There are many great programs in place to help first-time home buyers that you may not even know about. Take, for example, the First-Time Home Buyers’ Plan and the First-Time Home Buyers’ Tax Credit, two government-regulated programs designed to give first-time purchasers a leg up on their dream of homeownership.
What’s the First-Time Home Buyers’ Plan?
The Home Buyers’ Plan helps those individuals who are struggling to save for a down payment. Under the plan, you can withdraw funds from your RRSP to buy or build a qualifying home. You can take out up to $25,000 in one calendar year, and you have 15 years to pay it back (15 years!). You just have to make sure that any funds you’re withdrawing have been in your RRSP for a minimum of 90 days. ALSO, if you’re buying or building with your spouse/common-law partner, they too can withdraw up to $25,000 from their RRSP.*
There are always some conditions (this is a government program, after all!). The good news is they’re actually not that complicated or unreasonable.
The first stipulation: you have to be either be a first-time home buyer or considered a first-time buyer as outlined by the program. You’re considered a first-time home buyer if you haven’t owned a home as your principal place of residence for five years. So, if you are withdrawing money from your RRSP in 2015, you can’t have owned a home any time after January 1st of 2011. Make sense?
Even if you sold a home with a closing date of January 2, 2011, you couldn’t withdraw under the Home Buyers’ Plan until 2016. Other conditions include: entering into a written agreement to buy or build a qualifying home, using the home as your main residence, and being a resident of Canada.
Repaying your Withdrawals
Under the Home Buyers’ Plan, you have 15 years to pay back your RRSP withdrawals (15 YEARS!). Your repayment period starts the second year following the year you made your withdrawals.
Example: If you withdraw your funds in 2015, you have to start making payments in 2017. You can begin your repayments earlier if you like, and you can repay more than the yearly amount due (which is 1/15th of what you withdrew).
First-Time Home Buyers’ Tax Credit (a nice little bonus come tax time)
Following the purchase of your first home, you qualify for the First-Time Home Buyers’ Tax Credit. When you file your return, you can claim an amount of $5000. Your return is calculated by multiplying $5000 by the lowest personal income tax rate for the year. Last year, this rate was 15 per cent. So, $5000 x 15% = a $750 credit, which you can use to help furnish your new home, pay down debt, etc. It’s a nice benefit after the expenses associated with buying your home.
The First-Time Home Buyers’ Plan and the First-Time Home Buyers’ Tax Credit are two great opportunities if you’ve been thinking about entering the real estate market.
Individual lenders often offer incentives for first-time buyers as well, so make sure that you do your research and talk to someone knowledgeable. And for other great money saving and home buying tips, check out our series of DID YOU KNOW videos here.
*Note: some RRSPs, like locked-in or group RRSPs, do not allow you to make withdrawals, so make sure you speak to your RRSP issuer before you begin the home buying process.