In my three decades in real estate, I’ve worked with a lot of first-time buyers, and I’ve found that many of them are surprised when I inform them of how much they will need to set aside for some of the extra costs that they will face on top of the purchase price.
These buyers have saved carefully and have managed to put aside enough funds for a down payment, but they sometimes aren’t aware of the additional costs and have not planned for them.
It’s generally recommended that you set aside an amount equivalent to about 1.5 to 2 % of the purchase price so that you can cover the additional costs that are involved in making the purchase. These costs include the land transfer tax, your lawyer’s fees and the cost of hiring movers.
As I wrote in last week’s column, there are incentives that the federal and provincial governments created specifically to help first-time buyers get into the market and to make a purchase easier and less costly. Last week, I wrote about the plan that allows you to use RRSP funds towards your down payment. I also talked about the provincial land transfer tax rebate, which the Ontario government offers to first-time buyers to reduce the land transfer tax they pay. (Click here to read column).
There’s another federal incentive that first-time buyers should know about. In 2009, the federal government introduced the First-Time Home Buyers’ Tax Credit, to help with the purchase of a first home.
On its website, the Canada Revenue Agency explains that “the $5,000 non-refundable Home buyers’ tax credit amount applies to qualifying homes and provides up to $750 in federal tax relief.”
As with the plan that allows you to use RRSPs, there are rules about who can qualify for the tax credit. You are considered a first-time home buyer if neither you nor your spouse or common-law partner owned and lived in another home in the year of the home purchase or in any of the four preceding calendar years.
Special rules apply for the purchase of homes that are more accessible or better suited to the personal needs and care of a person who is eligible for the Disability Tax Credit.
In these situations, the tax credit can be claimed, even if the first-time home buyer requirement is not met.
The CRA explains that any unused portion of your Home Buyers’ Tax Credit can be claimed by your spouse or common-law partner. When two or more eligible individuals jointly purchase a home, the credit can be shared, but the total credit amount claimed cannot exceed $5,000. For more information about the tax credit and to see a video that explains how it works, visit the CRA website.
If you’re a first-time buyer and you’ve saved enough for your down payment but do not have a lot extra set aside for other costs, you could also look into a special mortgage program that assists first-time buyers with extra costs.
George Hartsgrove, of Mortgage Alliance who has worked with many of my clients, says that Mortgage Alliance has an exclusive program, called “My First Mortgage” for those who don’t have enough set aside for the closing costs. The mortgage has a five-year fixed term.
“We have a great program for first-time buyers who want to get into the market now but have not saved up a lot of money,” George says. “They just have enough for the five per cent down payment but nothing else to cover closing costs etc. The program includes the services buyers need to close a transaction, like legal fees and title insurance plus other essentials like home insurance, life insurance and appliance warranty, included for one year. Land transfer tax can also be included.”
For more information about this program and to see whether it appeals to you, contact George at 613-748-3838, ext. 228 or visit his website.
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