Home Buyer Plan for First Time Home Buyers (HBP)
Do you have an RRSP? The First Time Home Buyers Plan is a federal government program that allows Canadians to withdraw money from their registered retirement savings plan (RRSPs) to contribute to their down payment on their home. Do you know that you can borrow up to $25,000 from your own RRSP to purchase a home. Well, you can, but only under the following four conditions:
- Neither you or your spouse have owned a home in the last five years
- You must enter into a written legal agreement to either buy or build a home (a banks' mortgage pre-approval does not count, but an accepted offer to purchase does).
- You must be buying or building to personally occupy the home within one year (it can't be a rental property)
- You can't still have a balance owing from a previous Home Buyers Plan (HBP)
If you are purchasing a home with someone who also qualifies as a first time home your can each borrow $25,000 for a total of $50,000, how great is that?
You are essentially borrowing from yourself, so you do have to pay it back to your RRSP. However; the good news is that it is not taxed as income. The advantage is that you have a lesser amount that you have to mortgage (and pay interest to the bank). On the downside, that money is no longer in your RRSP earning tax free income until you pay it back.
The money must be paid back over 15 years. You can pay it back faster, it's up to you. The clock starts for paying back 2 years after the withdrawal. This gives you a little breathing room to spend a little extra on your new home the first couple of years if you like.
The Canada Revenue Agency provides information on the First Time Home Buyers Plan on their website. Also, a good resource for helping with the rules and regulations of the Home Buyers Plan is your realtor or your bank.
Property Transfer Tax Refunds for First Time Home Buyers
In BC home purchaser pay a Property Transfer Tax (PPT) of 1% on the first $200,000 or the purchase price and 2% of the remainder of the the purchase price over $200,000. The BC government also helps first time home buyers by eliminating or reducing the Property Transfer tax on homes valued at less than $475,000 if registered after February 19, 2014 (BC's definition of first time buyers is stricter than the federal government because you can't have owned a home anywhere in the world, ever) by offering a refund on the property transfer tax in BC. If you are a first time home buyer and purchase a home for $474,500, then the PPT savings is approximately $7,500. If the property purchase price is between $475,000 and $500,000 then the there is a partial rebate. If the purchase price is more than $500,000 then there is no rebate.
First Time Home Buyers' Tax Credit (HBTC)
The costs associated with purchasing a home can be a particular burden for first-time home buyers, who must pay these costs on top of saving the money for a down payment. Closing costs include one-time items such as lawyer fees, HST (on newly constructed homes), and adjustments (e.g. taxes or utilities prepaid by the seller) that allow you to complete the house purchase.
To assist first-time home buyers with these costs, the government created the First-Time Home Buyers Tax Credit, a $5,000 non-refundable income tax credit (inserted in a new line on tax returns starting in 2009) that will result in $750 in federal tax relief.
Source: Canada Revenue Agency
Canada Mortgage and Housing Corporation (CMHC)
Did you know that you can purchase a home with as little as 5% down. Mortgage insurance is provided by the Canada Mortgage and Housing Corporation (CMHC). One thing to remember is that you pay for this insurance on closing. To find out home much the insurance costs and more details, visit the CHMC website for their homebuying tools.
It is possible to get a refund of a portion of the CMHC insurance premium by making certain energy efficient upgrades to your home. To find out more visit the green section of the CMHC website.