Government Programs for Home Buyers

Government Programs for Home Buyers


Government Programs for Home Buyers

A home is usually the single largest investment that most people make in their lives. Achieving your dream can be made easier by taking advantage of various Government Programs for home buyers and property owners. Some of the programs are targeted to first-time buyers, while others apply more generally. Other programs benefit those in the industrial, commercial and multi-unit property market. Your REALTOR can provide information on these programs and help you to determine your eligibility.

  • CMHC Purchase Plus Improvements Program
  • RRSP Home Buyers' Plan
  • 5% Down Payment Program
  • HST New Housing Rebate
  • Land Transfer Tax Rebate Program



CMHC Purchase Plus Improvements

Program

Canada Mortgage and Housing Corporation (CMHC) insured mortgage loans are available to cover the purchase price of a home as well as an amount to pay for immediate major renovations or other improvements that the purchaser may wish to make to the property.
This option eliminates the need to obtain secondary financing after the purchase to pay for improvements. The homebuyer obtains a single first mortgage, makes a single mortgage payment, and benefits from first mortgage interest rates.

Details

The insured loan will be based on the lower of:

  • The purchase price plus the actual cost of improvements or the “as improved” market value. Prior to approval, CMHC will determine the market value of the property after renovations/ improvements. The lending value will not exceed the market value of the property after renovations/ improvements.
  • Applicants must have the following:
    1. A minimum of 5% down payment of total cost (purchase price plus renovations/ improvements).
    2. Cost estimates for renovations/improvements.
    3. Qualifications to obtain a CMHC insured loan through an approved lender.

For more information call CMHC at (416) 221-2642 or www.cmhc.ca.

EXAMPLE:

Purchase Price $100,000
Renovations/improvements costs $25,000
Total cost $125,000
 
Lending Value $125,000
Maximum Mortgage (95%) $118,750
Minimum 5% down payment $6,250



RRSP Home Buyers' Plan

Program

The Home Buyers' Plan (HBP) is a program that allows you to withdraw funds from your registered retirement savings plans (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability. You can withdraw up to $25,000 in a calendar year.

Your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the HBP, or they may not be deductible for any year.

Generally, you have to repay all withdrawals to your RRSPs within a period of no more than 15 years. You will have to repay an amount to your RRSPs each year until your HBP balance is zero. If you do not repay the amount due for a year, it will have to be included in your income for that year.

FIRST TIME BUYER:

You must be a first time home buyer or you (or your spouse or common law spouse) must not have owned a home that you occupied in the last five (5) years. Provided you satisfy all requirements, you may re-activate the program. Before withdrawing RRSP funds, you must have a written agreement to purchase a home.

PRINCIPAL RESIDENCE:

You must use the home as your principal residence in Canada within one year of completing the purchase.

RESIDENT OF CANADA:

You must be a resident of CANADA for the period between the date of withdrawl of RRSP funds and the closing date of the house purchase.

ANY HOME (NEW OR RESALE):

The home can be new from the builder or resale.

NO MONEY OWED FOR PRIOR RRSP BORROWINGS:

At the time of the RRSP withdrawal, you must NOT owe any money to your RRSP for a prior borrowing from RRSP to buy a home.

90 DAY DEPOSIT;

R.R.S.P. funds must have been on deposit for at least 90 days before they can be used under the program.

WITHDRAW RRSP WITHIN 30 DAYS OF COMPLETING HOME PURCHASE:

RRSP funds cannot be withdrawn later than 30 days after the house purchase is completed and if multiple withdrawals, they must be made in the same calendar year or in January of the next year.

FUNDS FOR ANY USE:

The funds can be applied to the downpayment, land transfer tax, legal fees and disbursements, improvements to the home, even furniture and appliances.

MAXIMUM $25,000.00 PER BUYER:

You can borrow up to a maximum of $25,000.00 from your R.R.S.P. tax free. Maximum for two spouses (or any 2 buyers) is $50,000.00. Any such qualified withdrawal from RRSP is not subject to tax at time of withdrawal.

PAY BACK:

After an initial grace period of the year in which the withdrawal was made (plus one more full calendar year), you are required to pay back the funds borrowed (beginning in the second year following the year of withdrawal) over a period of 15 years by depositing 1/15th of the amount withdrawn, annually to your R.R.S.P. Prepayments are allowed at any time without penalty. However, if you miss a payment for any given year, you will not be allowed to pay it back and it will be included in your taxable income for that year. If a person paying back dies or becomes a non-resident or becomes 70 years of age, additional repayment rules apply.

Existing homeowners can use the HBP to purchase a more accessible home or a home for a disabled dependent relative where the individual withdrawing the funds:

  • Qualifies for the disability tax credit (DTC) and is buying a home that is more accessible for the individual or is better suited for the care of the individual.
  • Is related to a disabled individual who qualifies for the DTC and is buying a home for the benefit of the disabled individual that is more accessible for, or better suited for, the care of the disabled individual.
  • Is related to a disabled individual who qualifies for the DTC and is withdrawing an amount for the disabled individual to buy a home that is more accessible for, or better suited for, the care of the disabled individual.

