Down Payment Programs Can Help You Achieve Homeownership - Thursday, March 3, 2022
Ian Walterhouse
Thursday, March 3, 2022
Down Payment Programs Can Help You Achieve Homeownership
For many homebuyers, the thought of saving for a down payment can feel daunting, especially in today’s market. That’s why, when asked what they find most difficult in the homebuying process, some buyers say it’s one of the hardest steps on the path to homeownership.
According to a recent report by Canadian Mortgage Trends,
“There is a desperate scramble for housing now amidst a pervading sense of FOMO (“fear of missing out”). Three-quarters of Ontarians (77%) believe it became more difficult over the past year to buy a residential property where they live, and 59% of respondents say that housing prices will be less affordable over the next five years, according to the Ontario Real Estate Association findings.”
And it is not hard to understand why people feel this way, given the low supply of new homes coming to the market and amidst the increases in price. According to the report, in January 2022, the months of inventory measure used by the Canadian Real Estate Association to track the current supply of listings fell to an all-time low of 1.6 months, well below the long-term average of five months.
If you’re finding that your down payment is your biggest hurdle, the good news is there are many down options available that can help you achieve your goals. The key is understanding where to look and learning what options are available. Here’s some information that can help.
Options for Down Payment Assistance:
1) The First-Time Home Buyer Incentive
The Government of Canada’s First-Time Home Buyer Incentive helps people across Canada purchase their first home. The program offers 5 or 10% of the home’s purchase price to put toward a down payment. This addition to your down payment lowers your mortgage carrying costs, making home ownership more affordable.
The First-Time Home Buyer Incentive makes it easier for you to buy a home and lower your monthly mortgage payments. This program is a shared equity mortgage. This means that the government shares in the upside and downside of the property value. It allows you to borrow 5 or 10% of the purchase price of a home. You pay back the same percentage of the value of your home when you sell it or within a 25-year window.
2. The First-Time Home Buyers’ Tax Credit (HBTC)
The Federally administered non-refundable tax credit for first time home buyers with a value of up to $750. It was first introduced in the 2009 federal budget and allows first-time home buyers to recover some of the costs related to their purchase. This non-refundable tax credit covers inspections, legal fees, and other similar closing costs and is valued at up to $750.
Dwellings that qualify for the tax credit include new and existing single-family homes, condos, townhomes, semi-detached homes and duplexes. The requirement to be a first-time buyer does not apply if you have a disability.
The eligibility requirements for HBTC are similar to those for the HBP. You must claim the credit in the tax year you purchased your home.
3. The Home Buyers’ Plan (HBP)
Under the Home Buyers’ Plan (HBP) you may borrow up to $35,000 tax-free from your RRSP (Registered Retirement Savings Plan) to fund your down payment. If you plan to purchase a home with a partner who is also a first-time purchaser, you can each borrow up to $35,000, or $70,000 combined, tax-free.
To qualify for this program, you must be a first-time homebuyer, defined as anyone who has not purchased a house or lived in a home that their spouse owned in the last four years.
A Fourth Option: Down Payment Gifts
In her McLean’s article entitled, Want to get in on Canadian real estate? Welcome to the down-payment hustle, Christina Gonzales provides insight into down payment gifts - a growing trend that is helping many first time home buyers.She highlights the recent CIBC Economics report that stated that there was $10 billion worth of down-payment gifts in Canada’s housing market in 2020 alone, with average gifts of $130,000 in Toronto and $180,000 in Vancouver.
She goes on to say that in the past year, “about 30 per cent of first-time home buyers received down-payment gifts from family members, and 66 per cent of those people said the gifts were the primary source of their down payments. Gift amounts, which hit a record average high of $82,000 nationally, have risen by an average of 9.7 per cent per year over the past five years, outpacing home-price inflation by two per cent.”
Some may refer to this option as the lucky option. It is an option that reinforces the benefit of buying real estate. A down payment gift is often only possible because the parents of many first time homebuyers are home owners themselves. They have seen first hand how real estate helps to build wealth. And that wealth can impact future generations - by continuing to compound the benefits of home ownership.
Bottom Line
If saving for a down payment seems daunting, there are programs available that can help. To learn more about these programs and your options, let’s connect so you can start your home buying journey today.
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