There are many first-time home buyer programs available in Canada. Discover the programs that could help you buy your house
Climbing onto the property ladder can be especially daunting for first-time home buyers in Canada. Skyrocketing home values in Vancouver and Toronto aside, there are even mid-range Canadian markets that are out of bounds for most.
The good news, however, is that you may have options to break into the market.
The Government of Canada is offering numerous first-time home buyer programs to Canadians, as tax credits, incentives, rebates of grants. For example, the first-time home buyer incentive is a shared-equity mortgage with the federal government that pays for a portion of your down payment, therefore lowering your monthly payments and freeing up money for other things. There is another grant that will provide you money to make energy-efficient changes to your home to help fight climate change.
For the mortgage professionals who frequently visit our site, if you have a client who is a first-time home buyer, this article could be just what they need to feel confident in buying the home with you. Pass this along to them!
What program is best for first-time home buyers?
When it comes to first-time home buyer programs in Canada, you have options. The best program for you will depend on your financial needs, both in the short- and long-term. Plus, what you may qualify for.
Here is a quick look at the best first-time home buyer grants in Canada:
- First-time home buyers’ tax credit
- First-time home buyer incentive
- Land transfer tax rebate
- Home buyers’ plan
- GST/HST new housing rebate
- Canada greener homes grant
Let’s take a closer look at each to see what each program offers, and which may work best for you.
1. First-time home buyers’ tax credit
The first-time home buyers’ tax credit is also referred to as the home buyers’ amount. If you qualify for this program, you will be able to claim a $10,000 non-refundable income tax credit against your new home. That means that eligible Canadians can get a tax rebate of up to $1,500.
While it may not be a jaw-dropping amount, every cent matters when purchasing a new property. The Canadian government has also proposed raising the amount used to calculate the tax credit to $10,000 after 2022, which would raise the amount a borrower can claim.
2. First-time home buyer incentive
The first-time home buyer incentive could allow you to reduce your monthly mortgage payments. While this incentive has its critics, this shared-equity mortgage with the Government of Canada would mean that potential home buyers do not have to save as much money for a down payment to be able to afford the mortgage in the first place.
While the amount offered by the Canadian government depends on the type of property you want to buy, it will either be 5% or 10% of the buying price. It should be remembered that this incentive program is a loan and not a grant; the money must be repaid to the Canadian government either when you sell the property or within 25 years, whichever happens first.
3. Land transfer tax rebate
You may be eligible for the land transfer tax rebate if you are a first-time home buyer in a specific municipality or province. Depending on where your property is located, you may be eligible to qualify for a rebate of your land transfer tax up to a maximum amount.
Areas of eligibility for the rebate include Ontario, British Columbia, Prince Edward Island, and Toronto, where you might be eligible for both the Toronto and the Ontario tax rebate. As part of its Home Ownership Program, Montreal also offers a tax refund to homeowners who have children.
4. Home buyers’ plan
The home buyer’s plan lets Canadians withdraw funds from their registered retirement savings plan (or RRSP) to aid either the buying or building of a property for themselves or a related person with a disability.
In order to qualify for the home buyers’ plan, you will have to meet several conditions. If you do qualify, you can withdraw as much as $35,000 from your RRSP to purchase or build a new property. If you are purchasing a property with a partner, they may also be eligible for a withdraw of up to $35,000 (for a total of $70,000 per household).
You should know, however, that in order to keep your RRSP withdrawal tax-free, you will have to repay the money within 15 years.
5. GST/HST new housing rebate
With the GST/HST new housing rebate, you may qualify to get some of the GST or the federal part of the HST paid on a significantly renovated or new property. While you must meet certain eligibility requirements for this rebate, if you do qualify, it could save you quite a bit of money. In addition to saving on the federal level, you may be able to reduce the provincial portion of your HST also.
6. Canada greener home grant
The federal government introduced the Canada greener home grant to encourage Canadians to live in more energy-efficient homes and help fight climate change. To help homeowners make their homes more energy efficient, there are grants of up to $5,000 available. You may also qualify for an additional $600 for EnerGuide evaluations and expert advice.
What program will help first-time home buyers in Canada?
The program that will help first-time home buyers in Canada is called the First-Time Home Buyer Incentive. The program is designed to help qualified first-time home buyers lower their mortgage payments each month and avoid additional financial burdens from elsewhere.
The program offers 5% or 10% of the purchase price of the property to put toward your down payment. The addition to your down payment lowers your mortgage carrying costs and makes homeownership more affordable—and, therefore, more realistic.
This first-time home buyer program is a shared-equity mortgage with the Government of Canada, and offers the following:
- 5% or 10% for a newly constructed home purchased by a first-time home buyer
- 5% for a resale, or existing, home purchased by a first-time home buyer
- 5% for a new or resale mobile or manufactured home purchased by a first-time home buyer
The shared equity with the Canadian government essentially means that the government will share the upside and downside of the value of the home. This applies up to a maximum loss or gain equal to 8% per year (not compounded) on the incentive amount from the approval date to the repayment.
If you qualify for the program, you might not have to save as much money for the down payment, providing a better chance to afford other payments associated with the mortgage. Basically, if you make a larger down payment, you will be able to take out a smaller mortgage and pay lower costs each month.
You would have to repay the program incentive based on the market value of the property at the time of repayment. The percentage you would have to repay is based on the original home value (5% or 10%, for instance). However, the maximum repayment amount would be equal to one of the following:
- Property value appreciation. This means the incentive plus a maximum gain of 8% per year (not compounded) on the incentive amount from the date of approval to the time of repayment.
- Property value depreciation. This means the incentive minus a maximum loss of 8% per year (not compounded) on the incentive amount from the date of approval to the time of repayment.
You must repay the incentive either after 25 years or when the home is sold, whichever happens first. You also have the option to repay the incentive completely any time before either of those scenarios, without a pre-payment penalty.
Is there a tax break for first-time home buyers in Canada?
Yes. There is a tax break for first-time home buyers in Canada, which is called the first-time home buyers’ tax credit, or HBTC. The amount for the HBTC was increased to $10,000 in 2022. This means there would be a tax credit available of up to $1,500 to eligible home buyers.
Can I use a first-time home buyer program twice in Canada?
Yes. You can use a home buyers’ plan (HBP) twice in Canada. You use your registered retirement savings plan, or RRSP, to purchase your property, without paying income tax. You can with draw as much as $35,000 per borrower—or up to $70,000 per couple. You then have 15 years to repay the amount that you and/or your partner withdrew, interest-free.
First-time home buyer programs: eligibility
You may be eligible for the program if you and your partner were not the owner-occupants of a principal residence during the year of the RRSP withdrawal and the four years prior. If you have repaid your previous home buyers’ plan in full by the deadline, you can use the HBP more than once. Here is everything you need to know about the home buyers’ plan from the Canada Revenue Agency.
As we have seen, there are many programs available to first-time home buyers. Climbing onto the property ladder can be a very tricky road to navigate, and we invite you to watch mortgage industry trends in Canada to continue learning.
Do you have experience with first-time home buyer programs in Canada? Let us know in the comment section below.