First Time Home Buyer Incentives

Are you thinking about making the move from renting to homeownership? Did you know there are incentives to help make the move a little easier for first-timers? Programs and rebates can make your purchase more attainable, sooner so let’s check out some of the available options!

CMHC’s First-Time Home Buyer Incentive

The Canada Mortgage and Housing Corporation (CMHC) offers the First-Time Home Buyer Incentive which helps first-time buyer increase their downpayment to help make home ownerships more accessible.

The incentive is an interest-free loan amounting to 5% of the property’s value for a resale home and 5% or 10% for a new build. The loan must be repaid when the property is sold or within 25 years of purchase with the amount to be based on the value of the property at that time.

National Bank provided this example of how it works: A couple wants to buy a new condo for $400,000. They saved $20,000 for a 5% down payment and receive a $40,000 incentive (10% of the condo’s value). Their mortgage therefore equals $340,000, to be paid in monthly instalments of $1,745. Without this incentive, they would have paid $1,973, or an extra $228 per month. When they decide to repay the incentive, the couple will have to pay 10% of the condo’s market value.

The Home Buyers’ Plan

You can use the Home Buyers’ Plan (HBP), if you are eligible, to make a tax-free withdrawal from your registered retirement savings account (RRSP) to buy or build a home. The HBP allows each borrower to withdraw up to $35,000 ($70,000 for a couple). You have 15 years to repay what you’ve borrowed starting two years after you make the withdrawal.

To be eligible, you must have a qualifying annual income of $120,000 or less, be a first-time byer or someone who have not occupied a home that they or their spouse owned during the previous four years. In January 2020 the program was opened to eligible people who are divorced or separated, even if they previously owned a home. You are also eligible for the HBP if you buy or build for someone related to you with a disability, providing that person will be occupying the home as their principal residence.

The First Home Savings Account

A relatively new account type, the First Home Savings Account (FHSA) allows you to make tax-deductible contributions of up to $8,000 per year to a lifetime maximum of $40,000. Starting from when you open the account, you can carry forward your unused FHSA yearly contribution room, to the $8,000 max, to use in the following year.

To be eligible you must be a resident of Canada, between 18-71 years old and a first-time home buyer.

Tax Credits

The First-Time Home Buyers’ Tax Credit can reduce the cost of buying your home providing you meet the criteria. The current maximum credit you can claim to reduce your taxes in the year that you buy a home is now $1,500, which can be split if there are multiple purchasers.

To qualify you must acquire a qualifying home that you, or a related person with a disability, intend to occupy as a principal residence AND you did not live in another home used by you or your spouse during the year of acquisition or four years preceding the purchase. A qualifying home is: single family homes, semi-detached homes, townhouses, prefab homes, mobile homes and condominium units. Check with your accountant for currently available tax credits as they do change.

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