Buying a home, especially for the first time, is an absolutely thrilling, frightening, and slightly overwhelming task. Your home is the biggest purchase you will ever make, and it’s imperative to your continuing financial health that you do it right!
While many of us would rather avoid the stresses of home ownership altogether and continue renting, there are some serious perks to owning a home. The biggest being that owning your own home is an investment in your future.
Rather than depleting your bank account every month to pay rent and having that money go nowhere, paying off your mortgage every month is getting you that much closer to total homeownership. Once you retire or decide to sell again, you’ll have that sweet little nest egg already set up!
If you are considering buying your very first home, there are some fantastic incentive programs that will make it just that much easier for you! Below we outline the first-time home buyer programs that apply to those purchasing in Edmonton or its surrounding areas.
One of the biggest struggles that many first-time home buyers face is coming up with a down payment to purchase a home. CMHC-insured financing is available for first-time home buyers allowing you to purchase a home with as little as 5% down.
This is a huge deal, considering that when you buy a home you also need to cover closing costs, which can push home ownership out of the question for many who are buying for the first time.
A good example could be a purchase price of $400,000 – a common price of a single-family home in Edmonton. It can be difficult to have $40,000 to $80,000 on hand, and this doesn’t even account for closing costs. CMHC takes on 95% of the total purchase price of your home, allowing you to put down only $20,000. This truly makes buying a home far more accessible for everyone.
The slight downside to this is that CMHC has recently increased their mortgage insurance premiums by 15%. This applies to any down payment of less than 10%.
To access more information, check out this CMHC Fact Sheet.
In order to be considered, you must meet the following conditions:
- Your home must be located in Canada and considered your principal residence.
- You must have a down payment of at least 5% of the purchase price.
- Your home-related expenses must not exceed 32% of gross household income, which may include utilities, property taxes, and condo fees if applicable.
- Your total monthly debt load must not exceed 40% of gross monthly household income. Debt such as personal loans, car payments, and credit cards would need to be factored into this percentage.
- You must be able to pay closing costs equal to at least 1.5% of the purchase price. Closing costs may include lawyers’ fees, GST, land transfers, and more.
Home Buyers’ Plan (HBP)
It is likely that your friends or family who already own homes have told you about the CRA’s Home Buyers’ Plan or HBP. This incentive allows you to withdraw $25,000 from your RRSP’s without a tax penalty. This was recently expanded from $20,000 to $25,000.
There is one caveat – once you withdraw your $25,000, you must pay it back into your RRSP’s over a period of time. You generally have 15 years to make repayments and they begin 2 years after your original withdrawal. A quick side note – repayments do not affect your RRSP deduction limit.
In order to participate as a first-time home buyer, you must meet the CRA’s HBP eligibility and RRSP withdrawal conditions.
For more details, please visit the CRA’s HBP webpage.
First-Time Home Buyers’ Tax Credit (HBTC)
Since 2009, the CRA has offered a non-refundable tax credit based on $5000 to home buyers who qualify.
“The HBTC is calculated by multiplying the lowest personal income tax rate for the year (15% in 2009) by $5,000. For 2009, the credit will be $750,” according to an excerpt from the CRA website.
In order to qualify for the tax credit, you will need to meet the following conditions:
- You or your spouse/common-law partner purchased a qualifying home (which includes both existing homes or new builds, single-family homes, semi-detached homes, townhouses, mobile homes, condominium units, and apartments in duplexes, triplexes, fourplexes, or an apartment.)
- You did not live in another home owned by you or your spouse/common-law partner in the year of acquisition or the previous 4 years.
For more details about how to claim your HBTC, please visit the CRA’s webpage.
Edmonton’s First Place Program
For those who are finding it tough to break into Edmonton’s housing market, which happens to be one of the most expensive in Canada, there is a new affordable housing program available called the First Place Program.
Edmontonians who have never purchased a home before now have the option to participate in the First Place Program that gives first-time home buyers a variety of options to make buying a home more affordable.
A big perk includes a 5-year land payment deferment, which according to their example could save you $33,000 right off the bat. That’s more money to put towards paying off your mortgage, saving you interest, or giving you access to extra money that you can invest. For more details, visit the First Place Program website.
In order to participate you must meet the following conditions:
- You must be able to qualify and obtain pre-approved financing.
- You must provide a minimum of 5% down payment, and have a suggested maximum gross debt service ratio of 32% or total debt service ratio maximum of 42%.
- You must be a first-time home buyer in Alberta.
- You must agree to be full-time occupants and residents of the home for at least five years.
- You must have a personal net worth less than $25,000, excluding a primary vehicle, lock-in or group RRSP, and the down payment required for the home.
- You must be a Canadian citizen or have permanent resident status.
- You must be employed and have a combined household income of no more than $117,000.
- You may use a co-signer to qualify for and obtain mortgage approval.
Need help understanding the ins and outs of purchasing a home for the first time? An experienced REALTOR®, like Nichola Elise Ryhanen, can help simplify the process for you.
Learn more about what Nichola does for First-Time Home Buyers or simply call her today to get started! 780-504-1182