First Time Homebuyer Ontario: Navigating the Path to Your Dream Home

Are you ready to embark on the thrilling adventure of becoming a first time homebuyer in Ontario? Congratulations on taking this significant step toward home ownership! As a mortgage broker with a passion for guiding individuals aged 25-50 through their home financing needs, I’m here to share a treasure trove of insights to help you navigate the complex world of real estate in Ontario.  In this page we will talk about all things relevant to first time homebuyers, including; first time homebuyer tax credit Ontario, first time homebuyer RRSP, the new first-time homebuyer savings account Canada, plus mortgage calculators and applications, and more…

Before we dive into the nitty-gritty of the home-buying process, let’s talk about a tool that will become your best friend on this journey – the mortgage calculator. It’s like a financial playground, allowing you to explore various scenarios and understand your borrowing potential. You can tweak different qualifying options and imagine how they align with your financial goals and dreams.

Now, let’s get to the heart of the matter – the key components that will shape your mortgage eligibility:

1. Understanding Income Requirements for First time homebuyers

Lenders will take a close look at your income, specifically the average over the past two years. However, if you have a stable base income, that can be a game-changer in the mortgage approval process. Make sure to have your income documentation in order to demonstrate your income consistency. If you are self employed, then you have a ton of solutions available to you that can be tailored to your setup.

2. The Credit Score

Your credit score is a masterpiece that lenders and default insurers will scrutinize. What are they looking for? It’s quite straightforward – they want to see two credit sources with at least $2000 limits. But that’s not all; they’ll give you a standing ovation if you’ve maintained 24 months of payment punctuality and boast a robust credit history. Now, here’s a pro tip: You can check your own credit score without making waves at Equifax and TransUnion. It’s a good practice to monitor your credit health regularly.

3. First Time Homebuyer Ontario Down Payment

The magic number for a first time homebuyer Ontario down payment is 5% of the purchase price up to $500,000, then you’ll need an additional 10% on the amounts from $500,000 to $999,999; for example a home of $600,000 you’d need $35,000 ($500k x 5% = $25k + ($600k – $500k =$100k) x 10% = $10k).   On homes where the purchase price is $1,000,000 or more, you must have 20% down. Additionally, you’ll also need to have approximately 1.5% of the purchase price stashed away for closing costs. These funds can come from your savings, investments, or even a thoughtful gift from a family member. Keep in mind that there’s typically a 90-day history requirement for these funds, so plan your finances accordingly.

Land Transfer Tax Exemption

Now, let’s talk about one of the significant costs involved in buying a home in Toronto – the land transfer tax. The Transfer Tax Exemption program offers a glimmer of hope for first time homebuyers.

How it Works: This program provides a partial or full exemption from the provincial (Ontario) and municipal (if the property is in Toronto) land transfer tax for eligible first time homebuyers. The exact exemption amount varies depending on the purchase price of the property. Here’s a breakdown of how it typically works in Toronto:

• For properties with a purchase price up to $400,000, first-time buyers may receive a full exemption from the municipal land transfer tax.
• For properties with a purchase price between $400,001 and $2,000,000, there’s a maximum rebate of $4,000 for provincial tax and $4,475 on the municipal tax available.
• Properties with a purchase price over $2,000,000 do not qualify for this program.

Eligibility Criteria: To qualify for the Transfer Tax Exemption, you need to meet certain criteria:

• You must be a Canadian citizen or permanent resident.
• You must be at least 18 years old.
• You must occupy the home as your principal residence within nine months of closing the purchase
• You cannot have owned a home anywhere in the world

Taking advantage of this program can significantly reduce your upfront costs when buying your first home in Toronto, making it a fantastic financial benefit for new homeowners.

Try out our great land transfer tax calculator here.

First Time Homebuyer RRSP: Tapping into Your Retirement Savings

For many first time homebuyers, accumulating a sufficient down payment can be a challenge. That’s where the first time homebuyer RRSP (Registered Retirement Savings Plan) Withdrawal (Known as the Home Buyers’ Plan) program comes to the rescue.

How it Works: With this program, you can withdraw funds from your RRSP to put toward the purchase of your home. The amount you can withdraw without incurring tax penalties is subject to specific limits. Currently, you can withdraw up to $35,000 per person or $70,000 per couple from your RRSP for this purpose.

Repayment: It’s important to note that the funds withdrawn from your RRSP under this program must be repaid over a specified period (usually 15 years), where you are exempt from having to repay during the first 2 years. The advantage is that the repayments are generally interest-free, making it a relatively flexible and manageable way to access additional funds for your down payment.

Tax Considerations: While the withdrawn funds are not subject to income tax at the time of withdrawal, you’ll need to repay them into your RRSP over time. If you fail to make the required repayments in a given year, that portion of the withdrawal will be included in your taxable income for that year.

A Financial Boost: First Time Homebuyer Tax Credit Ontario

Another appealing program for first time homebuyers in Ontario is the First Time HomeBuyer Ontario Tax Credit (HBTC).

How it Works: The HBTC is a federal tax credit designed to help offset some of the costs associated with purchasing a home. It provides eligible first time homebuyers with a non-refundable tax credit of up to $750. While this amount may not cover all your expenses, every bit counts when you’re making a big investment like buying a home.

Eligibility: To qualify for the First Time HomeBuyer Ontario Tax Credit (HBTC), you must meet the following criteria:

• You or your spouse must not have owned and lived in a home as your primary residence in the current or any of the four preceding calendar years.
• You must have acquired a qualifying home.
• You must intend to occupy the home as your principal residence no later than one year after acquiring it.

Claiming the Credit: When you file your income tax return, you can claim the HBTC to reduce your overall tax liability. This can result in a refund or a reduction in the amount of income tax you owe, providing a welcome financial boost for first time homebuyers.

The New First-Time Homebuyer Savings Account Canada: First Home Savings Account (FHSA)

Now, let’s introduce you to another powerful tool to help you save for your first home – the First Home Savings Account (FHSA).

How it Works: The FHSA is a specialized savings account designed to help Canadians save for their first home. The contributions you make to this account are not tax-deductible, but the interest earned on the account is tax-free (works like a TFSA). This means that your savings can grow faster compared to a regular savings account.

Eligibility: To qualify for an first-time homebuyer savings account Canada, you must:

• Be a Canadian resident.
• Be at least 18 years old.
• Have a valid social insurance number (SIN).

Contribution Limit: Currently, the contribution limit for an FHSA is $8,000 per year, with a lifetime contribution limit of $40,000. Once you reach this limit or purchase your first home, you can no longer contribute to the account.

Using Your FHSA: When you’re ready to purchase your first home, you can withdraw the funds from your FHSA without any tax consequences. This money can be added to your first time homebuyer down payment, giving you a financial boost toward your home ownership goals.

Don’t forget, our friends at the default insurers have cooked up home buyer guides that could be your golden tickets. Here are the secret maps:

• Sagen
• CMHC
• Canada Guaranty

When you’re all set to embark on this magnificent journey, our application is your gateway. Whenever you’re ready to take that leap, it’s waiting for you right HERE.

So, buckle up, dear adventurer! The world of home ownership is yours to conquer, and I’m right here to guide you through every twist and turn of this exhilarating ride. 🏡🚀

If you have more questions, book a call with Marshall Tully today!