You can participate in the HBP more than once if:

  1. Your HBP balance for your previous participation is zero on January 1st  of the year you want your   new participation in the HBP to occur
  2. You meet the first-time buyer’s condition and all other HBP conditions that apply to your situation.

For more information, click link: 

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html



5% Down Payment Program

With as little as a 5% down payment, from personal or other sources (see below for eligible other sources), all home buyers have access to mortgage insurance enabling then to enter the housing market, as long as they can manage the costs of home ownership.

Details

  • Mortgage insurance for 95% mortgages is available to both first time and repeat home buyers. Homebuyers have the option of using personal sources, such as savings or gifts, or other sources, such as lender incentives, borrowed funds/credit, or sweat equity (the amount of money spent to help construct the home) for the required 5% down payment.
  • Buyers using the program may consume up to 32% of their gross monthly household income for payments on loans for 95% of the lending value of the house where the 5% down payment comes from other sources, will be 2.9% of the mortgage loan. This premium can be added to the mortgage.
  • The maximum amortization period is 25 years.
  • Insurance premiums on loans for 95% of the lending value of the house where the 5% down payment comes from personal sources will be 2.75% of the mortgage loan.
  • Insurance premiums on loans for 95% of the lending value of the house where the 5% down payment comes from other sources will be 2.9% of the mortgage loan. This premium can be added to the mortgage.
  • Borrowers are required to demonstrate, at the time of application, their ability to cover closing costs equal to at least 1.5% of the purchase price.
  • Where the minimum equity requirement is being met by way of a financial gift, the funds must be in possession of the borrower 15 days before making an offer to purchase.

For more information call CMHC at 1-800-668-2642 or access through www.cmhc.ca



HST New Housing Rebate

Program

You may be eligible to claim a rebate for a part of the HST you pay on the purchase price or cost of building your home if:

  • You buy a new or substantially renovated home (including the land or if you lease the land) from a builder.
  • You buy a new mobile home (including a modular home) or a floating home from a builder or vendor.
  • You buy a share of capital stock of a co-operative housing corporation.
  • You construct or substantially renovate your own home, or carry out a major addition (or hire another person to do so).
  • Your home is destroyed in a fire and is subsequently rebuilt.

Details

  • Resale homes are exempt from the 6% HST.
  • New homes are subject to the 6% HST. New home buyers can apply for a 36% rebate of the 6% HST applicable to the purchase price to a maximum of $7,560 for homes costing $350,000 or less before HST.
  • For new homes priced between $350,000 and $450,000 before HST, the HST rebate would be reduced proportionately.
  • New homes priced $450,000 before HST or higher would not receive a rebate.

NOTE:

In the GTA, most builders include the HST in the price of the house, and any rebate would be assignable to the builder as they would be absorbing the net HST cost.



Land Transfer Tax (LTT) Rebate Program

Program

First-time home buyers who purchase a newly constructed home will receive a rebate of the Land Transfer Tax (LTT). All other buyers will continue to pay the full applicable tax. The maximum LTT rebate is $2,000.

Details

  • The 1996 Ontario Budget announced a special one-year provision to the LTT that was
    renewed every year and is now a permanent program.
  • First time buyers who purchase a newly constructed home will receive a rebate of the LTT. All other buyers will continue to pay the full applicable tax.
  • The maximum rebate is $2000. If an individual owns less than 100% interest in the newly built home, the amount of the rebate would be reduced and calculated according to the amount of interest in the home.
  • A rebate of $2,000 is equivalent to the LTT payable on a purchase price of $227,500 (net of HST).
  • Only individuals who are at least 18 years of age, have not previously owned an interest in a home anywhere qualify for the rebate. Also applies to their spouse.
  • Individuals who have received an Ontario Home Ownership Savings Plan (OHOSP) based refund of the LTT do not qualify.
  • A real estate transfer tax is assessed on real property when ownership of the property is transferred from one party to another. The tax is a percentage of the value of the property based on a graduated scale:
  • 0.5% on amounts up to and including $55,000
  • +1.0% on the amount exceeding $55,000 up to and including $250,000
  • +1.5% on amounts above $250,000 up to and including $400,000 for residential /
        +1.5% on the amount in excess of $250,000 for business properties
  • +2.0% of the amount in excess of $400,000 [residential only]

For more information call the Ontario Finance Ministry at 1-800-263-7965.

These four portions added up together total the LTT payable. A simple formula is as follows:
**Purchase Price Calculation of LTT
$0 to $55,000 0.5% x purchase price
$55,001 to $250,000 (1% x purchase price) minus 275
$250,001 to $400,000 (residential)
$250,001 plus (business)
(1.5% x purchase price) minus 1525
$400,001 plus (residential only) (0.2% x purchase price) minus 3525

**If the purchase price falls within this range, then apply the appropriate formula to the purchase price. For example on a $200,000 property, the LTT calculation would be [(1% x $200,000) minus 275 = $1725].