First Time Home Buyer Incentive: Everything You Need to Know

Buying your first home can be exciting yet overwhelming. Fortunately, the first time home buyer incentive offered by the federal government and other provincial programs helps ease the financial burden for many first time buyers in British Columbia and across Canada. This guide covers what the incentive is, how to qualify, the impact on your down payment, closing costs, and other crucial details so you can make informed decisions.

What Is the First Time Home Buyer Incentive?

The first time home buyer incentive is a shared-equity mortgage program introduced by the Canadian government to help first time homebuyers reduce their monthly mortgage payments without increasing their down payment.

Instead of borrowing the full amount from a lender, the government contributes 5% or 10% of the purchase price of an existing home or a newly built home, respectively. This reduces the amount you need to borrow and lowers your monthly mortgage payments.

How Does the Incentive Affect Your Down Payment?

While the first time home buyer incentive helps reduce mortgage amounts, it doesn’t replace your down payment. Buyers still need to come up with the minimum 5% down payment for homes under $500,000 and more for pricier properties.

You can use funds from your tax free savings account (TFSA), registered retirement savings plan (RRSP) via the home buyers plan, or a first home savings account to help boost your down payment savings.

Who Qualifies for the First Time Home Buyer Incentive?

To qualify:

  • You must be a Canadian citizen or permanent resident
  • Your total household income must be $120,000 or less per year
  • The home must be your principal residence
  • The purchase price must be below $565,000 (varies by region)
  • You cannot own a home currently or have owned one in the past four years

Common law partners can also apply jointly, and the incentive applies to both first time buyers and some repeat buyers who meet criteria.

Closing Costs and Other Upfront Costs to Budget For

Even with the incentive, closing costs such as land transfer tax, title insurance, legal fees, and mortgage default insurance can add thousands to your home purchase expenses. Some provinces offer a land transfer tax rebate or housing rebate for first-time buyers to help offset these.

Remember the gst hst new housing tax applies on new builds and substantially renovated homes, which can affect your budget.

What Is a First Home Savings Account?

The first home savings account is a special registered savings vehicle allowing first-time buyers to save money tax-free for a home purchase. Contributions to this account are not tax-deductible but growth and withdrawals used for a qualifying home are tax free.

Combining your savings from a home savings account with the government incentive can significantly reduce the financial pressure of buying your first property.

Impact on Monthly Mortgage Payments and Affordability

By reducing the amount you need to borrow, the first time home buyer incentive lowers your monthly mortgage payments, helping improve affordability. However, it’s important to factor in other recurring costs such as:

  • Property taxes
  • Home insurance
  • Utility bills
  • Maintenance and repairs

Using tools like the home cost calculator helps estimate your monthly housing costs realistically.

Tax Benefits and Credits for First Time Home Buyers

First-time home buyers in Canada can also access several tax benefits such as:

  • The non refundable tax credit called the home buyers amount which can reduce income tax payable
  • Possible land transfer tax rebate in certain provinces
  • Access to the home buyers plan to withdraw up to $35,000 from your RRSP tax-free for your purchase

Understanding and leveraging these programs can help you save money during your home purchase.

How the Incentive Works with Your Mortgage Loan

The government’s share of the home’s purchase price through the incentive is a second mortgage with no monthly payments but must be repaid when you sell or after 25 years. The repayment amount is based on the home’s purchase price at that time.

Since it’s a shared-equity mortgage, if your home’s value increases, you pay back more; if it decreases, you pay back less.

Additional Costs to Consider: Taxes and Fees

  • Land transfer tax or welcome tax can vary significantly by province and city.
  • Services tax and property taxes add to ongoing expenses.
  • Mortgage default insurance might be required if your down payment is below 20%.

Budgeting for these upfront and ongoing costs is vital for stress-free home ownership.

How to Use Our Calculators to Plan Your Purchase

Planning your purchase carefully can save you headaches and unexpected costs. Check out these valuable tools:

These calculators help you visualize affordability and plan your finances around the first time home buyer incentive and other costs.

FAQs: First Time Home Buyer Incentive and Related Topics

Q: Can I combine the first time home buyer incentive with the home buyers plan?
A: Yes. The incentive reduces your mortgage size while the home buyers plan allows you to withdraw funds tax-free from your RRSP for your down payment.

Q: Is the incentive available for existing homes?
A: Yes, the incentive applies to both existing homes and newly built properties, with a 5% contribution for existing homes and 10% for new builds.

Q: Do I have to repay the incentive?
A: Yes, the incentive is repaid when you sell the home or after 25 years. The repayment amount is based on your home’s market value at that time.

Q: What is included in closing costs?
A: Closing costs typically include legal fees, land transfer tax, title insurance, and sometimes mortgage default insurance.

Q: How much do I need for a down payment?
A: Minimum down payment starts at 5% for homes under $500,000 but varies for higher-priced properties.