Being a first-time home buyer is exciting! Looking through house listings, deciding on your ‘must have’ list and considering new neighbourhoods is a once-in-a-lifetime experience for first time home buyers. There are several elements that go into the process.
The good news is that there are many benefits of being a first-time home buyer in Canada.
The state of the real estate market
During the pandemic and throughout 2021, Canada experienced some of the highest levels of home sales ever. The average price across all home types (single-family, semi-detached, townhomes and condos) according to the Canadian Real Estate Association (CREA) in 2022 is now about $749,000.
The good news is, many Canadians were able to save quite a bit over the last several years. According to Housing Affordability in Canada: 2021 RE/MAX Report, 15% of Canadians were able to grow their savings during the pandemic and they plan to use those funds for a down payment in the near future – within the next six to 12 months or so.
Benefits for first-time buyers
The Canadian government supports first-time home buyers! There are three main incentive programs that you should know about before signing the papers and getting the keys to your new place.
- The Home Buyers’ Plan (HBP)
It’s important to save before buying your first home. There are many ways that you can do this. One of the most effective ways to save for your first house is with your Registered Retirement Savings Plan (RRSP). If you have been putting money away for years (good thinking putting a little away from each paycheque when you got your first job!) as of 2022, you can lend yourself up to $35,000 tax-free from your RRSP with the Home Buyers’ Plan (HBP). If you are buying with a partner, and you are both first-time buyers, you can get up to $70,000 to put towards your purchase. There’s a 15-year repayment period that starts two years after you withdraw the money, or if you have the funds available, you can start paying it off sooner.
This program was introduced in 1992 and has given hundred of thousands of Canadians the opportunity to increase their buying power when they first enter the real estate market.
- Land Transfer Rebates
Rebates are also available for first-time home buyers. You may be eligible to receive a partial or full land transfer tax refund. In British Columbia the land transfer tax is determined by a tax-bracket system based on the purchase price of the home and a refund is offered for properties worth $500,000 and below.
- The Government of Canada First-Time Home Buyer Incentive (FTHBI)
This First-Time Home Buyer Incentive program is designed to make home ownership more affordable. The program offers an incentive for qualified applicants, they can borrow between 5% to 10% of the purchase price of the home from the government. This money can be put towards their mortgage, making home ownership easier. This program has, as of February 2022, already helped nearly 14,000 first-time home buyers.
The FTHBI is a shared equity mortgage which means the government shares in the ups and downs of the property value. The money borrowed from the government is interest free, but you must pay back the percentage you originally borrowed. You have up to 25 years to payback the loan, or when the home is sold, which ever comes first. It’s good to note that the loan must be paid in full and partial payments are not accepted.
For example, if you received 5% or $24,000 incentive to put against a home that cost $480,000, if your home sells for $600,000 in five years, you will have to pay the government $30,000.
Applicants must earn less than $120,000 a year and the value of the mortgage is capped at four times the applicants’ salaries. Before applying for the FTHBI, applicants must qualify for a down payment through traditional means. In the three most expensive metropolitan areas in Canada – Vancouver, Victoria and Toronto - the eligibility limit was increased in May 2021. In the three cities applicants can make up to $150,000 and the value of the mortgage can be 4.5 times their salaries.
- Bonus! Home buyer’s amount
There are additional tax credits for home buyers. As a first-time homeowner you can claim up to $5,000 within one year of purchasing your home on line 31270 (which was line 369 before 2019) of your tax returns. Eligible home buyers could receive up to a $750 rebate!
For more information on any of the three programs, visit The Government of Canada website.
An extra bonus
Before you start looking for your first home, explore your options with our mortgage calculator or ask an advisor about our Home Sweet Bonus® Account. Your search for the right house goes hand-in-hand with finding the right mortgage to make sure you are making the most of your savings. The best place to start is to understand how much you can borrow and what your monthly payments will be. You can also apply for a mortgage online.
For those looking to break into the real estate market, now could be the best time. Enjoy a competitive rate guarantee and smart payment options built into all our mortgages.
Talk to an expert today about buying your first home!