As a new buyer, saving for your very first home can be a challenging task, especially if you’re hoping to purchase in a big city like Toronto or Vancouver where real estate prices have hit record levels. Finding the lowest mortgage rate can help reduce the monthly mortgage costs, however, you still need to save for the down payment and the closing costs. Currently the average purchase price for a first-time home buyer is approximately $295,000 and our a mortgage calculator reveals that you would need to save $14,750 just to meet the minimum five per cent down payment in Canada.
For young buyers, saving an amount as large as $15,000 requires long-term financial planning and a few sacrifices along the way. Rest assured there is good news! The government has implemented programs designed to aid first-time home buyers by alleviating the financial challenges that come along the way.
Land Transfer Tax Rebates
All provincial governments levy a land transfer tax (LTT) or land title tax on the purchase of property. Toronto is the only city that charges a municipal land transfer tax in addition to the provincial tax. However, some provinces offer land transfer tax rebates which can significantly reduce the overall tax charge. The provinces of Ontario, British Columbia, Prince Edward Island, and the city of Toronto all offer this rebate.
Below, we calculate how each province would tax a $295,000 property AND the corresponding rebate for first-time home buyers.
Location Land Transfer Tax LTT Rebate Amount Due
Ontario (province level only) $2,900 $2,000 $900
Toronto (municipal level only) $2,675 $2,675 $0
British Columbia $3,900 $3,900 $0
PEI $2,950 $0 $2,950
Since land transfer tax rates differ by province, first-time home buyers can use a transfer tax calculator to understand how much of an LTT rebate they would receive.
The RRSP Home Buyers’ Plan (HBP)
Many young consumers are familiar with the RRSP HBP, a program that allows first-time buyers to withdraw funds from their RRSPs tax-free. The plan permits withdrawals up to $25,000 per first-time home buyer. If you and your spouse are both first-time buyers, you may withdraw up to $25,000 each for a total of $50,000!
The First-time Home Buyers’ Tax Credit (HBTC)
This is a non-refundable tax credit made available to first-time purchasers which amounts to a return of $750 (as of 2012). The first-time home buyers’ tax credit should be claimed in the same year the home was acquired. For example, if you purchased your first home in 2011, you would need to claim the HBTC on your 2011 personal income tax return.
Put money back into your pocket. Saving the necessary money to pay for something as large as your first home may seem intimidating, however, there is relief. Three programs are available to help reduce the financial burden of the home buying process that puts money back into your pocket.
Readers, can you suggest anymore tips for first-time home buyers? Did you make use of the home buyers plan (HBP)?
We took advantage of the first-time homebuyer tax credit when we bought our first place. We also had a mortgage for first time home buyers and it gave us about $7,000 which paid for our closing costs. The only downside was needing to take a little bit higher of an interest rate.
Sean @ One Smart Dollar recently posted..Personal Finance Week in Review for September 23
We didn’t use any home buyers plans when we bought this house even though it was my first home in Canada but not my first home ever. We saved for a bigger down payment and that’s it. Many people have come to me who say they struggle because they have to pay back their RRSP’s that they used and wished they had just waited and saved up a bigger down payment. I say it’s a personal choice but don’t forget the consequences. The first time buyer rebates are great and although we didn’t get many do take advantage of these savings. Cheers MR.CBB
Canadianbudgetbinder recently posted..Straight Talk About Fees and Penalties on Mutual Funds
The RRSP HBP – it is not that useful for someone who has trouble saving $15,000, let alone $25,000 withdrawal limit.
The LTT credits are useful.
Sudip Adhikari recently posted..Do banks match price (rate)?
I like your post very much. I’m thinking of buying my first house and I appreciate any information I could get to help me make the right move.