First Time Home Buyers Incentives to Know

By Urvee

It’s no secret that the current Canadian real estate market is hot and highly competitive. Since the beginning of 2020, home valuations across the Greater Toronto Area and beyond have broken records multiple times over. And all across the country, a rapid paradigm shift in housing needs is causing people to seek property in the less dense suburbs and satellite cities. 

That’s all well and good for current property owners, but for first time buyers who are looking to get their foot in the door, it’s a much different story. Multi-offer bidding wars are the new norm, and any edge new buyers can gain is necessary in the current real estate environment. By using a first home buyer loan or other available incentive, you can improve your chances of landing your dream place by leveraging some additional capital.

What is a first time home buyers incentive

Also known as a first time home buyer loan, these incentives are essentially equity-sharing mortgage loans with the Canadian government. Qualified new buyers are able to finance 5% to 10% of the home purchase, a benefit that helps reduce the monthly cost of carrying a mortgage without requiring additional up-front expenditure on the down payment. 

The First Time Home Buyers Incentive, or FTHBI, is part of the Canadian Government’s National Housing Strategy and offers first time buyers the opportunity to affordably invest in new and existing properties across the country.

Who is considered a first time home buyer?

Although the name doesn’t imply this, first time buyer loans actually extend to individuals outside of those purchasing their very first property. The Canadian Government’s Home Buyers Plan (HBP), for instance, is available to individuals who have a disability, are the spouse or common-law partner of a homeowner but haven’t purchased one themselves, or have not occupied the same house as their spouse for a 4 year period. The FTHBI, on the other hand, is reserved more exclusively for those who haven’t yet purchased a home in Canada. 

Qualifying for a first time home buyer loan

There are some specific criteria that must be met in order to qualify for the first time home buyer incentive, including: 

• You or your partner must be a first time home buyer and a Canadian citizen or other authorized visa holder 
• You can afford the minimum down payment required for traditional funds and mortgage agreements
• Your income is no more than $120,000 (or $150,000 for those in Victoria, Vancouver, or Toronto)
• The amount you’re borrowing can’t exceed 4x your income qualification (or 4.5 for the aforementioned cities)
• The mortgage you’re looking to supplement must be greater than 80% of the property value

Using the first time home buyers incentive

After being pre-approved for your mortgage, selecting your desired property, and verifying that you meet all the incentive criteria, you’ll be able to fill out your application for this first home buyer loan!

Depending on the type of property you’re looking to purchase, you’ll receive a set amount of money from the Canadian Government in the form of a shared-equity mortgage. First time buyers looking for a newly constructed residence can get 5% or 10% in financial assistance. For those looking to purchase an existing, mobile, or manufactured home, the incentive rate is 5%. 

In terms of repayment, the first time buyers repay the same percentage they received from the government based on the home’s market value at the time of sale or after 25 years. For those who are able to repay ahead of time, the incentive is then reimbursed to the Canadian government without any penalty for advanced payment.

First time home buyer RRSP loans

Another incentive available to first time home buyers is the Home Buyers Plan. Also developed by the Government of Canada, this incentive allows qualifying buyers to withdraw funds from their Registered Retirement Savings Plan (RRSP) to purchase or develop a particular home. For this type of buyer incentive, participants need to meet both the HBP eligibility conditions and adhere to specific RRSP withdrawal guidelines. The maximum amount that can be withdrawn, untaxed and unpenalized, from an RRSP for the Home Buyers Plan is $35,000.

Specific first time home buyers incentives in Ontario

At the provincial level, the Ontario government is also incentivizing first time home buyers through the use of their Land Transfer Tax Refund. Prior to 2017, the incentive was capped at $2,000, but it’s since been doubled to provide eligible buyers with a maximum rebate of $4,000. 

Qualifying first time buyers can claim this refund at the time of their purchase to offset the cost of the Land Transfer Tax, or they can claim the refund later through the Ministry of Finance. The application limit for this tax refund is a year and a half following the date the house is registered to the first time buyer.

Taking advantage of first time home buyer loans and incentives

As you can see, there are multiple incentives set up for first time home buyers at both the federal and provincial level. If you need help determining whether or not you qualify for one of the aforementioned programs, contact your local real estate experts or government representatives today.