First Time Home Buyers Incentive

For many people, buying a first home is the most significant purchase they will ever make.

It’s a considerable investment and a big decision for first-time home buyers.

There are many things to consider when buying a home for the first time, but it doesn’t have to be overwhelming.

You can make the process exciting and enjoyable with careful planning and a little research.

Here are a few things to remember as you search for the perfect home.

Federal Government Programs Obtaining First-Time Home Buyer Mortgage

To make homeownership more affordable across Canada, the Government of Canada provides eligible buyers with incentives of 5% or 10% of the home’s purchase price as a minimum down payment.

This government program creates a shared equity mortgage proponent incentivizing new home buyers by contributing to reduced monthly mortgage payments.

You may hear the name First-Time Home Buyer Incentive, also referred to as Shared Equity Mortgage (SEM), meaning the same thing but with two different names.

In this plan, the government shares joint ownership of the house. Since it’s an intricate system, be cautious to research if it’s appropriate for you.

Benefits:

The incentive’s benefit creates a larger down payment, further reducing the monthly mortgage payments and helping first-time buyers need fewer upfront savings.

• Increased down payment
• Lower mortgage amount
• Lower interest costs
• Lower insurance premiums
• Overall decrease in monthly mortgage payments
• Helps make homeownership more affordable

Disadvantages:

• The disadvantage of receiving the incentive after you have purchased your home is that you will have to pay up to a maximum gain of 8% per year on the property appreciation amount, plus the original 5% or 10% actual incentive received
• Appraisal Fees may be charged to determine your home’s fair market value at the time you decide to repay your incentive
• Changing lenders for your mortgage may incur fees during refinancing
• Legal fees for closing two mortgages on the property
• Your Property Insurance Premiums may incur fees for having two mortgages

Available To Eligible First-Time Homebuyers To:

• Receive 5% or 10% offered towards a newly constructed home
• Receive 5% offered towards a manufactured or mobile home
• Receive 5% offered towards an existing home as a resale

You Are Considered A First-Time Homebuyer When:

• This is your first home purchase, and you have not previously owned a home prior
• You are buying a home after your existing marriage or common-law partnership ends and both parties separate
• In the previous four years, your partner and yourself have not lived in a home that you both owned

Incentive Eligibility Requirements

To be eligible for the shared equity mortgage, you must meet the following criteria:

• For most Canadian provinces, your annual income should be less than $120,000.
  • However, for precisely three cities, including Toronto, Vancouver, and Victoria, more leeway is given, and your yearly income can be as high as $150,000 or less to qualify
• You are a citizen of Canada, a permanent resident, or authorized and permitted to work in Canada
• Either you or your partner are considered a first-time homebuyer
• Borrowing costs to finance your house from the bank do not exceed four times your eligible income.
  • However, for precisely three cities, including Toronto, Vancouver, and Victoria, more leeway is given, and borrowing costs may be as high as 4.5 times your eligible income
• Minimum down payment requirements must be met through a combination of contributions from your savings, Registered Retirement Savings Plan (RRSP), or gift from friends or family that is not required to be repaid to the friend or family member at a later time in the future
• You can not use the incentive for an investment property
• The purchased property/home must be located in Canada
• You are expected to live within the property full-time as your principal residence

Note:

• When considering an annual income of up to $150,000 in Toronto for your incentive qualification
  • Additional areas in Toronto according to the Toronto Census Metropolitan Areas (CMA) Census Subdivisions also include the following cities:
  • Ajax, Aurora, Brampton, Caledon, Etobicoke, Georgina, Halton Hills, King, Milton, Mississauga, Mono, Newmarket, Oakville, Orangeville, Pickering, Richmond Hill, Scarborough, Toronto, Uxbridge, Vaughan, and York.

Repayment Requirements

You will need to repay the incentive within a 25-year maximum period since you have owned the home or if you decide to sell the home, whichever comes first.

Repayment of a home that has increased in value since the purchase date:

• You will be required to pay up to 8% per year gain (not compounded) for a home that has appreciated in addition to the original incentive received
• Appreciation is calculated retroactively from September 2, 2019, when the First-Time Home Buyer Incentive program was created

Repayment of a home that has decreased in value since the purchase date:

• You will be required to repay the original incentive received and subtract up to 8% per year loss (not compounded) towards the incentive amount
• Depreciation of a property’s market value since the buyer purchased the home under the First-Time Home Buyer Incentive program is calculated starting June 1, 2022

The Homebuyer’s Plan (HBP) Using Your RRSP Tax-Free Withdrawal

When buying a first home, there are many things to consider.

One of the most significant considerations is how you will finance your purchase.

If you are a first-time homebuyer in Canada, you may be eligible for the Home Buyers’ Plan (HBP).

The Homebuyers Plan (HBP) program allows you to withdraw up to $35,000 from your Registered Retirement Savings Plan (RRSP) tax-free to buy your first home.

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Tax Credits Applicable To Home Buying

Federal Programs

The Government of Canada offers The Home Buyers Amount and GST/HST Housing Rebates to homebuyers as incentives.

The Home Buyers Amount (2021 And Prior Years):

• You may be eligible to receive a $750 tax credit when you submit your tax return in the same year as purchasing your new home

The Home Buyers Tax Credit (HBTC) (Starting 2022 And Future Years):

• Starting in year 2022, The Federal Government wants to raise the threshold used to determine the tax credit which would provide qualified homebuyers an increased tax credit from $750 increased to $1,500

GST/HST Housing Rebates:

• You may be eligible to receive a rebate for a portion of the housing taxes you paid due to the sale of the new home you acquired

Provincial Programs

The Ontario Government provides an Ontario Land Transfer Tax Rebate incentive for first-time eligible homebuyers.

Ontario Land Transfer Tax Rebate (Maximum $4000):

When you purchase an interest in land or property in Ontario, you pay a land transfer tax.

Eligible homebuyers may qualify for a refund or portion of this tax.

First-Time homebuyers acquiring property valued at more than $368,000 may qualify for up to a maximum rebate of $4000.

Municipal Programs

Odane Harding

Odane Harding is a Toronto Real Estate Agent who specializes in helping new buyers and sellers of homes. With over 6 years of experience in the industry, Odane brings his knowledge and expertise to each client, ensuring they have a smooth transaction. His passion for helping people and his dedication to providing excellent service makes him stand out amongst other agents. Call Odane today to get a free consultation with your next new home purchase or sale.

If you're looking for important and timely real estate insights and information

to make the best, informed decisions for yourself and your family

provide your name, and email below.