Oct 23, 2023
Do you qualify for the First Time Home Buyer Incentive in Ontario?
For many, buying their first home is a significant milestone, symbolizing financial stability and realizing long-held dreams. In Ontario, the journey towards buying a home has been made more accessible and affordable thanks to the First Time Home Buyer Incentive (FTHBI).
This initiative by the Canadian government aims to aid first-time homebuyers in the competitive real estate market.
In this blog post, we will explore the details of Ontario's First-Time Home Buyer Incentive and how it can help you take the first steps toward owning your dream home.
Click below to jump to sections
What is the First Time Home Buyer Incentive?
Features of the First Time Home Buyer Incentive
Benefits for First Time Home Buyer Incentive
How the First Time Home Buyer Incentive works
Who qualifies for the First Time Home Buyer Incentive?
How much is insurance for a first time home buyer?
Can a first-time home buyer have a co-borrower?
RRSP Homebuyers Plan vs First Time Home Buyers Incentive
First Time Home Buyer Incentive FAQs
What is the First Time Home Buyer Incentive?
On average, a home in Ontario costs upwards of between $800,000 to $900,000. According to Zolo’s October 2023 real estate trends, the average house price is $1,162,828 in Toronto. It’s become challenging for many first-time homeowners to buy their first property.
Increasing real estate costs, inflation, and interest rates have created more barriers to entering the housing market. To help combat rising costs, FTHBI was created to help people on their buying journey.
This incentive helps first-time get access to funding to purchase a home without additional upfront or monthly cost. Participants must meet insured mortgage down payment requirements. It's available for annual incomes of $120,000 or less. The incentive and insured mortgage can't exceed four times the annual income of those involved.
Home buyers who qualify for an FTHBI loan will receive one of the following:
- 5% of the purchase price of an existing home.
- 5% or 10% of the purchase price for a new construction home.
- 5% of the purchase price for a new or resold manufactured or mobile home.
Features of the First Time Home Buyer Incentive
- Shared equity: Under this program, the government provides a shared equity mortgage, which means they'll contribute a portion of the home's purchase price. The specific amount is determined based on the buyer's income and the property's price. The incentive can cover up to 10% of the purchase price for existing homes and up to 5% for newly constructed properties.
- No monthly payments: No monthly payments are required for the program. The shared equity mortgage is repaid after 25 years or upon the home's sale, reducing the financial burden on first-time buyers.
- No interest on the government loan: The government's shared equity portion is interest-free, meaning no extra costs on the incentive amount.
- Eligibility requirements: To qualify, there are several requirements, such as being a first-time homebuyer, having a household income below a specific threshold, and securing a mortgage from an authorized lender. The property must also meet specific criteria.
Benefits for First Time Home Buyer Incentive
There are countless benefits to the program to assist new homeowners with being successful on their journey. Here are the top four reasons why this incentive supports Canadians:
- Reduced financial stress: The program assists in lowering the down payment amount, making homeownership more attainable for first-time buyers. This means you can conserve your savings for other essential expenses.
- Decreased monthly mortgage payments: With the shared equity mortgage, first-time buyers can enter the market with reduced monthly mortgage payments.
- Increased housing options: The incentive broadens your options for choosing a home. You can consider properties that were previously out of your financial reach.
- Financial security: Shared equity lets homeowners build equity without immediate repayment pressure. They only repay the government when selling the property or after 25 years.
How the First Time Home Buyer Incentive works
Let's use a hypothetical scenario to illustrate how Ontario's First-Time Home Buyer Incentive can be used.
Sarah is a 30-year-old professional who lives and works in Toronto, Ontario. She has been renting an apartment for several years and desires to own her home in the city. The high real estate prices and the need for a sizable down payment have been significant obstacles for her.
Fortunately, she discovered Ontario's First-Time Home Buyer Incentive, which could help her become a homeowner. She would then follow the following steps:
Step 1: Check eligibility
The first thing Sarah does is to check her eligibility for the FTHBI. She meets the criteria as a first-time homebuyer with a household income within the defined limits. This is the first hurdle she successfully clears.
Step 2: Financial assessment
Sarah also realizes that more than her savings are needed for a conventional down payment on a Toronto property. With the FTHBI, she can receive a shared equity mortgage from the government, covering up to 5% of the purchase price of a newly constructed home.
Step 3: Property search
With the knowledge that she has the support of the FTHBI, Sarah starts her house-hunting journey. She explores various new developments in Toronto and falls in love with a condo that meets her needs and budget. The condo is listed at $450,000, and Sarah has $22,500 (5% of the purchase price) covered by the government.
Step 4: Mortgage approval
Sarah applies for a mortgage from a recognized lender, and with the assistance of her financial advisor, she successfully secures a mortgage to cover the remaining 95% of the purchase price.
Step 5: Closing the deal
Sarah's offer on the condo is accepted, and she proceeds to complete the purchase. She uses her mortgage for 95% of the property value and the FTHBI shared equity mortgage for the remaining 5%. She finalizes home insurance on the property. There will likely be the need for a home inspection to ensure the home is up to standard.
