First-Time Homebuyer Benefits in Ontario

Incentives in Canada

While there are specific incentives involved with purchasing a home in Ontario, let’s take a look at the incentives all Canadians are eligible for, starting with the reduced down payment amount required. There is also the First Time Home Buyer Incentive to consider as well as the Home Buyers' Plan.

Down Payment Amount

When it comes to purchasing a home, the standard down payment is 20%. However, as a first time home buyer you are able to put down a minimum down payment of just 5% of the purchase price instead of 20%. That being said, you can only put down 5% for the first $500,000 and then you must put 10% down on the remaining amount up to $999,999. Even still, this is a lot less than the 20% since you don’t have the equity of a previous home to help with this payment. The only exception to this is if the home is $1 million or more.

One thing you need to consider as a first time home buyer is mortgage loan insurance. If you are putting down less than 20%, this insurance is required. Your mortgage lender may also require it if you are paying the 20% if you have poor or limited credit, or even if you are self-employed. The two cases where mortgage loan insurance wouldn’t be available is if the cost of the home is over one million or the loan doesn’t meet the CMHC mortgage insurance standards. While you don’t need to directly coordinate mortgage insurance (your lender will take care of that), you do need to know that you are required to have a credit score of 680 or higher in order to qualify.

First Time Home Buyers Incentive

This incentive is offered by the Federal Government and is there to help qualified buyers reduce monthly mortgage payments. It essentially works as a shared equity mortgage for first time buyers. This incentive offers:

• 5% on a new or resold mobile/manufactured home
• 5% on a newly constructed home
• 5% on a resale home

That being said though, because the government is giving the money for shared equity, their portion will go up and down with the property’s fair market value. It can only go up or down though 8% per year. And it only lasts until the amount has been repaid.

While you can repay this amount back to the government whenever you choose, there is a deadline. It must be paid back within 25 years or whenever you sell the home, whichever of those scenarios comes first.

Home Buyers' Plan

How the Home Buyers' Plan works is that it will allow you to take up to $35,00 out your RRSP (Registered Retirement Savings Plan) in order to purchase your first home. This money must be used to purchase or build a home and you have to pay it back within 15 years. However, you do not need to start paying the money back right away. You have 2 years before payments are required and you will be given a mandatory minimum that you have to claim from your RRSP contributions or your income tax as repayment for the home buyers plan. When you file your taxes you can either claim the minimum amount or more every year until it is paid off.

If you do not pay back the money from your RRSP, then you will be charged tax on that money. You can also lose any growth on your RRSP during that time. That being said, it is your money and you are able to use it if it helps you to make your dreams of owning a home a reality. Just keep in mind that it can impact your retirement savings so take a look at the benefits and negative, you can make your decision from there.

To gain access to these funds, you must provide an agreement that you were approved for to buy or build a qualifying home. Once you provide this, your bank will be able to release the funds to you.

Incentives in Ontario

All of these benefits that are available to Canadians are also available to those who live specifically in Ontario. They can combine with incentives that Ontario offers.

Land Transfer Tax Refund

In Ontario, just like in other provinces, you must pay land transfer taxes when you purchase a home. The rates for land transfer taxes are based on the purchase price on the home.

• 0.5% is charged on the first $55,000
• 1% is then charged on the amounts from $55,000 to $250,000
• 1.5% is charged from $250,000 to $400,000
• 2% is charged from $400,000 to $2,000,000
• 2.5% is charged on anything over $2,000,000, where the land has one or two single family residences

If you qualify as a first time home buyer in Ontario, you could get up to $4000 back, tax free, in land transfer taxes. Essentially, this covers taxes for a home up to the cost of $360,000. If the home that you purchase has a cost higher than $360,000, you will only receive a portion of your land transfer taxes back.

In order to qualify for this, you must:

• Be at least 18 years old
• Be a Canadian citizen or a permanent resident
• Move into the home within 9 months of purchasing it
• Not own or have owned a home anywhere in the world
• Purchase a home that qualifies for a home warranty if it is new construction
• Apply for the refund within a year and a half of the purchase

While these rules apply to you, they also apply to your spouse or common law partner. They can’t currently own a home or have owned a home in the time that you have been together.

