Saving for a down payment for a home can be a difficult challenge for first-time home buyers. Fortunately, there are a variety of government programs to help you save or borrow the funds for your home purchase.
Ask me how these government programs work – I’m more than happy to help you find the information you need.
RRSP Home Buyers’ Plan (HBP)
The Government of Canada’s Home Buyers’ Plan allows qualified buyers to withdraw a maximum of $25,000 tax free from their RRSPs to purchase or build a house. If your spouse is also eligible, you can each withdraw up to $25,000 towards the down payment, for a total of $50,000. No income tax is deducted from these funds, as long as they are repaid to the RRSP according to the government’s repayment schedule.
How the Plan Works
You may participate in the plan if you (or your spouse) have not owned a home which you occupied as your principal residence in the last five years.
The money you withdraw from your RRSP must be repaid over a period of no more than 15 years to retain its tax deferred status. Your repayment period starts the second year following the year you made your withdrawals. If you pay less than your scheduled annual payments, the amount that you don’t repay must be reported as income on your
tax return for that year. For example, in October 2009 you withdraw $24,000 from your RRSP to finance the purchase of your home. Your first annual repayment of $1,600 ($24,000 divided by 15 years) is due by December 31, 2011. For more information, go to the Canada Revenue Agency Web site at www.cra-arc.gc.ca and search for “Home Buyers Plan.”
CMHC Flexible Financing
Canada Mortgage and Housing Corporation’s (CMHC) Purchase incentive allows home buyers to borrow the down payment from any source that is arm’s length to and not tied to the property purchase or sale transaction. These sources may include:
- lender cash back incentives
- loans from your bank or finance company
- lines of credit or credit cards
- gifts or grants
- sweat equity (intended for new constructions)
CMHC Purchase is open to both new and repeat home buyers who buy a one or two-unit home in Canada and occupy it as a principal residence, and is available for mortgage loan amounts between 90.01 per cent and 95 per cent. Borrowed funds for the down payment cannot exceed 9.99 per cent.
Comparable mortgage insurance may also be offered through other financial services providers.
For permanent residents, where there is limited Canadian credit history and where foreign credit bureaus are not available, CMHC considers alternative sources of payment history for Loan-to-Value ratios between 80.01per cent and 95 per cent. Newcomers with non-permanent resident status have access to CMHC insured financing of up to 90 per cent loan-to-value ratio for the purchase of a one unit owner-occupied residential property.
CMHC Self Employed
To make home financing easier for self-employed borrowers CMHC offers two options. Those with documentation to support their income have access to all existing one to four unit CMHC Mortgage Loan Insurance incentives subject to the same product criteria and insurance premiums as salaried borrowers. Borrowers without traditional forms of income validation can access CMHC insured financing for purchase of up to 95 per cent loan-to-value ratio for a one or two unit owner-occupied property.
Lower Monthly Payments
CMHC provides mortgage insurance that allows borrowers with a proven history of managing their credit responsibly the option of making interest-only mortgage payments for up to the first 10 years when they purchase or refinance their home. This option, available on mortgage loans of up to 80 per cent and amortization periods of up to 25 years, will give borrowers greater flexibility in managing their cash flow.
For more information on any CMHC incentive, go to CMHC’s Web site at www.cmhc-schl.gc.ca, and type “Flexible financing” in the search engine, or contact a mortgage lender.
More information on any of the CMHC incentives can be obtained by calling
Land Transfer Tax (LTT) Rebate
First-time buyers of newly constructed homes and resale homes may receive a refund of land transfer tax up to a maximum of $2,000. Only individuals who are at least 18 years of age, have not owned an interest in a home anywhere in the world and whose spouse has not owned an interest in a home anywhere in the world while he or she was a spouse of the individual qualify as first time buyers.
The purchaser must occupy the home as his or her principal residence no later than nine months after the date the property is transferred to his or her possession.
For more information, contact the Ontario Ministry of Revenue at 1-800-263-7965.