Buying your first home is a huge step that can be exciting as well as stress inducing. Buying a home can also be very expensive, especially if you don't have pre-existing assets to help you get a mortgage, which is the case with most first-time homebuyers in Canada. Most people will rely heavily on their savings to pay for their down payment, and for the closing costs that come with buying a home.
In an attempt to make purchasing your first home easier, the Canadian government offers many incentives for first-time homebuyers. First-time homebuyers in Ontario, The City of Toronto, BC, and Prince Edward Island for example, can qualify for a land transfer tax rebate. That's just one example of the many different first-time homebuyer programs you might be eligible for.
This article includes all of the information you'll need to get started on your journey to buying your first home.
We’ll help you learn about first-time homebuyer tax credits and rebates, programs and grants available in Canada, including the newest federal program, called the First Home Savings Account.
First-Time Home Buyer Readiness
Being a homeowner is great for a multitude of reasons. Canadians who plan to purchase a home in the next two years were surveyed on why they want to be homeowners. The most common reasons were:
- Home ownership is a great investment (24%).
- Growing families require additional space (32%).
- Proximity to friends and family (20%).
- More affordable location (22%).
- Desire for amenities such as near a waterfront or better weather (18%).
- The need to move away from renting as it has no positive monetary outcome (19%).
These are all great reasons for wanting to buy a home. But wanting to buy and being ready to buy, aren’t necessarily the same thing.
It’s important to logically assess whether you’re prepared to buy and commit to maintaining a house of your own.
When deciding if owning a home is for you, consider your financial stability, your capacity to juggle new responsibilities that comes with owning a house, what you’re willing to sacrifice to own a home (eating out, vacations, etc.) and how solid you are at managing debt.
How Much You Can Afford?
While many of us would love a spacious home with lots of amenities, it’s important to be realistic and keep your home aspirations in check with your income. Twenty-four percent of Canadians who currently want to purchase a home said they don’t see many available properties within their budget, which is preventing them from buying a home now.
When making an offer on your first home, it’s not just the mortgage costs and down payment that you need to factor in. You’ll also have to consider the expenses of managing a home, such as basic maintenance, property taxes, utilities, and more. Experts say you should expect to spend anywhere from 2% to 5% of the value of your home on maintenance each and every year. Using a tool such as a mortgage affordability calculator can help to determine what you can and can not afford.
How Much for a Down Payment on a House?
When it comes to down payments, most of the time, bigger is better. But you don’t always need to put 10% or 20% down to buy a home in Canada. Canada’s lending rules have specific guidelines around minimum down payment amounts:
- The minimum down payment is 5% for homes under $500,000. You can calculate a 5% down payment, by multiplying the final sale price by 0.05.
- For houses between $500,000 and $999,999, you need 5% for the first $500,000 of the purchase price and 10% for the amount above $500,000. Calculate this minimum down payment by multiplying the first $499,999 by 0.05 and the remaining amount by 0.1. Then add the two results together.
- For homes costing $1 million or more, the minimum down payment is 20%. You can determine a 20% down payment by multiplying the final sale price by 0.2.
Not everyone gets away with having a minimum down payment. There are cases where a lender may need a bigger down payment in order to approve you for a mortgage.
People who have a poor credit history or are self-employed, for example, often need to put down more than the minimum down payment. If the monthly mortgage payments on a certain home are too large for a homebuyer’s budget, a bigger down payment may be required to lower the size of the mortgage — and the size of those payments — to a more manageable level.
Are There Available Houses in Your Preferred Area?
One of the most intense challenges for first-time homebuyers is stepping into the market when the housing supply has largely dried up.
Housing supply varies day by day. There’s no guarantee that the type of house you’d like to buy will be available when you want to buy, or that multiple other buyers won’t challenge you for it in an intense bidding war.
But on the other hand, you may start looking for a house at a time when a large number of sellers decide to list their properties, or when a large number of newly built houses are set to hit the market. We recommend reaching out to a real estate agent who specializes in the area, or multiple areas, where you’d like to purchase. They’ll be able to inform you on how competitive the local market is — and how much higher than the asking price you might have to pay.
First-Time Home Buyer Qualifications
To qualify for the various federal and provincial first-time homebuyer tax credits and programs in Canada, there are a number of criteria that need to be met. Each program has a different set of criteria. However, there are a number of criteria pertaining to age, citizenship status, recency of home purchase, and home occupancy that are generally similar among them. For federal programs such as the First Time Home Buyers’ Tax Credit and the RRSP Home Buyers’ Plan, the following apply:
- You must be at least 18 years of age
- You must be a Canadian citizen or permanent resident
- The property/home you bought must be in Canada
- You cannot have owned a home within the last four years
- If you're buying with a spouse (or common law partner) who is not a first-time homebuyer, you cannot have lived in a house that they owned within the last 4 years
- You must have documentation verifying that you have purchased a home
- You must intend to live in the home as your primary residence within one year of purchase
The First-Time Homebuyer Incentive program in particular has more restrictive criteria pertaining to your mortgage loan amount versus your household income.
