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An Introduction to Programs for First-Time Homebuyers

An Introduction to Programs for First-Time Homebuyers

As a first-time homebuyer, you’ll want to become acquainted with the various programs that can benefit your situation. Buying your first home is one of the largest purchases you’ll make, so it’s prudent to gain an understanding of the programs available and how they can save you money.

First-Time Home Buyer Incentive

The First-Time Home Buyer Incentive offers homebuyers an opportunity to have the Government of Canada finance a portion of their mortgage. The structure is set up as a shared equity mortgage, whereby the government offers a 5 or 10% down payment, in exchange for an equity stake in your home.

To qualify, you must put down the minimum down payment of 5% and have a household income of no more than $120,000. The amount borrowed can not exceed four times their income.

RRSP Home Buyers' Plan

This plan allows you to withdraw up to $35,000 to fund your down payment. To be eligible, you must not have purchased a home within the last four years, and the money must be in your RRSP for a minimum of 90 days before the withdrawal.

Though early withdrawals from your RRSP must be reported as taxable income, they will be exempt if they are used to purchase a home. However, the borrowed funds must be repaid back into your RRSP two years after the home purchase over a 15-year period. Minimum payments are required every year.

Home Buyers' Amount

The Home Buyers’ Amount is a tax credit that reduces the cost of a home purchase by allowing you to claim a $5,000 non-refundable amount when filing your taxes. The credit translates to $750 in tax savings and can help offset some of the additional costs associated with the purchase of a home, such as legal fees and land transfer taxes.

GST/HST New Housing Rebate

This rebate makes homeownership more affordable by providing money-back on GST/HST paid on new homes, substantial renovations or additions to existing homes, or rebuilds from homes that have incurred significant damage due to fire.

CMHC mortgage loan insurance

CMHC mortgage loan insurance allows homebuyers to purchase a home with as little as 5% down payment.

CMHC insurance offers protection to your lender should you fail to make your mortgage payments. It acts as an incentive for financial institutions to approve mortgages for individuals who don’t have a large down payment.

CMHC insurance is mandatory for anyone purchasing a home where they are putting down less than 20% down. The larger the down payment you’re willing to put down, the lower the insurance fee you’ll have to pay. The insurance is calculated as a percentage of the value of your mortgage:

  • Up to and including 95% = 4.00% fee
  • Up to and including 90% = 3.10% fee
  • Up to and including 85% = 2.80% fee
  • Up to and including 80% = 2.40% fee

The premium can be paid as a lump sum or it can be added to your mortgage to be paid off in your monthly payments.

It’s important to note that CMHC insurance isn’t available for homes whose purchase price exceeds $1 million.

As you can see, there are many programs available to help make your home purchase more affordable. While the Home Buyers’ Amount is a no-brainer, others will require some in-depth research to determine if they’re the best option for you from a financial planning perspective. As always, do your due diligence to select the programs most suitable for your situation.

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