Insights & advice
First-time homebuyer programs and benefits
September 2021 – 15 min read
There are 3 national homebuying programs to help Canadians get onto the property ladder.
Other programs and incentives are also available and vary from province to province.
Making the most of eligible grants, incentives and rebates can help you realize the dream of buying your first home.
When it comes to taking advantage of programs designed to help first-time buyers, even a little bit of help can go a long way, especially if you’re looking to buy in some of Canada’s priciest cities.
As of June 2021, the average property priceOpens a new website in a new window - Opens in a new window in Canada is $688,000, and this can often be a much higher figure in hot markets such as Toronto and Vancouver. This makes it even more important for first-time homebuyers to take advantage of tax credits, first-time buyer grants, rebates and incentives that can help with the cost of purchasing a property.
If you’re thinking of buying your first home, the good news is there are several programs available that can help you realize your dream of stepping onto the property ladder.
The Government of Canada offers 3 programs to help first-time homebuyers: the First-Time Home Buyer IncentiveOpens in a new window, the First-Time Home Buyer IncentiveOpens in a new window and the Home Buyers’ Plan (HBP).
First-Time Home Buyer Incentive (FTHBI)
Launched in Fall 2019, the programOpens a new website in a new window - Opens in a new window provides 5 or 10% of the property’s purchase price towards your down payment. This bigger down-payment helps lower your monthly mortgage payments, making homeownership more affordable.
The FTHBI is what’s known as a shared-equity mortgage, meaning the government has a shared investment in your home. This means they share in the value of your home, whether it goes up or down. You’ll need to repay the FTHBI in full when you sell the property, or after 25 years - whichever comes first.
You could qualify for the FTHBI if your annual income doesn’t exceed $120,000 ($150,000 for homes in Toronto, Vancouver, or Victoria), and if you meet the government’s definition of a ‘first-time buyer’. Your eligibility will also depend on things like the type of home you plan to buy, the amount of your mortgage, your residency status in Canada, and more .
First-Time Home Buyers Tax Credit (HBTC)
The HBTC allows eligible first-time buyers to claim a $5,000 credit on their tax return. Claiming this credit can result in a tax rebate of $750Opens a new website in a new window - Opens in a new window. This sum can be used to cover things like legal fees, the price of movers or closing costs.
Provided you haven’t lived in another home that you’ve owned for any of the 4 years prior to purchase, you could be eligible if you and your partner bought a home that meets the government’s criteria.
The Home Buyer’s Plan (HBP)
First-time buyers may also qualify for the HBPOpens in a new window - Opens in a new window, a government program that allows you to withdraw money from your RRSP to buy or build a home.
This home can be for yourself or a related person with a disability, and you must meet the government’s criteria to qualify.If you’re eligible, you can borrow up to to $35,000 interest-free from your RRSP. This is per person, so if you’re buying with a partner, you could be eligible to use $70,000 as a couple to finance your home.
Unlike other early withdrawals from your RRSP, the HBP isn’t considered taxable income provided you re-invest it within 15 years. Any amount not repaid will be treated as taxable income for that year.
In addition to the programs available from the Canadian Government, many provinces also offer plans to help first-time homebuyers. For example, Saskatchewan'sOpens a new website in a new window - Opens in a new window First Time Homebuyer’s Credit provides a non-refundable tax credit of up to $1,050, while QuébecOpens a new website in a new window - Opens in a new window offers a tax credit of up to $750 on qualifying homes. There are a few other options that vary by province that can help first-time buyers.
GST/HST New Housing Rebate (NHR)
If you’re buying a newly-built home or an existing property that has been ‘substantially renovated’, you could apply to claim an HST/GST tax rebateOpens a new website in a new window - Opens in a new window.
This could apply if you’re purchasing a home directly from the builder or custom building your own property, for example. While the details vary from province to province, you could qualify for a rebate of the provincial tax (HST) or the federal tax (GST) that you paid on the purchase price.
