Feeling the strain of the challenging real estate market? You’re not alone. As an aspiring first-time homebuyer, the current market, financial constraints, and the recent Bank of Canada rate hikes may seem daunting and can end up putting your homeownership plans on hold. But the dream of owning your first home doesn’t need to be a far-fetched reality.
To help make homeownership accessible and ease entry into the real estate market, varying levels of government have developed several initiatives and programs for first-time home buyers.
First Home Savings Account
To support and encourage first-time homebuyers in their pursuit of buying a home, the Canadian government recently introduced the First Home Savings Account (FHSA) program. This initiative allows eligible Canadians to save up to $8,000 annually in their FHSA tax-free, up to a max of $40,000. Then, when the time is right, homebuyers can use these savings towards the down payment on their first home.
At Ourboro, we understand that more than the FHSA $40,000 limit will be needed for a complete 20% down payment, but it can definitely help you get started. Learn more in The First Home Savings Account (FHSA): Here’s what you need to know.
First-Time Home Buyer Incentive
The First-Time Home Buyer Incentive (FTHBI) aims to support qualified first-time homebuyers to further reduce their monthly mortgage payments through a shared-equity mortgage plan with the Government of Canada.
This program, run by the Canada Mortgage and Housing Corporation (CMHC), provides support by financing a portion of the home purchase. The incentive can finance 5% or 10% on a newly constructed home, 5% on resale homes, and 5% on new or resale mobile/manufactured homes. This means you can put down a larger down payment, effectively reducing your mortgage loan amount.
Since this incentive acts like a second mortgage on your home, the government must be paid back its share of the investment plus their loss or gain on the equity, which is capped at 8%. The loan provided by the government must be repaid after 25 years or when the home is sold, whichever comes first. You can also repay the amount in full at any time before the 25 years without a pre-payment penalty.
Since the government’s FTHBI and Ourboro’s co-ownership model both utilize shared equity, a homebuyer can only participate in one program at a time. To learn how Ourboro’s co-ownership model compares to the FTHBI, check out A Journey Home: Comparing Ourboro and Canada’s First-Time Home Buyer Incentive.
RRSP Home Buyers’ Plan
The Federal Government’s Home Buyers’ Plan (HBP) encourages homeownership and helps first-time homebuyers enter the real estate market by leveraging their Registered Retirement Savings Plan (RRSP) . With the help of this program, first-time home buyers can withdraw up to $35,000 from their RRSP to buy their first home without incurring any tax penalty.
The HBP is a great incentive to use your existing savings towards an initial down payment, instead of putting off homeownership until you save additional funds outside your RRSP. However, there is a timeframe of 15 years within which these funds need to be paid back into the original RRSP account.
To be eligible to participate in the HBP, you must be purchasing a home that will be your primary residence, a Canadian resident, and a first-time homebuyer. You are considered a first-time homebuyer if, in the four years before buying the home, you or your spouse/common-law partner did not live in a home that one of you owned. You can also access the program if you are helping a relative with a disability buy or build a qualifying home.
The HBP is a great, tax-free, way to unlock your RRSP savings. Ourboro co-buyers are welcomed – and encouraged – to make the most of the HBP.
Land Transfer Tax Refund for First-Time Homebuyers
One of the key incentives provided by the Ontario government is the Land Transfer Tax rebate for first-time homebuyers. This program offers eligible homebuyers a partial or full refund of their provincial land transfer tax, up to a maximum of $4,000, effectively reducing the closing costs of buying a property.
If you plan to buy a home in Toronto, you will be required to pay land transfer twice, once to the Province of Ontario and once to the City of Toronto. However, Toronto also offers a land transfer tax refund, up to a maximum of $4,475.
Please note that when you co-buy a home with Ourboro, we’ll pay our share of the provincial and municipal land transfer taxes, making your closing costs even more affordable.
To learn more about land transfer taxes and other closing costs, read A Homebuyer’s Guide to Closing Costs.
First-Time Home Buyers’ Tax Credit
Another way qualifying homebuyers can save money when purchasing their first property is through the First-Time Home Buyers’ Tax Credit (HBTC).
First-time homebuyers are eligible to claim this incentive if they or their spouse/common-law partner purchased a qualifying home and did not own another home, inside or outside of Canada, in the previous four years. Qualifying homes include both new and existing single-family and semi-detached houses, townhouses, mobile homes, condos and apartments and must be occupied by the owner within one year of purchase.
The HTBC provides home buyers with a rebate of up to $1,500 on their tax return, calculated by multiplying $10,000 by Canada’s lowest personal income tax rate, i.e., 15%. This non-refundable tax credit can then be used to assist with expenses such as maintenance, renovations, or anything else you’d like to put it towards.
From 2022 on, the government increased the amount used to calculate the HBTC from $5,000 to $10,000, increasing the maximum amount a homebuyer can receive from $750 to $1,500.
Like most of the programs listed here, all Ourboro co-owners can take full advantage of the First-Time Home Buyers’ Tax Credit.
The key to unlocking your first home
Aiming to level the playing field, these government programs signify a commitment to cultivating a more fair and inclusive housing market. Through their provisions for financial aid, rebates, and shared equity models, these initiatives ease the financial strain linked with purchasing a home, particularly for individuals and families entering the real estate market for the first time.
If the current market, financial constraints, and high interest rates are holding you back, you may have more options than you think. Get started today to learn more about how you can navigate the intricacies of the housing market and make informed decisions with Ourboro.