Purchasing real estate has been a rising challenge for aspiring first homebuyers due to a combination of higher prices and wage stagnation, but there are a number of government schemes to help young Canadians.
The recent change in market momentum that now favours the buyer – thanks to an increasing number of homes for sale and prices tapering down – will be a welcome reversal for first-time buyers.
Purchasing a first home has never been easy, but price increases stimulated by low interest rates designed to keep the Canadian economy afloat during the pandemic have given the latest generation of first homebuyers a tough assignment.
For young Canadians determined to use real estate as a platform to build wealth, it’s important to understand how to structure your approach.
Incentives and schemes to help you should be investigated so you can decide whether they’re suitable for your circumstances.
Buying your first home is a fabulously exciting ambition and experience, but it can be a little overwhelming. So, we have outlined some of the less-discussed aspects of purchasing that are still important to know.
GST question – Our new Prime Minister Mark Carney has said his government will eliminate GST on newly-built homes of up to $1 million for first-time buyers. Anyone who does pay GST may be eligible for a New Housing Rebate.
Land transfer – Rebates are available on land transfer tax from the governments of Ontario, British Columbia and Prince Edward Island, so long as you’re eligible. The only city permitted to leverage its own land tax, Toronto, also offers rebates to first homebuyers.
Homebuyers’ plan – You can withdraw up to $60,000 from your Registered Retirement Savings Plan (RRSP) to make a down payment. That total doubles for those buying as a couple. The limit was raised from $35,000pp some 14 months ago. The money won’t be taxed so long as you repay your fund in full within 15 years.
Savings incentives – Consider using an FHSA (First Home Savings Account). It’s a government program to help you save for a downpayment. Deposits and withdrawals are tax-free. Income earned from interest, plus any dividends, also avoid tax. You can contribute up to $8,000pa or a total of $40,000 over an uncapped number of years. The deal doesn’t last forever. At year 15, you must use the money for a housing purchase or the cash is taxed.
Stress test – Under Canada’s fiduciary rules, your lender must apply a so-called “stress test” before approving your loan. Effectively, it can only issue a loan that would be affordable if the interest rate of the day was 2% higher. This is a common policy internationally and designed to protect you from the risk of defaulting.
NOTE: The information in this article is general in nature and provided as a market overview only. Always consult your financial advisor or accountant for advice specific to your personal circumstances.