Buying your first home is an exciting milestone, but it can also be overwhelming. From navigating the housing market to understanding mortgage options, the journey to homeownership is filled with important decisions.
If you're a first-time home buyer in Ontario, you're not alone in feeling a mix of excitement and uncertainty. Let's explore everything you need to know to make informed decisions and find your perfect home.
Realistic Expectations and Financial Preparations
Navigating Ontario's competitive housing market can be challenging, but with the right approach, you can overcome potential obstacles and find your dream home. Rejection is normal, but don't let it discourage you – persevere, stay positive, and keep searching for the right home.
Setting realistic expectations is crucial when seeking to buy a home in Ontario. With only 50,000 active residential listings in October 2023 and an average price of $855,990, the market can be financially daunting. To overcome these challenges, focus on building a strong and substantial down payment. Mortgage calculators and advice from our advisors can help you gauge your purchasing power and overall financial preparedness.
Beyond financial readiness, connecting with experienced real estate agents is instrumental in preparing for the home buying process in Ontario. An experienced agent specializing in your desired area can guide you through market activity, offer crucial insights, and help you develop effective strategies for finding the perfect home.
Navigating Down Payments and Mortgage Options
Saving for a down payment is a key step on the journey to owning your own home. In Canada, on average home buyers had to save for 4.2 years for their down payment. First-time home buyers usually needed longer, with 21% of homebuyers saving for more than six years. There are a couple of different government programs offered in Ontario to help support first-time home buyers in building their down payment, such as the First Home Savings Account introduced in 2023. Tools like this can help you secure a solid down payment. Don't worry about hitting the 20% threshold; with the approval of Canada Mortgage Housing Corporation (CMHC) you can put down as low as 5% to 10% on most home purchases, allowing you to relax a bit and focus on saving.
When assessing mortgage options, you should also consider the benefits of 3-year and 5-year mortgage terms. Opting for a 3-year mortgage can provide shorter-term predictability with the potential for a lower interest rate, while a 5-year mortgage offers greater stability and protection against interest rate fluctuations. Consulting with our advisors can help you make informed decisions that align with your financial goals and circumstances, creating a seamless and successful home buying experience.
Exploring First-Time Home Buyer Programs
Ontario offers various financial assistance programs to support first-time buyers. Before jumping into the process, it's crucial to understand the qualifications for being considered a "first-time home buyer" in Ontario. Typically, this pertains to individuals who have never owned a home. However, exceptions exist, such as in cases of separation or divorce. It's essential to grasp these nuances to capitalize on potential governmental assistance programs.
First Home Savings Account
The First Home Savings Account (FHSA) is a specialized savings product designed to assist you in saving for your first home purchase. This account offers unique benefits, such as tax advantages and potential government incentives, to help you achieve your homeownership goals.
FHSA combines the features of a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA). Similar to an RRSP, contributions made to the FHSA are eligible for tax deductions. On the other hand, like a TFSA, withdrawals from the FHSA that are used for purchasing a first home are exempt from taxation.
To qualify for a FHSA, you must:
- Be at least 18 years old
- Be a Canadian citizen or permanent resident of Canada
- A first-time home buyer (meaning, you and/or your spouse or common-law partner) have not owned a home in the year the account is opened or the preceding four calendar years.
Ontario Land Transfer Tax Refund
If you qualify as a first-time home buyer in Ontario, you could be eligible for the provincial land transfer tax refund. The rebate can go up to $4,000 for homes priced over $368,000. The land transfer tax is not applicable for homes priced below this value. It's a nice chunk of change that can make quite the difference when budgeting for your new home.
To qualify for the refund, you must:
- Be at least 18 years old
- Be a Canadian citizen or permanent resident of Canada
- Live in the home you're purchasing within nine months
- Apply within 18 months of registration
If you're married, you'll also need to take into account your partner's property history because it could affect your ability to claim the refund. If your partner acquired a home individually while you've been married, then neither of you would be eligible for the tax refund. But, if your partner's property was purchased or inherited before you got married, you could still be able to claim some of the refund.
The Home Buyers' Plan
The Home Buyers' Plan (HBP) is a program offered by the Government of Canada to help first-time home buyers get into the market. If you're eligible, you can withdraw up to $35,000 from your Registered Retirement Savings Plan (RRSP) towards the down payment on your first home. If you and someone else are buying a home together, you can each withdraw from your individual RRSPs to withdraw a combined $70,000. The withdrawal is tax-free as long as it's paid back within 15 years.
To qualify for the HBP, you must:
- Be a first-time home buyer
- Be a resident of Canada
- Use the home within a year of purchasing it or building it
First-Time Home Buyer Incentive
First-Time Home Buyer Incentive is a shared equity program with the Canadian government and can help you if you're struggling to come up with a down payment. Eligible Canadians can apply for a loan worth either 5% or 10% of a home's purchase price.
The Home Buyers' Amount
The Home Buyers' Amount was introduced as part of "Canada's Economic Action Plan" in 2009 to assist Canadians in purchasing their first home. It was created to help recover closing costs like legal expenses, inspections, and land transfer taxes that can add up for first-time home buyers
GST/HST Housing Rebate
The GST/HST New Housing Rebate is available to Canadians who buy a newly built home, significantly renovate an existing home, or rebuild a home that was destroyed. If you qualify, the rebate allows you to recover some of the goods and services tax (GST) or the federal part of the harmonized sales tax (HST) that you paid toward these purchases.
First-Time Home Buyers' Tax Credit
If you're stepping into the realm of home ownership for the first time, you may be eligible for a non-refundable tax credit of up to $750 when you buy a qualifying home. The calculation for the Home Buyers' Tax Credit (HBTC) involves multiplying $5,000 by the lowest personal income tax rate. For instance, in 2022, this rate was 15%, resulting in a tax credit of $10,000. In simpler terms, this can translate to a tax reduction of up to $1,500 for the year you make your home purchase.
Purchasing a home is a significant step, both in terms of finances and emotions, and we completely understand that. Our team is here to support you every step of the way. Reach out to one of our advisors today, and together, let's create a plan to help you step into your first home. It's an exciting journey, and with the appropriate tools and guidance, you'll soon be unlocking the door to your dream of homeownership. Schedule an appointment today to get started!