Make sure to read the information on our site about the various federal and provincial first-time homebuyer programs and incentives to get more specific eligibility information.
First-Time Home Buyer Programs
Here you'll find a detailed summary of the most vital programs available to first-time homebuyers in Canada. Follow the links to assigned articles on the programs to learn more information.
RRSP Home Buyers' Plan
The First-Time Homebuyer RRSP (Home Buyers' Plan) isn't a rebate or credit. The RRSP Home Buyers' Plan (HBP) allows first-time homebuyers to use their tax-sheltered savings in a Registered Retirement Savings Plan (RRSP) for the down payment on their home. As a first-time homebuyer, the HBP allows you to withdraw up to $35,000 for your down payment, which must be repaid into your RRSP within 15 years. There are some additional conditions to be aware of, and there's a risk you may cannibalize your long-term savings by using funds from your RRSP now - be sure to do extensive research before using this program..
First-Time Homebuyer Incentive
Created in September 2019, the First-Time Homebuyer Incentive is an interest-free loan for eligible first-time homebuyers to help lower their regular mortgage payments. This incentive contributes up to 10% of the total price of your house, and you’ll need to pay back the loan within 25 years. By delaying the repayment of this loan, first-time homebuyers can save a significant portion of money over the course of their mortgage. However, it is important to note that the First-Time Homebuyer Incentive has very stringent qualification guidelines that can make it harder for people to access.
First-Time Home Buyers' Tax Credit
While buying your first home, you might have access to a number of tax breaks. These include the First Time Home Buyers' Tax Credit which is claimed on your annual tax return in the same year you purchase your property. Until 2022, this resulted in a $750 rebate, assuming you met the requirements. When the 2022 budget was passed, the rebate amount for 2022 and subsequent taxation years was raised to $1,500. Another $750 tax credit is also available to Quebec residents.
First-Time Home Buyer Land Transfer Tax Rebate
In three provinces and one city, first-time homebuyers can additionally claim a land transfer tax rebate. Land transfer taxes are charged by all provinces excluding Saskatchewan and Alberta. An additional land transfer tax is charged by the city of Toronto. In Ontario, British Columbia, Prince Edward Island, and the city of Toronto, first-time homebuyers are eligible for a rebate of these land transfer taxes, subject to certain maximums and conditions.
Here are the maximum rebates for the four rebates:
- Ontario: $4,000
- British Columbia: $8,000
- Prince Edward Island: $2,000
- Toronto: $4,475
GST/HST New Housing Rebate
In Canada, every newly built home will have GST (Goods and Services Tax) or HST (Harmonized Sales Tax) levied on the price. The GST/HST new housing rebate is a rebate of a portion of the federal component of this tax. Other provinces have their own version of this rebate, which can reimburse buyers a portion of the provincial component.
Please note that this rebate can only be used on newly-built houses. This means that it needs to be new construction of a home on land you own or for substantial renovations to an existing home. It's not exclusively available to first-time homebuyers, but it's routinely used by first-time homebuyers that are buying newly-built houses.
First-Time Home Buyer Savings Account
The federal government announced in 2022 the creation of a new program to help new buyers save for their first house. The First Home Savings Account, or FHSA, blends features of the Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP), with some advantages over both. Like RRSPs, your contributions to your FHSA are also tax-free, and like TFSAs, any money your First Home Savings Account earns, will also be tax-free. Unlike an RRSP, you don't have to pay back money you withdraw from the FHSA to purchase your first home. You can read more about the First Home Savings Account on our blog.
Mortgage Default Insurance
Mortgage default insurance or CMHC Insurance, might seem like an odd concept, but it’s actually pretty straightforward. If you have a down payment of less than 20% of the home’s value, you have to purchase mortgage default insurance. But this doesn’t act as insurance for you. Actually, it protects your lender in case you can’t make your mortgage payments. It’s built to make financial institutions okay with lending to individuals who don’t have a sizable down payment.
Mortgage insurance is determined by calculating a percentage of the value of the mortgage amount. If your down payment is between 5% to 9.99%, mortgage insurance will represent 3.6% of your mortgage amount. For down payments of 10% to 14.99%, mortgage insurance will cost 2.40%. Lastly, for down payments of 15% to 19.99%, mortgage insurance will cost 1.80%.
Mortgage default insurance isn’t an option for homes with a purchase price of more than $1 million. As a result, anyone buying a house higher than this amount, must have at least 20% as a down payment on their purchase.
Getting Your First-Home Becoming Impossible
In Canada, there’s a lot of frustration among first-time home buyers, specifically in Ontario. People feel like buying a home in the province is becoming impossible.
It’s undoubtedly hard, but don’t let yourself be discouraged. You won’t know what’s possible for your future until you give it a chance. And don’t take it personally if the market doesn’t immediately cooperate with you. There’s nothing wrong with waiting until buying a house fits more comfortably in your budget.