As a first-time homebuyer, there are several government programs that can help you achieve home ownership. Listed below are some of the programs that may be available to you:
FTHB Incentive Program:
A First-Time Homebuyer with household income of $120,000 or less can qualify for a government loan of 5% for an existing home or 10% for new homes. The loan is added to your down payment. In return for the 5% or 10% loan, the government will own a proportionate share in the equity of your home.
- The down payment must be less than 15%.
- The insured mortgage amount cannot be greater than four times your household income.
- The loan must be repaid after 25 years or when the house is sold.
- The repayment amount is based on the percentage of equity. For example, if you sell your home for $800,000 and the initial loan was 5%. You will need to repay $40,000 ($800,000 x 5%).
The FTHB Incentive Program provides an addition to your down payment and will lower your monthly mortgage payments, making home ownership more affordable. If you are planning on buying a home in spring 2021, the Canadian government will also broaden the criteria to support homes in various markets. Starting spring 2021, the Government of Canada will make the following changes for homebuyers in the Toronto, Victoria, and Vancouver market:
- First-time homebuyers will now be able to purchase a home up to 4.5 times their household income versus 4 times their income.
- Household income has increased from $120,000 to $150,000 or less. As a comparative, household income of 120,000 can qualify for a mortgage of $540,000 ($120,000 x 4.5) versus previously at $480,000.
Increase your RRSP Contribution to $35,000:
The Registered Retired Savings Plan (RRSP) is a special account for Canadians to save towards retirement. There are several benefits to buying RRSPs:
- Contributions are tax deductible: An RRSP contribution is a deduction on your tax return. For example, if you make $78,000 a year, and you contribute $10,000 to your RRSP, your income tax rate will now be based on $68,000.
- RRSPs were designed to help you save money today to fund your retirement. It assumes that when you retire, your income will be lower, and any withdrawal will be at a lower tax bracket.
- The best reason for First-Time Homebuyers to contribute to an RRSP is to take advantage of the HBP (Home Buyers’ Plan). With the HBP, you can withdraw up to $35,000 tax free that can be added to your down payment. The withdrawal amount must be in your account for at least 90-days.
As part of the HBP, you will need to make annual re-payments back into your RRSP. Your repayment are equal payments for 15 years. For example, if you withdrew 15,000, your repayment schedule will be $1,000 a year. Reminder: There is an annual deadline to contribute to your RRSP. This year its: March 1, 2021. Make sure to contribute before then!
Land Transfer Tax Exemption:
You may qualify for a land transfer tax rebate under the following criteria:
- Canadian citizen or Permanent Resident of Canada.
- You must be at least 18 years old.
- You must occupy the home as your primary place of purchase within 9 months of purchase.
- You must not have owned an eligible home, or have an interest in an eligible home, anywhere in the world at any time. The same applies for your spouse.
Mortgage Tips:
Maximize the amount of your mortgage approval by simply doing the following:
1. Save as Much as Possible:
It is crucial that you save as much as possible, to give you the best plan of being able to afford a good part of your down payment.
2. Increase your Credit Score:
Your credit score will be one of the determining factors for your mortgage approval. Ensure you pay your bills on time and ensure that your usage is no more than 50% of the authorized limit.
3. Limit Debt:
It is especially important that you also limit the amount of debt you accumulate. Apart from reducing your debt level to help boost your credit score, more debt would only mean more monthly payments. You should avoid borrowing for large ticket items such as, a loan or lease for a car. The debt on the loan or the lease payment reduces your purchasing capacity.