One of the most important first steps in buying a home is the down payment. The bigger the down payment, the lower your mortgage rates and the better easier it is to pay off your home. The problem is that saving up for an initial down payment can be daunting and extremely difficult. This is especially true for first time home buyers, who may not have the assets previous home owners might have. Thankfully, the federal government does offer options to first time home buyers to help with this process. There are rebates, help with down payments, and other costs you might be eligible for with these programs.
RRSP First Time Home Buyer’s Plan (HBP)
One of the most tax efficient programs offered for first time home buyers is the RRSP First Time Home Buyer’s Plan, or HBP. With this plan, prospective homeowners can withdraw up to $25,000 from their RRSP as a loan for a down payment. The loan is tax free as long as the minimum annual mortgage payments are met, and you are given 15 years to pay it off (including a two year grace period after you purchase your home). If you are buying a home with a spouse or common law partner who also qualifies, both parties can withdraw the $25,000 for a total of up to $50,000 tax free toward your down payment. Okanagan Mortgages has been encouraging people to take advantage of this to increase their down payment – as it’s very desirable in today’s low rate environment.
There are some basic qualifications that need to be met, primarily having to do with previous home ownership. You can’t have owned a home in the last 4 years, or lived in a home owned by spouse or common law partner in that time period. That being said, even if only one of you qualifies, that person is still eligible for the $25,000. It is possible to qualify for the RRSP HBP more than once, keeping in mind the 4 years without home ownership required, and as long as any previous HBP debts are squared up.
The HBP is a great way to get build up a tax free down payment on your home, which can help you get better mortgage rates by extension. Repayment terms are manageable as well, and only considered taxable income for any portion of the minimum annual payment not met.
If your down payment is less than 20% of the cost of your home, you need to get something called mortgage default insurance – or CMHC insurance. It is insurance for banks or brokers, designed to protect your lender in case you are unable to make your mortgage payments. While it may seem strange, it designed to help individuals with small down payments get loans and mortgages by offering CMHC insurance as confidence for lenders.
First Time Home Buyer’s Tax Credit
This tax credit, valued at $750, is designed to offset closing costs (such as legal fees and inspections) for first time buyers. It can help recover some of the unpleasant costs associated with first time home ownership.
GST/HST New Housing Rebate
This is a rebate for homeowners who pay GST and HST to either buy a new home, substantially renovate an old home, or rebuild a fire-damaged home. Those who qualify will receive the GST back as rebate.