Canada’s Finance Minister, Chrystia Freeland, recently announced that the government will propose changes to first-time home buyer mortgages in the upcoming federal budget. If passed, first-time home buyers will be allowed to pay off their mortgages over a 30-year term, instead of the standard 25-year term, for newly built homes starting on August 1, 2024. This measure is intended to help first-time home buyers with more affordable mortgage payments. It is one of many options to help first-time home buyers save for a down payment or reduce the burden of managing a mortgage.
Below, we’ll discuss just a few of the incentives available for first-time home buyers and what prospective homeowners should know about them.
Who Qualifies as a First-Time Home Buyer?
First, it’s important to clarify that the definition of “first-time home buyer” may vary depending on the particular program through which you are seeking benefits. Generally speaking, a first-time home buyer has not previously purchased property that could be considered their principal residence anywhere in the world.
However, some exceptions apply. You may be considered a first-time home buyer even if you previously owned property. For example, you previously owned property with a spouse from whom you are separated or divorced.
First-Time Home Buyer Mortgages and Down Payments
Long before putting in an offer on a property, first-time home buyers need to investigate their mortgage options and ensure that they will have the required down payment for any potential property.
In Canada, you’ll typically need to provide anywhere from between 5% and 20% of the purchase price as a down payment, depending on the price of the property, as follows:
- $500,000 or less: 5% of the purchase price
- $500,000 to $999,999: 5% of the first $500,000 of the purchase price and 10% for the portion of the purchase price above $500,000
- $1,000,000 or more: 20% of the purchase price
If your down payment is less than 20% of the purchase price, you’ll also likely need mortgage loan insurance, which can range from 0.5% to 4.5% of the mortgage amount.
First-Time Home Buyer Mortgage and Down Payment Incentives
While the idea of saving for a down payment can feel daunting, there are programs in Canada that help first-time home buyers save for a down payment or reduce the burden of purchasing a home, as outlined below.
The Home Buyers’ Plan
The federal Home Buyers’ Plan permits first-time home buyers to withdraw up to $35,000 from their Registered Retirement Savings Plan (RRSP) to use towards a down payment. However, any amount withdrawn under this plan must be repaid to the RRSP within 14 years.
First Home Savings Account
The federal First Home Savings Account (FHSA) allows first-time home buyers to save up to $8,000 tax-free towards purchasing a property, with a lifetime FHSA limit of $40,000.
First-Time Home Buyer Incentive (No Longer Available)
Many first time home buyers have likely heard of the First-Time Home Buyer Incentive, a program whereby the federal government offered mortgages covering either 5 or 10% of the purchase price to put towards the down payment. Note that, as of March 31, 2024, this program is no longer available to Canadians.
First-Time Home Buyer Tax Credits and Benefits
After purchasing your first home, there are further tax credits and benefits that first-time home buyers can take advantage of to reduce the financial burden of home ownership further, as follows:
Home Buyers’ Amount
First-time home buyers may be eligible to claim up to $10,000 of the purchase price of their home on their tax return pursuant to the Home Buyers’ Amount. To qualify,
If you have purchased a property to live in as your principal place of residence, you can claim up to $10,000 of the purchase of the home on your tax return under the Home Buyers’ Amount. To qualify, you (or your spouse or common-law partner) must be a first-time home buyer unless you are eligible for the disability tax credit or purchased the property for the benefit of a related person eligible for the disability tax credit.
GST/HST New Housing Rebate
First-time homebuyers who purchase a new or substantially renovated property from a builder for use as their primary residence may be eligible for the new housing rebate. This rebate allows you to recover some of the GST or HST paid on the property.
Land Transfer Tax Refund for First-Time Homebuyers
First-time home buyers who purchase an eligible property are eligible for a partial or full land transfer tax refund, up to a maximum of $4,000, under the Land Transfer Tax Refund for First-Time Homebuyers program in Ontario. To qualify, the person claiming the tax refund must be a first-time home buyer and must occupy the home as their principal residence within nine months of the date of transfer.
Other Tax Credits
Depending on your intended use for the property, you may be eligible for additional tax credits as follows:
- Multigenerational Home Renovation Tax Credit: Homeowners who incur renovation costs to create a secondary unit on their property for an older or disabled relative may be eligible to claim up to $50,000 in qualifying expenses on their tax return.
- Home Accessibility Tax Credit: Homeowners who incur renovation costs to improve mobility or accessibility within the home for a qualifying resident may be eligible to claim qualifying expenses on their tax return.
Final Thoughts on First-Time Home Buyer Mortgage and Tax Incentives
Purchasing your first property is an exciting experience, and familiarizing yourself with the various first-time home buyer mortgage and tax incentives can go a long way towards making the process a little less financially stressful. If you’re having trouble navigating the various options available for first-time home buyers, don’t hesitate to speak with an experienced residential real estate lawyer for guidance on program eligibility and incentives.
Ottawa Residential Real Estate Lawyers Representing Clients Across Ontario
Tierney Stauffer LLP’s residential real estate lawyers have more than 70 years of experience helping clients purchase, sell, or mortgage property in Ontario. We strive to provide timely, efficient, and cost-effective services to every client, whether helping with the purchase of a first home, the sale of a condo, or refinancing a property.
To learn more about how Tierney Stauffer LLP’s real estate lawyers can help, call us at 1-888-799-8057 or contact us online to set up a consultation.