Being a first-time home buyer, there are a number of government programs and initiatives available to help you in the home buying process. These come in the form of rebates, tax credits, loan programs and insurance policies. The programs can help lessen costs associated with buying or building your new home.
Here are some programs you should be aware of since you’ll likely qualify for them.
Putting down less than 20% of your mortgage value means you legally have to buy mortgage default insurance (or CMHC insurance). This government program doesn’t protect you; it protects your lender.
CMHC insurance protects your lender from financial liability in case you can’t make mortgage payments. This encourages banks to provide mortgages to clients with low-percentage deposits. CMHC insurance ultimately allows many people to become homeowners.
A loan-to-value ratio compares your mortgage amount to your down payment. Loan-to-value ratios inform a lender if you need CMHC insurance and what premium you’ll have to pay.
In Canada, the following rules apply to anyone making a down payment on any type of residential property:
- Homes valued less than $500,000, the down payment amount must be 5%
- Homes valued above $500,000, a 5% down payment has to be made on the first $500,000 and a 10% payment on the second $500,000 to $1 million
- For homes valued more than $1 million, a 20% minimum down payment is required
For homes requiring CMHC insurance, you pay a premium on your mortgage.
Current CMHC premium rates are:
- 3.85% for down payments between 5–9.99%
- 2.40% for down payments between 10–14.99%
- 1.80% for down payments between 15–24.99%
Two other privately-owned groups also provide mortgage default insurance for high-ratio loans: Genworth Financial and Canada Guaranty.
What if my home is worth more than $1 million dollars or I have more than 20% to offer? Do I still need CMHC insurance?
If you offer a down payment worth more than 20% of your mortgage, or if your home’s value exceeds $1 million dollars, then you don’t need to buy a mortgage default insurance premium.
RRSP Home Buyers’ Plan
If you haven’t owned a home or lived with a partner/spouse who owns one within the most recent 4 years, then you might be eligible for the Home Buyers’ Plan. By using this plan, you can withdraw up to $25,000 tax-free from your Registered Retirement Savings Plan (RRSP) to supplement your down payment.
This withdrawal is a loan – but you’ll have up to 15 years to repay it from the date of your home’s purchase. To access this plan, you should ensure that any money you want to use is in your RRSP at least 90 days before withdrawing it.
Land Transfer Tax Rebate
If you live in Ontario, British Columbia or Prince Edward Island, you can claim a rebate on a portion or all of your home’s land transfer tax. Toronto offers a municipal rebate that you can claim in addition to the provincial one.
You can only claim a land transfer tax rebate if you’re a first-time buyer and how much you will receive depends on your province of residence.
First-Time Buyers’ Tax Credit
The First-Time Buyers’ Tax Credit helps new buyers with many legal, appraisal, inspection and closing costs. This government program is a non-refundable credit reduces the amount in taxes you owe up to $5,000.
An individual, couple, or group of buyers sharing a home can claim this amount — but only to the maximum amount of $5,000.
GST/HST New Housing Rebate
This rebate refunds a portion of the sales tax you’ve paid on your property. You can claim your refund on a newly-built or existing home, so long as it’s a new purchase for you.
How much you get back depends on the purchasing price of your home. While the value of the property cannot exceed $450,000, many first-time buyers take advantage of this rebate. All Canadian citizens and permanent residents qualify regardless if they’ve owned a home previously.
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