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First-time home buyer programs

Region: Ontario Answer # 402

The Government of Canada has three programs to assist first-time home buyers:

  • the Home Buyers’ Amount tax credit (HBA)
  • the Home Buyers’ Plan (HBP), and
  • the First-Time Home Buyer Incentive.

In addition to these federal programs, most provincial governments offer land transfer tax refunds to first-time home buyers. As well, mortgage loan insurance is available from Canada Mortgage and Housing Corporation (CMHC)

Who is considered a First-Time Home Buyer?

You are considered a first-time home buyer if:

  • you have never purchased a home before,
  • in the four-year period (before the year you withdraw the funds) you did not occupy a home that you or your current spouse or common-law partner owned. However, you may still be considered a first-time home buyer even if you or your spouse or common-law partner has previously owned a home, if the four-year period has passed since you owned the home. For example, if you sold your home in 2017, you may be considered a first-time home buyer in 2022.

In addition, if you have a spouse or common-law partner, it is possible that only one of you is a first-time home buyer.

Exceptions

  • If you are a person with a disability or you are helping a related person with a disability to buy or build a home, qualifying as a first-time home buyer may not be required.
  • If you have recently experienced the breakdown of a marriage or common-law partnership, you, generally will not be prevented from participating in the program even if you do not meet the first-time home buyer requirements, provided that you live separate and apart from your spouse or common-law partner for a period of at least 90 days as a result of a breakdown in your marriage or common-law partnership.

Four-Year Period

The Four-Year Period begins on January 1st of the fourth year before the year you withdraw the funds, and ends 31 days before the date you withdraw the funds.

For example: If you withdraw funds on March 31, 2022, the four-year period begins on January 1, 2018 and ends on February 28, 2022.

1.  Home Buyers’ Amount tax credit (HBA)

The Home Buyers’ Amount (HBA) tax credit (formerly known as the First-time Home Buyers’ Tax Credit) exists to assist first-time home buyers with the costs associated with the purchase of a home, such as legal fees, disbursements and land transfer tax. The HBA is a $5,000 non-refundable income tax credit amount on a qualifying home acquired after January 27, 2009. For an eligible individual, the maximum credit amount is $750. You are considered eligible if:

1) you or your spouse or common-law partner acquired a qualifying home; and

2) you did not live in another home owned by you or your spouse or common-law partner in the year of acquisition or in any of the four preceding years.

 

2.  Home Buyers’ Plan (HBP)

The Home Buyers’ Plan allows first-time home buyers to withdraw up to $35,000 from their RRSP on a tax deferred basis to use toward the purchase of a home in Canada. To qualify as a first-time home buyer, purchasers must not have lived in a home owned by themselves or their spouses or common-law partners in the preceding four-year period outlined by CRA. The four-year requirement is waived where the purchase is for a more accessible or suitable home that will be occupied by an individual eligible for the disability credit.

If both you and your spouse or common-law partner qualify under the HBP, you can each withdraw up to $35,000 from your RRSPs for a total of $70,000. Before you are entitled to withdraw the money, you must have entered into a written agreement to purchase or build a home that you intend to occupy as your principal residence. The purchase of a cottage or a commercial property, for example, would not qualify for this program because they are not a principal residence.

Money can be withdrawn from your RRSP provided it has been in your RRSP for at least 90 days. If you have signed an Agreement of Purchase and Sale and you have at least 90 days until your closing, you can open an RRSP and make a contribution, receive the tax deferred benefit and then withdraw the same money and put it toward the purchase of your home.

Money withdrawn under this federal program must be paid back to your RRSP within 15 years. Repayment to your RRSP can be made in a lump-sum payment or annual payments over the 15 years. If you do not pay the full amount back to your RRSP within 15 years, the amount outstanding will be subject to tax when you file your income tax return in the following year.

3.  First-Time Home Buyer Incentive

This program is a shared equity instrument. The Government of Canada will provide 5% or 10% of the down payment of your home and then you repay the Government either 5% or 10% of the property’s market value at the time of repayment, up to a maximum repayment amount equal to:

  • In the case of appreciation, the Incentive amount plus a maximum gain to the Government of 8% per annum (not compounded) on the Incentive amount from the date of advance to the time of repayment; or
  • in the case of a depreciation, the Incentive amount minus a maximum loss to the Government of 8% per annum (not compounded) on the Incentive amount from the date of advance to the time of repayment.

Type of Property

  • Purchasers of existing homes are eligible for the incentive amount of 5%.
  • Purchasers of new construction homes are eligible for the incentive amount of 5% or 10%.
  • Purchasers of new and existing mobile/manufactured homes are eligible for the incentive amount of 5%.

To be eligible for the First-Time Home Buyer Incentive, home buyers must:

  • be a first-time home buyer,
  • be a Canadian citizen, permanent resident, or non-permanent resident authorized to work in Canada,
  • earn $120,000 or less (buyers in Toronto, Vancouver, and Victoria may qualify with increased annual income of $150,000),
  • have the minimum qualifying down payment, and
  • the total amount you are borrowing is not more than 4 times your qualifying income (buyers in Toronto, Vancouver, and Victoria can borrow up to 4.5 times the qualifying income).

Repayment of the Incentive

Home buyers must replay the incentive at the end of the 25-year term or when the property is sold, whichever is earlier.

For more information, visit the Government of Canada, First-Time Home Buyer Incentive.

 

Mortgage loan insurance

In Canada, home buyers must purchase mortgage loan insurance, also known as mortgage default insurance, when the down payment on their new home is between 5% (the minimum amount it can be) and 20% of the purchase price.

Available from the Canada Mortgage and Housing Corporation (CMHC), mortgage loan insurance helps protect the lender against mortgage default, and enables consumers to purchase homes with a minimum down payment of:

  • 5% for homes costing less than $500,000
  • 10% on the portion of any mortgage it insures $500,000 and over

For example, to buy a home for $750,000, the home buyer would need a minimum down payment of $50,000, which is the total of 5% of $500,000 ($25,000), plus 10% of the remaining $250,000 ($25,000).

Homes purchased for more than $1 million do not qualify for mortgage loan insurance, as a 20% down payment is required to buy these homes.

To obtain mortgage loan insurance, lenders pay an insurance premium, the cost of which is normally passed on to the home buyer. The premium payable is based on a percentage of the home’s purchase price that is financed by a mortgage. The premium can be paid in a single lump-sum or it can be added to the mortgage and included in the monthly payments.

For more information about mortgage loan insurance, refer to topic#409 Mortgage loan insurance.

 

Land transfer tax refunds

First-time home buyers may also be eligible for a land transfer tax refund of up-to $4,000, depending on when the home was purchased, and if it is a resale or newly constructed home. To determine if you qualify for a rebate, you should consult a lawyer. More information can also be found on provincial rebates in topic #396 Land Transfer Tax, or from the Ontario Ministry of Finance.

 

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