First-time Homebuyer? These programs can boost your down payment and reduce expenses
In my more than 30 years as a realtor, I’ve always loved working with first-time homebuyers to help them achieve their dream of entering the real estate market, often after years of paying rent.
It’s wonderful to see my clients’ excitement when an offer is accepted and they know they finally have a place they can call their own.
If you are thinking of buying your first property and you’re struggling to put aside the cash you’ll need, it’s good to know about several federal and provincial government programs and tax credits that were created specifically to help first-time buyers enter the market and save on some of the expenses involved.
If you’re a first-time buyer and working to get your finances in order, here are three programs you should know about and how they can help you get there:
Use funds from your RRSP for your down payment
For many first-time buyers, the most daunting challenge can be coming up with the down payment required.
If you’re buying a home or condo with a purchase price of $260,000, for example, the minimum down payment would be 5 per cent, or $13,000. For a $300,000 property, the minimum down payment would be $15,000.
If the amount you have raised is less than you need to meet the minimum down payment, you can boost your payment with help from the federal government’s home buyers’ plan (HBP). This plan allows you to withdraw funds from your RRSP for a down payment, with no tax penalties as long as you follow the rules and pay back the withdrawal over the required 15 years.
It’s an attractive option, for several reasons.
The plan allows withdrawal of up to $25,000 per person or $50,000 per couple from your RRSP savings. The only stipulation is that the amount has to be repaid over 15 years as you do your taxes each year. As you file your taxes, you will be required to pay a minimum of one fifteenth of the amount that you borrowed, until the amount you withdrew is re-paid.
This way, you will build your RRSP savings gradually back to the amount you originally had, and you will be building equity in your own home along the way. For many buyers, it’s a great way to boost the their down payment.
For more information on the plan, the conditions and how it works, visit www.cra-arc.gc.ca/hbp
The First-Time Homebuyers’ Tax Credit:
If you are buying your first home, you could be entitled to a $750 first-time homebuyers’ tax credit.
This is a non-refundable tax credit offered by the government of Canada for people who buy a qualifying home. It reduces the amount of taxes you owe and is designed to help buyers with some of the extra expenses that are involved in the purchase of a first home, beyond the purchase price.
The program is also open to buyers who are disabled or who are purchasing a home for someone who is a disabled, in which case you do not have to be a first-time buyer. In those cases, the home must enable a person with a disability to live in a more accessible dwelling, or in an environment better suited to their personal needs and care.
As the Canada Revenue Agency explains, the tax credit is based on $5,000. For the 2015 year, for example, the credit worked out to 15 per cent of the $5,000 amount, or $750.
If you are buying a home with a partner, spouse or friend, either or both of you can make a claim on the tax form, as long as the combined total amount claimed is not over $5,000.
With this program, a first-time buyer is defined as a buyer who has not owned a home in the year of purchase or in any of the last four preceding years.
For more detailed information on the credit, the conditions and how it works, visit the section of the Canada Revenue Agency website on this credit, at www.cra.gc.ca/hbtc
Land Transfer Tax Refunds for First-Time Buyers
In Ontario, homebuyers have to pay a land transfer tax, an amount that is calculated as a percentage of the purchase price of the property.
If you have started looking for a home, or at least trying to get an idea of what’s available in your price range, the Ottawa Real Estate Board has a land transfer tax calculator that would give you an idea of what the property tax would be. You can use it by clicking on the “calculators” tab on the homepage at www.oreb.ca
For an example, the tool calculates that a $325,000 property would have a land transfer tax of $3,350.
If you are buying a home for the first time, the Ontario government offers a land transfer tax refund, up to a maximum of $2,000.
There are rules about who qualifies for the refund. The definition of a first-time buyer, for example, is someone who has never owned a home ever, anywhere. You must also use the home as your primary residence.
The refund can be applied at closing to reduce or eliminate the land transfer tax that you pay, or it can be claimed after the closing.
If not claimed at registration, the refund can be claimed directly from the Ministry of Finance, within 18 months after the transfer. No interest is paid on this refund.
For more information on this program, who qualifies and how it works, visit the Ontario Ministry of Finance website at http://www.fin.gov.on.ca/en/refund/newhome/
If you are a first-time buyer living in the Ottawa area, keep in mind that you have an additional advantage over buyers in cities such as Toronto and Vancouver. In those cities, average selling prices are much higher than in Ottawa and it’s not unusual to find modest bungalows priced in the high six figures or more.
By contrast, the Ottawa Real Estate Board reported that the average sales price of a residential class property in February, March and April of 2016 ranged from $384,000 to the $403,000 in those months. The average sales price of a condominium class property in April of 2016 was $261,017.
If you’ve been thinking of entering the market and would like to get an idea of what’s available in your price range, I’d love to hear from you. You can reach me at 613-747-4747 or through my website, at www.nancybenson.com
Comments(0)