Are you planning to buy a home for the first time?

If so, you’ve come to the right place. Buying a home is one of the most financially stressful things that you’ll ever do. You need to plan ahead for a down payment, monthly mortgage installments, other expenses including land fees, home insurance and more.

With the number of steps, requirements and the amount of money involved, anyone can start getting anxious about it. Luckily, there are a number of government programs that could help ease you into the process and make your life easier once you’ve bought the home of your dreams.

But first, you need to find out if you’re eligible as a first-time home buyer.

Who qualifies as a first time home buyer?

Although some programs for first time home buyers have different eligibility criteria, generally you are considered a first-time homebuyer if you meet the following criteria:

  • You have never bought a home before
  • You’ve recently experienced a breakdown of a marriage or common-law corporation
  • In the last 4 years, you did not live in a home that you or your current spouse or common-law partner had

Even with these criteria met, you still have to plan for your down payment and CMHC insurance before you set out to buy your first property on your own.

Guidelines For Down Payment And CMHC Insurance

Here are some general guidelines relating to the purchase of a house in Canada.

Down payment

In Canada, you must put down a minimum of 5% as a down payment for homes that cost less than $500,000. If the buying price is between $500,000 and $1 million, the down payment will be 10% on the price of the house. For houses over $1 million, the smallest down payment is 20%.

CMHC Insurance (Mortgage Default Insurance)

If you have a down payment of less than 20% of the home’s value, you must purchase CMHC Insurance, also called Mortgage Default Insurance. It helps protect the lender’s interest in case you don’t make your monthly payments on time. It is designed to secure the interests of economic associations when they lend to people who don’t make a large enough down payment. The mortgage insurance will cost you about :

  • 3.6% of the mortgage amount if your down payment ranges from 5% to 9.99%.
  • 2.40% for down payments ranging from 10% to 14.99%
  • 1.80% for down payments ranging from 15% to 19.99%.

However, CMHC Insurance isn’t open for homes with a buying price of more than $1 million.

6 Top First Time Home Buyer Programs In Canada

With Housing markets skyrocketing throughout Canada, it’s more difficult than ever to buy a home for many people. That’s where first-time buyer programs come in. Many government institutions, at a federal or provincial level, offer these programs to make it easier and more stress-free for first-time buyers to purchase a new home.

As a first time buyer, you should be aware of such programs that apply to you. These may include tax benefits, rebates, incentives and easy funding for your down payment. We’ve selected and briefly explained some of these programs below.

  1. Land Transfer Tax Rebate

Most Canadian provinces charge a land transfer tax when you purchase a house. This is usually between 0.5% and 2.0% of the purchase price of the property and represents the largest financial cost you'll have to pay. In order to help first-time home buyers, some provinces return some or all of this tax if you've qualified for the rebate.

As a first time home buyer, you can receive a return on some of the land transfer tax you pay if you live in British Columbia, Ontario, or Prince Edward Island. First time homebuyers in the City of Toronto are also eligible to receive a return on the city’s land transfer tax.

2. Provincial First-Time Home Buyer Programs

Most Canadian first-time home buyer programs are established at the federal level, but there are some provinces that have their own programs as well. Quebec, for example, deals an extra tax credit (maximum of $750) to first-time home buyers.

3. First Time Home Buyer Incentive

With the first-time home buyer incentive offered by the Canadian Government, you can reduce your monthly mortgage payments as a first-time buyer, without further complicating your finances. It’s a shared-equity mortgage with the Government of Canada where a first-time home buyer is supported for:

  • 5-10% of the price upon purchasing a newly constructed home
  • 5% of the price upon purchasing an existing home (resale)
  • 5% of the price of a new or existing manufactured or mobile home

The government essentially makes a shared investment in your home where they share in both increase and decrease in its value.

Pros: With the incentive, a borrower may just have to deal with their monthly mortgage payments, instead of thinking about affording a down payment. The government helps make a larger down payment, resulting in a smaller mortgage with lower monthly costs.

Cons: You have to repay the incentive based on your property’s fair market value when the time comes. If you took a 5% incentive, you’ll have to repay 5% of the homes value, and 10%if you took 10% as an incentive.

The incentive must be repaid at the end of 25 years or when the property is sold, whichever comes sooner. There’s no prepayment penalty if you decide to repay the incentive in full before that.

4. RRSP Home Buyer’s Plan

If you haven’t bought a home within the last four years - or lived in a partner’s home in the same time frame - you can qualify for the RRSP Home Buyer’s Plan. With this plan, you will be able to use up to $35,000, tax-free, from your RRSP to reserve, to fund your down payment. Just keep in mind that the money must be in your RRSP at least 90 days before securing your new house.

This First Time Home Buyer’s Plan is beneficial for Canadians because, usually, early removals from RRSPs are measured as taxable income. However, in this case they’re discharged, but you must start repaying the amount borrowed from the RRSP.

5. First-Time Home Buyer’s Tax Credit

The First-Time Home Buyer’s Tax Credit, presented in the 2009 central budget, presents first-time buyers in Canada with the opportunity to recover some of the price linked with their purchase. It benefits in offsetting legal fees, checkups, and other related final costs. The First-time Home Buyer’s Tax Credit is a non-refundable credit, priced at $750.

6. New Housing Rebate

The GST/HST New Housing Refund offers money back to Canadians who buy a fresh built home, significantly renew a current home or reconstruct a home that was damaged due to fire. In all three cases, a person will pay GST/HST on what they buy. The GST portion of new home buying or renewal can be rebated to all Canadians who qualified as a first time home buyer.

Each of these programs come with their own set of pros and cons – for instance the first-time home buyer incentive does allow you to pay a larger down payment but the amount you borrowed must be repaid as a percentage of the home’s total value. So it’s best you decide which program is better for you after consulting with a professional.