/ You may also move your FHSA savings into a Registered Retirement Savings Plan (RRSP) without paying taxes on the amount.
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4. First-Time Home Buyer Incentive
The First-Time Home Buyer Incentive (FTHBI) is a program designed to assist eligible first-time homebuyers in lowering their monthly mortgage payments by participating in a shared-equity mortgage arrangement with the Government of Canada. Administered by the Canada Mortgage and Housing Corporation (CMHC), this program provides financial support by contributing a portion of the home purchase cost.
The incentive can cover 5% or 10% of a newly constructed home, 5% of a resale home, and 5% of a new or resale mobile/manufactured home. This allows you to make a larger down payment, thereby reducing your mortgage loan amount. As the incentive functions as a second mortgage on your property, the government must be repaid their share of the investment, along with any gain or loss on the equity, which is capped at 8%. The loan provided by the government must be repaid within 25 years or when the home is sold, whichever occurs first. You also have the option to repay the full amount before the 25-year mark without incurring any prepayment penalties.
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5. Land Transfer Tax Refund for First-Time Homebuyers
The Ontario government offers a helpful incentive called the Land Transfer Tax rebate for first-time homebuyers. This program allows eligible buyers to receive a refund on a portion or all of their provincial land transfer tax, with a maximum refund of $4,000. This rebate helps reduce the closing costs associated with purchasing a property. If you're buying a home in Toronto, you'll need to pay the land transfer tax to both the Province of Ontario and the City of Toronto. Fortunately, Toronto also provides a land transfer tax refund of up to $4,475.
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These government programs are designed to create a fair and inclusive housing market. They provide financial assistance, rebates, and shared equity models to help ease the financial burden of buying a home, especially for first-time buyers. If you're feeling discouraged by the current market conditions, financial limitations, and high interest rates, there are more options available to you than you might realize. Contact us today to learn how you can navigate the complexities of the housing market and make well-informed decisions.