Six government programs to help you buy your first home
By Camilla Cornell
When it comes to buying your first home, you may have an ally in the government. A range of programs — some old, some new — aim to put home ownership within reach for average Canadians. Here are six options that might help you get into the market:
1. First Time Home Buyer’s Incentive (FTHBI).
Launched this year and administered by the Canada Mortgage and Housing Corporation (CMHC), this program offers eligible first-time homebuyers five per cent (on a resale home) to 10 per cent (on a new home) of the purchase price to put toward their down payment in the form of a shared home equity mortgage.
The catch: the government will be your partner in any gains or losses on the home’s equity. Why? Because when you repay the incentive, it is calculated as a percentage of the home’s fair market value at the time of sale or at the 25-year mark. The upshot is that the government benefits from any increase in your home’s value (even if it’s a result of renovations you paid for) and loses out if the value drops.
For buyers in Canada’s biggest cities, this may be a moot point. The program is aimed at a specific subset of buyers with a household income under $120,000 per year. Since you can’t borrow more than four times this amount, the most expensive house you could buy would be worth $480,000. “Unless you’re buying a studio apartment, there are no $500,000 properties in cities like Toronto and Vancouver,” says Victor Godhino, managing partner with Kismet Wealth Group in Toronto.
2. Home Buyers’ Plan (HBP).
The Canadian government’s Home Buyers’ Plan (HBP) allows first time homebuyers to borrow up to $25,000 from their RRSP for a down payment without paying taxes or penalties. If you’re purchasing with another first time homebuyer, both of you can access $25,000 for a combined total of $50,000. “It’s a valuable tool,” says Godhino. “But one thing people sometimes don’t realize is that you’re basically taking a loan from yourself. You have to pay back that money into your RSPs over a 15-year period.”
3. Tax-free Savings Account (TFSA).
Godhino regards this program as one of the more effective tools for saving for a down payment. Your investments grow tax-free within the TFSA. But even better, you can withdraw that money at any point without penalties or fees. “One of the unique things about a TFSA is you don’t lose that contribution room,” says Godhino. You can repay it any time, or not at all, “there’s no mandatory requirement.”
4. Home Buyers’ Tax Credit (HBTC).
Introduced in 2009, the Home Buyers’ Tax Credit (HBTC) aims to return a small portion of that arduously saved down payment to the pockets of first time homebuyers. This tax credit offers a $5,000 non-refundable amount when you file your tax return the following year, which translates to approximately $750 to help cover unexpected expenses. Every little bit helps.
5. Land Transfer Tax Rebate.
Some provinces (Prince Edward Island, Ontario, British Columbia) and cities (Toronto) offer a rebate to help first-time buyers recoup some of the cost of land transfer taxes paid.
6. GST/HST New Housing Rebate.
If you’re buying a newly built home, you’ll pay GST/HST on top of the purchase price. Providing you meet the eligibility criteria and you’re buying a home worth $450,000 or less, this rebate puts some of that cash back in your pocket. “Most builders handle that for you now,” says Godhino. “They discount the home price by the amount of the credit, so when you close, you sign the credit over to the builder and they do the paperwork.”