This article was printed on May 23rd in the Toronto Sun. It is reprinted here with permission.
Rising housing prices and shorter amortization periods make buying a first home more difficult for young people today. Between paying off their already accumulated debts and getting a job that pays well, it’s no wonder 42.3 per cent of Gen Y (born in 1977 to 1982) are living with their parents, according to the 2011 census.
Considering that the costs, which include but are not limited to legal fees, land transfer taxes, moving expenses and a minimum down payment of 5 per cent, a home can be quite pricey once all the costs are accumulated. There are, however, some options available for first-time home buyers that can help them procure the required amount for a down payment.
These strategies can help first-time home buyers get the financing they need and help to make sure they’re not paying too much for their mortgage or mortgage insurance. Not every home buyer needs mortgage insurance; only those who are unable to come up with 20 per cent of the cost of the home will have to pay for CMHC mortgage loan insurance, which rose on May 1st, 2014.
In an effort to ensure that there is a constant influx of new home buyers, the Canadian government helps first-time home buyers with a couple of financing options. First, the Home Buyers’ Plan (HBP) allows buyers to withdraw up to $25,000 in one year from an RRSP (Registered Retirement Savings Plan) to pay for a new home.
In order to qualify for this option, you must be a first-time homebuyer and the home must be your principal place of residence. The amount borrowed must be repaid to your RRSP within 15 years with the first payment due two years after the initial funds were withdrawn. If for some reason you are unable to make a payment, it will need to be included in your income for that taxation year.
Second, first-time home buyers can benefit from a tax credit, on which they can claim up to $5,000 for the purchase of a qualifying home. Ultimately, they can get up to 15% back on that amount for a maximum total savings of $750. Buyers purchasing a new home that costs under $450,000 may also be entitled to the GST/HST new housing rebate, which allows them to claim back the GST/HST amount on their new home.
To qualify for the tax credit, you must be living in the home within one year of purchasing or building it and it must be registered either under your name, your spouse’s name or both.
First-time homebuyers throughout Canada are taking advantage of these useful options when making one of the biggest purchases of their lives, but stats from the Canada Revenue Agency tell another story. Out of the approximately 1.8 million Canadians who participated in the HBP at the beginning of 2011, a whopping “47 per cent paid less than the full required repayment amount” of that same tax year.
So while the Canadian government is doing what it can to help first-time home buyers get the home they want, it’s up to the home buyer to ensure that the money borrowed can be repaid in full to their RRSP when expected or they will have to add the amount as income for that taxation year.