Step 6: Repayment plan
Sarah enjoys living in her new condo without the immediate financial strain of a large down payment. She is aware that she'll need to repay the government's 5% shared equity mortgage, but there's no need for monthly payments. The repayment can be deferred until she decides to sell the property or until 25 years have passed.
Step 7: Build equity
Over the years, Sarah continues to build equity in her condo as property values in Toronto appreciate. She enjoys the benefits of homeownership, which include building wealth and having a stable place to live.
Step 8: Selling the property
After a few years, Sarah's circumstances change, and she decides to sell her condo. She sells it for a higher price, thanks to the Toronto real estate market's growth. At this point, she repays the government's 5% shared equity mortgage using the proceeds from the sale, without incurring any additional interest charges.
Sarah used Ontario's First-Time Home Buyer Incentive to enter the Toronto real estate market. The program reduced the initial financial burden, making her dream of homeownership a reality. It's important to note that the credit must be claimed within the year of purchase after buying your first home.
Who qualifies for the First Time Home Buyer Incentive?
To be eligible for the First Time Home Buyers' Tax Credit, your home must meet the following requirements:
- The borrower must be a first-time homebuyer within Canada.
- The borrower's household income must be below $120,000.
- The maximum household income of $120,000 (average price of a home $500k-$600k) caps the mortgage at four times that amount ($480k).
- It can be a single, semi-detached, mobile home, condo, or apartment. It can be a new home or an existing home. It can include a share in a cooperative housing corporation that gives you house possession.
- Proper documentation of the property.
- You must intend to occupy the home within one year of purchase.
- You or your spouse must purchase a qualifying home and be registered in your or your spouse's name.
- You must not have owned or lived in a home owned by your spouse in the past four years.
How much does the First Time Home Buyer Incentive cover?
If you are a first-time home buyer, the Government of Canada offers a shared-equity mortgage called the First-Time Home Buyer Incentive. This incentive allows you to receive 5% or 10% funding towards purchasing a newly constructed home and 5% funding towards purchasing a resale (existing) home.
How much is insurance for a first time home buyer?
The average cost for home insurance for a new first time home buyer varies on a few factors. Depending on the property, renovations, and other requirements needed, policies can start around $50 a month.
You’ll need to consider lender requirements. For coverage there may be specific areas of your policy that need to be met for you to buy the house. Most lenders require your property to be fully insured for its total replacement cost, as they want to make sure your home can be rebuilt if it's destroyed. Insurers may also require you to have certain coverage based on your location.
It’s always worth considering additional coverage, such as overland flood damage protection, as this isn’t included in basic policies. It’s important to shop around and explore what the market is offering.
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Can a first-time home buyer have a co-borrower?
First-time homebuyers often have co-signers on their mortgage, which could affect their eligibility for the first-time homebuyer land transfer tax rebate. Be sure to speak with a legal representative to learn more.
RRSP Homebuyers Plan vs First Time Home Buyers Incentive
The RRSP Home Buyer's Plan (HBP) and the First-Time Home Buyer Incentive (FTHBI) are two different programs in Canada aimed at helping first-time homebuyers. They serve different purposes and have distinct features.
If you're planning to buy your first home, you can use the Home Buyers' Plan (HBP) to withdraw up to $35,000 from your Registered Retirement Savings Plan (RRSP) for a down payment. You won't be taxed on this withdrawal if you meet the eligibility criteria of the program. However, you'll need to repay the withdrawn amount to your RRSP over 15 years.
To enhance your finances while purchasing your first home, you can take advantage of both the HBP and FTHBI programs. The HBP facilitates your down payment, while the FTHBI minimizes your mortgage burden.
Nevertheless, understanding the eligibility criteria and limitations of both programs is crucial to ensure that you meet the requirements and take advantage of the benefits. Be sure to speak to a financial expert to support your decision making.
First Time Home Buyer Incentive FAQs
Are you a first-time home buyer in Toronto? If so, you may be eligible for a rebate of up to $4,475 if you're purchasing a new-build or a residential resale property. The same Ontario Land Transfer Tax requirements apply to this rebate so that you can qualify for both. Remember this incentive doesn’t include Toronto home insurance, so you must include that in your budget.
Yes – you can get support from the Canadian government to buy a home in Ontario through the First Time Home Buyer Tax Credit and the First-Time Home Buyer Incentive.
The First Time Home Buyers' Tax Credit was introduced in 2009 to assist Canadians in purchasing their first home. It covers closing costs and doesn't come with any strings attached. As of 2022, the credit provides a rebate of $1,500 for all first-time homebuyers, which is double the previous amount.
First Time Home Buyer Incentive can help you buy your first home
The Ontario First-Time Home Buyer Incentive is a helpful program that addresses the common barriers of high down payments and soaring home prices for first-time home buyers by reducing the financial burden and offering interest-free shared equity.
If you're a first-time buyer in Ontario, explore this program to secure your first home. Don’t forget to ask our brokers for the lowest Ontario home insurance quote.
