It may only seem that the desire for becoming homeowners has vanished – it hasn’t. Despite many financial obstacles that may be holding home buyers in 2016 2 million single family homes were purchased by Canadians across the country and in the first quarter of 2017 alone, 424,000 homes were bought.
When you are looking buy a house, my biggest advice is not to time the market or try to win it, it can be too unpredictable. Of course, understanding market trends will help you in understanding the overall movements of interest rates but sometimes waiting for too long may cost you a pretty penny.
This topic of buying a first home is more relevant to people in their mid-twenties to mid-thirties, who have gained the financial stability and the aptitude to build equity. In this post, we will explore this subject, and see which programs and grant are available to first-time home buyers in Ontario. The Canadian government encourages its citizens to purchase property, family homes in particular, by implementing a number of programs available to first-time home buyers only.
These programs are:
– Registered Retirement Savings Plan (RRSP) Home Buyers’ Plan
– Land Transfer Tax Rebate
– First-time home buyer’s tax credit
– GST/HST New housing rebate
Now, let’s talk about each of those in more detail.
RRSP HOME BUYERS’ PLAN
The plan allows you to withdraw up to $25,000 from your RRSP to go towards the down payment for the property you chose to buy. The withdrawal will not affect your taxable income unless you fall back on your minimum annual payments. In case you are purchasing the property with a partner (spouse/common-law partner) or friend, you both can obtain the loan from your RRSP account, which could raise the total loan amount to up to $50,000.
You have 15 years to repay the loan, with the contributions starting 2 years from the withdrawal. You are to put annual instalments that you pay on your tax return for the CRA to monitor it. Instalments are not fixed, meaning there is no maximum (only minimum) amount that you must pay annually (you will not be charged an early-payment-fee). Therefore, if you’d like to make a large contribution to the repayment, you can, and the remainder would be divided by the remainder of years and would constitute the new minimum payment.
Here is the example of how this would work:
Let’s say that you’ve taken out the maximum $25,000 out of your RRSP, this would make your annual installments $1,667. Imagine you made the minimum required payment in year 1, then year 2 comes and you saved enough money to make a large contribution of $10,000. This lowers your new annual payment to $1,026 for the remaining 13 years.
LAND TRANSFER TAX REBATE
The tax rebate is available to offset the cost of the land transfer tax for first-time home buyers. It is available in the provinces of Ontario, British Columbia, Prince Edward Island and in the city of Toronto. The amounts differ from province to province.
In Ontario, the rebate is equal to the full amount of the land transfer tax (property up to $368,333), up to a maximum of $4,000. If the subject property is more than $368,333 in value, you would qualify for the maximum rebate, but you will be responsible for paying the remainder of the land transfer tax. Buyers have to apply within 18 months of the date of the transfer to qualify for this rebate.
To qualify for the tax rebate in Ontario, you must:
-Be a Canadian citizen or permanent resident of Canada,
-Be at least 18 years of age,
-Live in the home within 9 months of purchasing it,
-Not owned a home before, and
-Your spouse must not have owned a home during the time they have been your spouse.
If you are purchasing a house with your spouse and only one of you qualifies for the rebate, you could still get 50% of the rebate.
In the city of Toronto, the rebate is equal to the full amount of the municipal land transfer tax (up to $4,475 – maximum home purchase price of $400,000). One brilliant thing is that you can qualify for the Ontario rebate in addition to that in Toronto. The criteria are the same as those to qualify for the Ontario rebate.
FIRST-TIME HOME BUYER’S TAX CREDIT
This benefit, which is available to the first-time home buyers only, allows them to recover some of the costs associated with their purchase (legal fees, land transfer tax, home inspections, etc.). The refundable amount is around $750.
-The property must be a new or existing home in Canada
-All types of homes are acceptable
-You must have the intention to reside in the property within one year of purchase
GST/HST NEW HOUSING REBATE
Available to Canadians, who invested a large sum of money in renovating a property (an existing home or a home that was destroyed in a fire).
FINANCING WITH A MORTGAGE AGENT/BROKER
Using services of a mortgage agent may save you thousands of $$$ per year on your home purchase. Reason being that I work with various lenders (over 40), both institutional and private, which allows me to shop for better rates suitable to my clients’ needs. The best thing about using my services is that they come completely free of charge to my clients, as my commission is covered by the lender.