It’s worth noting that this rebate is open to all homebuyers, not just those buying for the first time. However, if your first property falls under an eligible category, you can combine this rebate with other programs that are designed exclusively for first-time buyers to maximize your savings.
Land Transfer Tax Rebate (LTTR)
In most provinces and cities, you’ll need to pay land transfer taxOpens in a new window - Opens in a new window when you buy a property.
The amount of tax you’ll pay is a percentage that is calculated depending on how much you paid for your home, which can amount to several thousands of dollars in closing costs. Land transfer tax is an upfront payment that can’t be factored into your mortgage, so it’s important to consider how this lump sum will impact the final cost of your property.
However, you may get some or all of this money back, as to help first-time buyers offset this cost, most provinces offer a partial or full tax rebate.
In addition to what’s available through the federal government and at the provincial level, there may also be help available through your municipality. This can be especially useful when buying in markets with property prices that are higher than the national average. For example, in Toronto, buyers can receive an additional $4,475 land transfer tax rebateOpens a new website in a new window - Opens in a new window.
You may also keep an eye out for things like affordable homeownership programs; while not specific to first-time buyers, these can help buyers with a lower household income, or in some cases help people to buy homes up to a maximum purchase price. In Ontario, municipalities like Waterloo, Windsor, Simcoe, and many more have specific programs available.
First Home Savings Account (FHSA)
A First Home Savings Account (FHSA)Opens a new website in a new window is a savings account from the Federal Government that is set to be available for Canadians in 2023. It allows individuals to save money for their first home purchase, providing tax benefits and other incentives to help them afford a home.
FHSAs are typically designed to be flexible, easy to use, and tax-free with features like automated transfers from your regular chequing account and the ability to easily track your progress toward your goal.
The Tax-Free First Home Savings Account is a new type of account that works much like a Registered Retirement Savings Plan (RRSP)Opens a new website in a new window or Tax-Free Savings Account (TFSA)Opens a new website in a new window because it combines the features of both.
Other considerations for first-time buyers
In addition to knowing what you might qualify for in terms of incentives or rebates, it’s good to have a wider picture of what you can afford – including those additional closing costs such as land transfer tax.
Calculate your down payment
To start, you’ll need to determine how much you can put towards the cost of the house upfront, known as a down paymentOpens a new website in a new window - Opens in a new window. This needs to be a minimum of 5% of the property price, but can range all the way up to 20% for more expensive homes. If you’re a first-time buyer, you won’t have money from the sale of a previous home to put towards this, so your down payment will likely come from your own savings.
It’s also a good idea to get pre-approved for a mortgage before starting the hunt for a home. As of 2018, all home buyers must undergo a mortgage stress test, which is designed to prove to your lender that you can still make your monthly payments even if interest rates go up . As of June 2021, this means your monthly payments will be tested at the actual rate of borrowing, as well as an inflated “stress test” rate of 5.25%. You can run your own stress test using a calculator online, or by working out what your monthly payments would be at 5.25% interest to make sure that this is still within your budget.
Expect the unexpected
Finally, expect the unexpected when it comes to house-huntingOpens in a new window - Opens in a new window, especially in hotter markets where you might have to face a bidding warOpens in a new window - Opens in a new window when trying to land your dream home.. Working with an experienced realtor, doing plenty of research and being prepared to be patient can all help when it comes to making an offer.
Buying your first home can be an exciting experience, but it doesn’t have to be stressful. With some forward planning, you can find out which first-time homebuyer programs and incentives might be able to help with the financial side of owning your first home.
A mortgage specialist can help you see what you can afford, as well as which programs might be able to help you at a local, provincial, and federal level.
Reading, researching, and staying up to date on housing market news in your local area can also help you feel more confident if you’re a first-time buyer.
Speaking to a financial advisor can help you understand your options when it comes to benefiting from first-time homebuying programs and incentives.
The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.