Canada has one of the highest rates of home ownership in the world, with two out of three families in the country owning a house. More and more Canadians are investing in real estate, and smartly so, since it is one of the best investments one can make. Investments in general are volatile, but real estate is one in which you can be sure of a steady increase in its value, and get a substantial return on your investment.
There are so many advantages of owning property; you don’t have to be at the mercy of your home owner, and vary of increased rents or cancelled leases. When you buy your home, the payment you invest builds equity, whereas the money you pay as rent goes to your building or property owner. This equity can in turn be used as a security for any other loan that you may need to take in future.
Investing in your first home can certainly be an intimidating experience, especially since it is one of the largest investments that you would be ever making at that phase in your life. First time home buyers enjoy many benefits, but to qualify as a first time home buyer neither you nor your spouse should not have ever owned a home or made a purchase before.
Do your research
If you are planning to invest in your first home and have zeroed down on your preferred location it is important that you first conduct a research on what incentives are currently available for first time home buyers. No matter which part of the country you plan to invest, be it Milton, Mississauga, Oakville, Toronto or Burlington, you will find that you can obtain a mortgage pre-approval for the home loan with notably reduced down payment requirements.
In order to ensure that you have saved enough money to pay the down payment and other fees that are involved in your home purchase, you would need to have a clear understanding of the down payment requirement and the loan options you can obtain a mortgage pre-approval for.
As a first time homebuyer, you can take advantage of the two major incentives that the Government of Canada has introduced. These are the Home Buyers’ Plan (HBP) and the First-Time Home Buyers’ Tax Credit (HBTC), and are both a great way to help save money when buying your first home.
Let’s get to know a little bit more about each of these incentives and how you can benefit while buying your first home. First time homeownership has become so much more affordable and attainable than earlier, with the lowered down payment amounts and subsidized interest, and you will find that there really is no time like the present to make your dream come true.
Registered Retirement Savings Plan (RRSP) First-time Home Buyers’ Plan
This excellent initiative from the Canada Revenue Agency will provide you a tax incentive if you are a first-time home buyer, as you can use your retirement savings to buy or build a home. Under this plan, you can withdraw up to $25,000 from your Registered Retirement Savings Plans with absolutely no tax penalty to buy or build a home for yourself or for someone related to you with a disability. Of course, you should be a resident of Canada who is purchasing your first home or else it has been at least 4 years since you have last owned a home, in order to qualify for the Home Buyers Plan. You will need to enter into a written agreement to buy or build a home before you can withdraw funds within the Home Buyer’s Plan. Additionally, in order to be eligible, you also must occupy your home as your primary residence. You have a maximum time period of 15 years to pay back the amount that you withdraw from the plan in yearly installments.
Here is more information on the Home Buyers Plan that can help you decide if you are a fit:
• The amount being withdrawn should have been in your RRSP account for a minimum period of 90 days.
• If you are buying your home jointly with a spouse, you may withdraw up to $50,000.
• You can repay the RRSP in yearly installments for up to 15 years, which starts from the second year after withdrawal your yearly repayment will be 1/15th of the amount you withdrew. In case you have not contributed to your RRSPs for one or more of these years, the amount will be added to your income at tax time.
The Home Buyers Plan actually allows you take money out of your RRSPs tax-free and is a great way for you to put a down payment on your new home if you have an RRSP account.
If you don’t have an RRSP account, it’s not too late, and you can still benefit from the Home Buyers Plan. All you need to do is to open up an RRSP account and start putting your savings in it. You will receive a credit/refund at tax time, which can be added to your savings or used to pay for other expenses.
First-Time Home Buyers’ (FTHB) Tax Credit
The First-Time Home Buyers’ (FTHB) Tax Credit is Canada’s Economic Action Plan incentive which gives first time home buyers assistance with the huge costs associated with the purchase of a home. The various costs involving the purchase of a home, such as land transfer taxes, legal fees and disbursements can be a great strain on your finances, as in addition to bearing these costs, you will also require to save money for the down payment. According to this incentive, a $5000 income tax credit is given for the whole year in which you buy your first home. If you are purchasing the property with your spouse, you can split this credit, but not exceed $5000 so you can expect up to $750 in federal tax relief.
As with the Home Buyers’ Plan you can be eligible for incentive only if the home you purchased is used as your principal residence. In order to receive this credit, all you need to do is to notify your tax preparer about the purchase of the qualifying home, and you can be sure that you receive this credit.
Arm yourself with The Home Buyers’ Plan and First Time Home Buyers’ Tax Credit to get the most out of your first time home purchase.
Buy / Sell / Invest in property – Pam Bhasin