Area of Law: Real Estate Law
Answer # 402
First-time home buyer programs
Region: Ontario Answer # 402The Government of Canada has three programs to assist first-time home buyers:
- First-Time Home Buyers’ Tax Credit (HBTC)
- Home Buyers’ Plan (HBP)
- Tax-Free First Home Savings Account (FHSA)
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).
Real estate matters involve large sums of money and complicated legal issues. To get help, ask a lawyer now.
Who is considered a First-Time Home Buyer?
You are considered a first-time home buyer if:
- In the four year period (the four years prior to a home purchase), you did not occupy a home that you owned, or one that your current spouse or common-law partner owned.
- In the case of the Home Buyers’ Plan, the four year period begins on January 1 of the fourth year before the year you withdraw funds from your RRSP, and ends 31 days before the date you withdraw the funds.
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.
Visit canada.ca for the full definition of a first-time home buyer and the four year period.
1. First-Time Home Buyers’ Tax Credit (HBTC)
The First-Time Home Buyers’ Tax Credit (HBTC) – known as the Home buyers’ amount on your income tax return- 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 HBTC is a $10,000 non-refundable income tax credit amount on a qualifying home purchased in 2023.
Visit canada. ca for more information, including eligibility requirements and what is considered a qualifying home.
2. Home Buyers’ Plan (HBP)
The Home Buyers’ Plan allows first-time home buyers to withdraw up to $60,000 from their RRSP on a tax deferred basis to use toward the purchase of a home in Canada.
Details of the plan include:
- If both you and your spouse or common-law partner qualify under the HBP, you can each withdraw up to $60,000 from your RRSPs for a total of $120,000.
- 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.
- Money can be withdrawn from your RRSP provided it has been in your RRSP for at least 90 days.
- 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. Tax-Free First Home Savings Account (FHSA)
The Tax-Free First Home Savings Account (FHSA) allows prospective first-time home buyers to save up to $40,000 (over a lifetime, and a maximum annual contribution of $8,000 over five years) tax-free toward their first home. Contact your financial institution for details on the new account, or visit the Government of Canada website on the FHSA.
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 $500,000 or less
- 10% on the portion of any mortgage it insures over $500,000
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 $1.5 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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Get legal help
Real estate matters involve large sums of money and complicated legal issues. To get help, ask a lawyer now.
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