Best First Time Home Buyers Mortgage Canada

Use our detailed guide to find the best first time home buyer mortgage rates in Canada. It appears that a drop in home affordability coupled with student loan debt is resulting in millennials taking longer to buy homes. However, things are not as bleak as some might make it seem, and paying attention to a few simple aspects can hold probable home-buying millennials in good stead.

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Best Mortgage Rates For First Time Buyer

Many are the times I meet Canadians who wish they knew a bit more about the mortgage process before they bought their first homes and knew more about Canadian mortgage rates. The prospect of owning a home for first-time home buyers is extremely exciting, but can easily get engulfed in emotions and forget important considerations.   If you are new to Canada and your goal is to have a place of your own, you probably are yet to understand the market fully. Do not worry-I am here to help you make the necessary preparations.

How much can you borrow?

Before you even consider going to search for a home, you should have an idea of your loan limit. Only then will you be able to have a realistic search for a house.  Mortgage calculators can prove an invaluable tool, at FindBetter.ca we provide a full range of mortgage calculators to assist you to make better, informed decisions in getting the best Canadian mortgage rates.

Down Payment

To buy a home in Canada, you will need a down payment of 5% or more. Making a higher payment is better for you because this means that your regular payments will reduce. Make a down payment of at least 20% and see if you qualify for a conventional loan. This will save some good money from your mortgage insurance.

Prepare For Other Costs

As a first-time home buyer, you need to know that apart from the down payment, there are other costs. It is good to know about these financial obligations beforehand to avoid stressful experiences. Here are some of the costs that most Canadians incur during their first home purchase:

  • Legal fees
  • Closing costs
  • Land transfer tax
  • Commission or real estate agent
  • Property tax
  • Homeowners insurance
  • Home inspection
  • Mortgage life insurance
  • Appraisal fees
  • Among others

Mortgage Preapproval

Are you ready to purchase the home? If so, your next step is to look for mortgage preapproval. This is what you gain from the preapproval:

  • Helps you know the amount of loan you can get for your desired home
  • You will know the interest rate
  • You will be better placed to make an offer
  • It is the best indication that the lender is committed to give you the home loan

Shop Around for the Best Canadian Mortgage Rates

Finding a home in Canada is not as easy as it may sound. However, if you are able to narrow your search, you can get a good house even within a day. Therefore, it is upon you to ask a few questions that will take you to what you want. Are you looking for a condominium, a house or a townhouse? A qualified real estate agent can help as the options are too many and can easily get overwhelmed.

Write The Offer

This is probably the scariest part for you, but it does not have to be so. First, you do not have to draft the document-your lawyer or real estate agent can help you. Second, you can always make a counteroffer if the original offer is rejected. Canada has many qualified and experienced mortgage brokers in your area to provide you with expert advice and great mortgage rates.

First Time Home Buyers Resource

If you think you’ll have it as easy as the previous generation who bought homes, think again. Take a look at the home value-to-income ratio when your parents bought a home. It would not be far off the mark to say that typical homes back-in-the-day sold for around four times the annual income of a buyer. Now, average home prices in major markets hover approximately ten times the average income level. What this means is that millennials need to plan their finances way better than previous generations.

Major Urban Centers Make it Harder Still

If you live in a city such as Toronto, Montreal, Vancouver, Calgary, or Ottawa, buying a home becomes considerably more difficult than in other parts of the country. The problem is that millennials continue to turn to major urban centers in search of greener pastures, putting even more pressure on the housing market. If you live in a big city, you might be better off taking a look at homes in the outer suburbs. For instance, if you live in Toronto, you might consider looking for homes in areas such as Victoria Park, Warden, or Kennedy.

Think of Your Purchase as an Investment

Not many millennials think about decoupling where they live and the homes they purchase. Some homebuyers actually benefit from buying homes in areas with great rental markets. They make a tidy sum through the rent they earn and continue to live in more affordable neighbourhoods. This way, they can separate their lifestyle decisions from their investment decisions.

Being Anxious is Alright

Home prices are on the rise and regulations surrounding home buying have become more stringent than before. Given that rental prices also continue to increase, make it natural for millennials to feel anxious. Many millennials have little in terms of disposable income, so saving for a down payment might seem daunting. A simple workaround is that you continue to share accommodation with family or friends for as long as you possibly can because this allows you to save more than you would if you choose to live alone.

Rent You Pay is Never Coming Back

The money you pay toward rent is money you’ll never see again. Besides, renting a house is probably the most significant expense for most millennials. When you buy a house, the money you pay toward your mortgage helps you build equity in the home.

The Buyer/Developer Disconnect

While you, as a homebuyer, might want three spacious bedrooms, most modern-day developers are looking at getting the most out of their money. As a result, the market is becoming awash with smaller units and lesser space, and these homes typically find favour with investors instead of families. This requires that you extend your search beyond new developments.

Sure, buying a house has become more expensive over the last few decades. However, if you play your card rights, the dream is still well within reach.

