First Time Home Buyer Programs
What Are You Eligible For?
Written By: Mariko Baerg, REALTOR of Bridgewell Real Estate Group
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As a first-time homebuyer, you’ll want to be familiar with various first time home buyer programs that apply to your situation. The government has a number of programs in BC that offer additional funding or cost exemptions to make your home buying process more affordable and stress-free. While not all of these first time home buyer programs work for everyone, it’s good to at least be aware of them so you can make an informed decision on whether or not you will utilize them. Whether it’s a rebate you may qualify for, a tax-efficient way of funding your down payment, there’s information you need to know to navigate the buying process and potentially save yourself some money along the way.
Here are some of the key programs/options that you’ll want to be aware of:
First Time Home Buyer Loan: BC HOME Partnership
The BC Home Owner Mortgage and Equity (HOME) Partnership is a new loan in British Columbia in which first time home buyers can apply for an interest free loan that will match their down payment up to $37,500. The loans are interest free for the first five years, and to be eligible you must be a Canadian citizen or permanent resident who has never previously owned a property. The home cannot exceed a purchase price of $750,000, and the home buyer must be pre-approved for a mortgage and have a gross household income of less than $150,000. Applications opened in Jan. 16, and the program ends March 31, 2020.
To provide a further understanding and different scenarios of how the first time home buyer loan might work, see the below examples:
$475,000 purchase price, 2.5% personal down, 2.5% matching down
This first-time buyer has saved $11,875 towards their down payment, or 2.5% of the home’s purchase price. Through the program, the Province will contribute $11,875, equal to the buyer’s 2.5% down payment. This brings the total down payment to $23,750 or 5% of the home’s purchase price, as required by Canada Mortgage and Housing Corporation
- Minimum Equity Required: $23,750 (i.e. 5% of $475,000)
- Down Payment Sources: $11,875 Traditional & $11,875 Non-traditional
- Purchase Price: $475,000
- Total Loan: $451,250
- Loan to Value Ration (LTV): 95%
- Premium Rate Due: 3.85% (non-traditional sources)
$750,000 purchase price, 7% personal down, 5% matching down
The first-time buyer in this example has saved 7% of the home’s purchase price as a down payment, or $52,500. A 5% down payment is required for the first $500,000, and 10% for the remaining portion. This means the minimum down payment required for a home valued at $750,000 is $50,000. The Province will meet the buyer’s contribution up to 5% of the home’s purchase price. In this example, the program will contribute $37,500 towards the down payment, allowing this buyer to put a total of $90,000 ($52,500 personal + $37,500 loan) towards the down payment of their first home.
- Minimum Equity Required: $50,000 (i.e. 5% of $500,000 and 10% of $250,000)
- Down Payment Sources: $52,500 Traditional & $37,500 Non-Traditional
- Total Loan Amount: $660,000
- LTV: 88%
- CMHC’s supplemental down payments premium calculation applies – in this case the down payment from traditional sources is less than 10 percent of the lending value therefore the premium must be calculated based on the LTV taking into consideration the down payment from traditional sources only.
- LTV based on traditional sources only is 93%
- Premium Rate Due: 3.60% (traditional sources)
Here are more details on the BC HOME Partnership loan.
GST New Housing Rebate
For newly built homes, first time home buyers are able to apply for a GST credit from the government and/or the developer. The GST in BC is equal to 5%, and as a home buyer you may be eligible for a rebate of 36% of the 5% GST. There is a full general rebate for homes that are under $350,000 that a buyer intends on living is an his/her permanent residence, and there are partial rebates up to $450,000.
Let’s brush up our math skills for a little example:
Assume the purchase price of a new home is $350,000 excluding G.S.T. The gross G.S.T. is $17,500 (5% of $350,000). The G.S.T. New Housing Rebate is 36% of $17,500 (5% GST), which is $6,300. Thus, the applicable G.S.T. is $17,500 (5%) less $6,300 (36% of 5% on $350,000), which equals $11,200. (GST payable after rebates)
For homes valued between $350,000.00 and $450,000.00, the rebate is gradually reduced and is calculated by using the following formula (get ready to brush up on your high school math):
$6,300 x [$450,000 – the purchase price] / $100,000
For example, assume the purchase price of a new home is $400,000 excluding G.S.T. The G.S.T. New Housing Rebate is
$6,300 x [$450,000 – $400,000.00] / $100,000
which equals $3,150. The gross G.S.T. would be 5% of $400,000.00, which equals $20,000.00, less the partial G.S.T. New Housing Rebate of $3,150.00, for a net tax of $16,850.00.
Here are more details of the GST New Housing Rebate.
RRSP Home Buyer’s Plan
The Home Buyers’ Plan (HBP) is a program that allows you to withdraw up to $25,000 tax-free in a calendar year from your registered retirement savings plans (RRSPs) to fund your down payment for buying or building a qualifying home for yourself or for a related person with a disability. The money must be in your RRSP for at least 90 days before the purchase of your house for it to be valid.
The Home Buyer’s Plan is advantageous for Canadians because generally speaking, early withdrawals from RRSPs are considered taxable income. In this case, they’re exempt but you must start repaying the amount borrowed from the RRSP two years after you buy over a 15-year period.
Here are more details of the RRSP Home Buyer’s Plan.
First Time Home Buyers Program: Property Transfer Tax Exemption
The property transfer tax cost is as follows:
1% on the 1st $200,000
2% on the balance up to $2,000,000
3% on the balance above $2,000,000
If you are a first time home buyer that is planning on using the home as your primary residence and purchasing a home for less than $500,000 then you may be eligible for a full exemption. There are also partial exemptions up to $525,000. To qualify for a full exemption, at the time the property is registered you must:
- be a Canadian citizen or permanent resident
- have lived in B.C. for 12 consecutive months immediately before the date you register the property or filed at least 2 income tax returns as a B.C. resident in the last 6 years
- have never owned an interest in a principal residence anywhere in the world at any time
- have never received a first time home buyers’ exemption or refund
Here are more details for the Property Transfer Tax exemptions for first time home buyers.
First Time Home Buyer’s Tax Credit
This credit, introduced in the 2009 federal budget, allows first-time buyers in Canada the opportunity to recover some of the costs associated with their purchase. It helps offset legal fees, inspections, and other similar closing costs. The First-time Home Buyer’s Tax Credit is a non-refundable credit and is valued at $750.
Here are more details for the First Time Home Buyer’s Tax credit.
Interested in purchasing your first home and utilizing one or more of the first time home buyer programs? You’ll want to make sure that you have the right team to lead you in the right direction. Bridgewell Real Estate Group specializes in first time home buyers, and are well aware of the programs and options available that are specific to first time buyers! Call us at 604-765-0376. Prefer text? 604-319-0200 or email [email protected] to start a conversation.
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