In order to receive the refund, you can claim an immediate refund when you file the land transfer papers. Alternatively, you can apply through the Minister of Finance. In order to do this you must supply certain documents. These documents are:

• A copy of the agreement of the purchase of sale
• A copy of the registered land transfer deed
• Proof of residence
• A completed Ontario Land Transfer Tax Affidavit for First Time Purchasers of Eligible Homes form

First Time Purchaser Rebate in Toronto

Unlike the rest of Ontario, Toronto has its own municipal land transfer taxes as well as the provincial land transfer taxes. The rates for these land transfer taxes are:

• 0.5% is charged on the first $55,000
• 1% is then charged on the amounts from $55,000 to $250,000
• 1.5% is charged from $250,000 to $400,000
• 2% is charged from $400,000 to $2,000,000
• 2.5% is charged on anything over $2,000,000

These municipal taxes can also be rebated up to $4,475 , tax free, for first time home buyers. So, as a first time home buyer in Toronto, you can get up to $8,475 back in land transfer taxes, if you qualify.

Local Programs

Depending on where you live in Ontario, there are plenty of municipalities that offer incentives to help their citizens purchase their first home.

1. The Region of Waterloo offers a 5% loan to those who are eligible. This is to be used as a down payment and can only be used if the property is $506,000 or less. You must have lived within the Region of Waterloo for 12 months and have a combined gross household income of $103,200 or less to be eligible.
2. Chatha/Kent has something called their Affordable Homeownership Program. This allows applicants to get a 20 year interest free loan. This loan will be 10% of the home purchase price up to $25,000. The gross household income needed to qualify is a maximum of $80,100.
3. Simcoe County also has their own Homeownership Program. They will offer a loan of up to 10% of the purchase price of the home. If you live in that home for at least 20 years the loan is forgiven, otherwise you will have to pay the loan back with a percentage of your capital gains. The gross household income to qualify is $103,200 and the cost of the home must be no more than $593,879.
4. In Kinston or Frontenac, if you are a renter with a gross household income of $91,000 or less, you could qualify for a loan of up to 10% of a home with the purchase price of $440,00 or less. There are some restrictions that must be met, but this is a forgivable loan.
5. The City of Brantford also has an Affordable Homeownership Program. They will offer a forgivable loan of 5% of the down payment on a purchase price of a home up to $400,000. You must be 18, have a gross household income of $90,000 or less and be a current renter in Brantford or Brant City.
6. Dufferin County offers a program that will give an interest free loan of 10% up to $45,500. The home must be a principal residence and you must have a combined gross household income of $97,800 or less.
7. In the District of Muskoka, they offer the Gateway Program. This program offers a down payment loan on a home with a purchase price of $435,000 or less. Loans up to $43,500 are available. In order to qualify, you must have a total household income of $97,000 or less.

These programs are more common in smaller municipalities that have housing that falls under $1 million for average purchase prices. Many of these towns, though, have average purchase prices below $500,000. Larger municipalities like Missesauga and Ottawa, don’t have the same kinds of programs. uhjy6t

Ways to Prepare to Purchase a Home

If purchasing a home is something you are actively interested in, there are a few things you can do to prepare. Even though there are many fantastic options when it comes to covering the down payment of a home, you need to consider the other costs associated with purchasing a home. There are lawyer fees, partial property taxes, provincial sale taxes and other fees that are all included in the closing costs. These costs will need to come out of your pocket.

It is also important to ensure that your credit score is where it should be to be approved for mortgage loan insurance. If you have a score of at least 680 then you are okay, otherwise there are plenty of steps you can take to improve your credit score in order to be approved for a home loan. Sometimes it can be as simple as consolidating any debt you have or moving your debt around in a way that makes it easier to pay off in a reasonable amount of time.

It is also important to figure out how you are going to cover the down payment and consult a professional to see what you can reasonably afford. They will be able to help you find the best way to move forward.

Even if purchasing isn’t something you are actively looking into, that’s okay too. You can start to get yourself prepared for when you are ready to purchase. The market is always changing so even if now isn’t the right time for you to purchase, paying attention to prices and what you can afford will help you when you are ready to make that leap.

Can Spring Financial Help?

Have you decided that now is the right time to purchase a home? Well, Spring Financial can help. We have licensed agents available to guide you every step of the way on getting approved for your first mortgage. We have access to the best rates and can help you reach your dream of home ownership. Apply online or give us a call at 1-888-781-8439.