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So, after years of struggle and inconveniences of renting, you are looking for independence and decided to purchase your first home. Great decision! but there is a big hurdle that you will need to cross first. The hurdle of upfront costs.
Know that without down payment assistance, in Canada, the minimum amount for a down payment is 5% for all the properties that are $500,000 or less. The 5% may not seem a big number, but when represented in dollars, the amount can be daunting. The price is even bigger for those who make only a modest income.
Before delving into the programs that can assist you with a down payment, let’s find out what exactly you will have to pay as an upfront cost.
What is a Minimum Down Payment?
A downpayment is the amount of money you put towards the purchase of a home. The lender takes the down payment from the purchase price of your home. The rest of the price is covered by the mortgage.
The minimum amount for the down payment depends on the purchase price of the home. If your down payment is less than 20 percent of the price of your home, you should purchase mortgage loan insurance.
For a fair comparison, let’s take the purchase price of a house with a minimum amount of down payment. If the price of a home is $500,000 or less, the down payment will be 5%. If the purchase price of a house is $500,000 to $999,999, the minimum amount of down payment will be 5% of the first %500,000 of the purchase price and 10% for the portion of the purchase price above %500,000. For a house with a price of $1 million or more, the down payment will be 20% of the purchase price.
Example of Down Payment
For example, if the purchase price of your home is $40,000, you will need a down payment of 5%. The purchase price multiplied by 5% is equal to $20,000. If the home price is $600,000, the first amount is 5% of the first $500,000 or $25,000. The second amount will be 10% of the remaining balance of $100,000 or $10,000. The total amount after adding will be $35,000.
If you have no regular employment or have a poor credit history, your lender may require a larger down payment. The minimum down payment should come from your own funds. It is better to save for a down payment and minimize your debts. The calculation of the minimum down payment depends on the purchase price of the home.
So, how do you plan to pay this whopping amount in a down payment? Looks like a dead end? Not anymore, as there are government down payment assistance programs that support first-time homebuyers with limited income.
You may not have heard about these programs before or be familiar with how they work, but if you are serious about buying a house, it is definitely worth your time to investigate. With little consideration, you can find the benefits these programs may hold for you.
Additional Read: How to Get Personal Loans in Canada?
Down Payment Assistance Programs
Here are a few of the best down payment assistance programs in Canada.
RRSP Home Buyers’ Plan
RRSP stands for a registered retirement savings plan. Under this plan, you can borrow $35,000 tax-free from your RRSP to fund the down payment. If you are buying a house with a partner, who is also a first-time purchaser, you can each borrow up to $70,000 combined. To qualify for this program, you should be a first-time home purchaser. A first-time purchaser is defined as anyone who in the last four years, has not purchased a house or live in a home that was owned by their spouse.
Website: Home Buyers’ Plan
First-Time Home Buyers’ Tax Credit
HBTC or home buyers’ tax credit, was first introduced in the 2009 federal budget. It allows first-time homebuyers to recover some of the costs related to their purchase. This tax credit covers inspections, legal fees, and other similar closing costs, and is valued at up to $750. The qualifiers of the tax credit include single-family homes, condos, townhomes, semi-detached homes, and duplexes. If you have a disability, the first-time buyer requirement does not apply.
The eligibility requirements for HBTC are the same as for the home buyer’s plan, but participation in the home buyers’ plan does not create any effect for the eligibility of HBTC.
Land Transfer Tax Rebate
If you are from Ontario, Prince Edward Island, or British Columbia, you can receive a rebate on a portion of the land transfer tax that must be paid on a townhouse, a house, or condo – only if you are a first time home buyer. In addition to this, first-time homebuyers in Toronto are also eligible for a rebate on the city’s land transfer tax. For other provinces and cities, there are different offers for rebate programs to help residents offset the upfront costs.
CMHC is also known as mortgage default insurance. The CMHC insurance is beneficial for homebuyers who want to purchase a home but cannot make the down payment. Even though it is termed as insurance, but it is not really insurance – at least not in the traditional sense. Rather, it protects the lender against the potential default of mortgage payments by borrowers. This type of protection makes it easier for Canadians to achieve homeownership.
This insurance cannot be used for homes that are worth more than $1 million. That is because these types of homes require at least 20% of the downpayment. To apply for this insurance, you can reach out to Canada Guaranty, Genworth Financial, or the Canada Mortgage and Housing Corporation (CMHC).
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The Bottom Line
These are some of the down payment assistance programs for Canadians that are available across the country. If you do not want to apply for these programs, there are other alternatives available as well. These additional grants and programs include Alberta Down Payment Assistance, New Brunswick Down Payment Assistance, and Newfoundland Labrador Down Payment Assistance.
At Lionsgate, we specialize in helping people obtain funding private mortgages for land purchases as well as for other real estate transactions. If you are looking to buy land in Canada, apply for a mortgage or take a short loan, leave us a message and we will try to connect you with the best local realtors and sources for financing.