Down Payment Saving Tips for First-time Buyers

It is not easy to assess Canada’s current housing market. We hear doom and gloom news stories about decreasing sales, difficulties qualifying for a mortgage and ever-increasing interest rates.

It’s not surprising that many potential buyers are holding on to their down payment and taking some time to assess the market.

So, where can you invest your down payment in the meantime to help boost your savings?

Living in Canada means you need to offer a minimum down payment of 5% to apply for a mortgage. But, if you’re not rushing to buy a house, there are a huge variety of investment options available to help you potentially grow your savings, including stocks and ETFs.

But, please remember that it’s virtually impossible to find a risk-free investment option that gives you a high return. Both stocks and ETFs entail high risks.

Your down payment savings could be needed any time, at short notice. It’s a good idea to keep your money in an accessible account that is less likely to drop its value.

As with any investment decision, it’s vital to spend some time assessing your down payment investment option, with full knowledge of  potential risks.

First Time Home Buyers – Things To Consider

Of course, there are many routes to getting to that point when the key in the lock is yours and navigating the choices can be extremely challenging. The first step though for first time home buyers is to thoroughly weigh the pros and cons of owning your own home and deciding if being a home owner is the right choice for you.

The first question you need to ask is what can I afford to buy?

Owning your own home shouldn’t put a crimp in your current lifestyle, but, unfortunately, many first time home buyers buyers find themselves “house-poor”. This means that they have nothing leftover in their budget to enjoy the good things. Everyone deserves to go out to dinner occasionally and if owning the home you want will mean you have to stay in every night eating beans and rice then you should either postpone your purchase or purchase a home in a lower price range. Remember, your first home doesn’t have to be the home you live in for the rest of your life, and you can make improvements to your home as your income increases. FindBetter.ca has some helpful hints and tools available to you determine what price range makes the most sense for you.

The second question is what kind of home is the right one for you?

There is a broad range of options that reflect both personal style and financial resources. Homes that are newly constructed, for example, tend to incorporate more energy saving measures and, in addition, offer the opportunity to tailor the home to your preferences allowing the buyer to decide on things such as flooring, fixtures, trim, etc.
On the other hand, older homes are generally located in well-established neighborhoods and may be closer to schools, shopping and entertainment. In fact, the older the neighborhood, the easier it will be for you to find out about the schools, etc. because there is more history on which assessments can be made.

The decision to purchase your own home needs to incorporate your financial situation, but you’ll also need to take your lifestyle needs into account if you want to make a choice that will let you be happy in both the long and short run.

Down payment investment options

Bank accounts

Saving and chequing accounts are a safe and secure option to park your investment without any worries. But, most banks don’t offer any interest on these accounts.

High interest saving accounts

Saving accounts are a viable option for your down payment money. High-interest saving accounts offered by online banking institutions typically have lower carrying costs than Canada’s Big Five banks. They usually offer a high-interest rate on savings.

However, many people are understandably still hesitant to use online banking services. Becoming a member of the Canadian Deposit Insurance Corporation (CDIC) may solve your problem, as it  fully insures your money up to $100,000.

Guaranteed Investment Certificate (GIC)

This is another safe option available for down payment investment. Offering a guaranteed return within an allocated time span, a GIC reduces the likelihood of financial investments with a low return rate. But, it charges you a hefty penalty if you need to access to your money earlier.

Investment accounts

This option is all about your willingness to accept risks.  It can be a good strategy for those with no strict time limits, or a high level of savings. You could use a small portion of your down payment for your investment account and wait for it to mature.

RRSP

You probably know that if you’re buying a house for the first time, your RRSP Home Buyer’s Plan (HBP) allows you to withdraw cash up to $25,000, for the down payment.

The Home Buyer’s Plan considers you a first-time homebuyer if you’re a Canadian resident and have not been living in a house you own during the last four years.

HBP makes buying a house with a spouse even more convenient as both people can withdraw $25,000 separately from their individual accounts, meaning you could possibly access $50,000 to help you purchase your new home. However, you are required to repay this amount within 15 years.

Tax-free saving account

A Tax free saving account is not really a saving account, it’s more like a saving vehicle. Tax Free Savings Accounts are created for holding your accounts and assets. They’re appropriate if you’re planning to make a long-term investment, but could also be suitable to help you save money to buy a home.

Information for First-Time Home Buyers

The average person borrows money from a financial institution to finance the purchase of their first home. Mortgage loans are steadily paid off over several years. Here are some things you should know about taking out a mortgage loan to purchase your first home.

How interest is calculated

You have the option of taking either variable mortgage rates or fixed mortgage rate when you request a mortgage. The five-year fixed rate mortgage is most popular. With this type of mortgage, the bank sets your rate for the first five years of your loan. Fixed-rate mortgages remain constant for the length of their term. Even if the bank’s prime interest rate increases, your rate will remain the same. Fixed rate mortgages tend to have higher rates for this reason. Variable-rate mortgages change with the bank’s prime rate. Your interest rate will drop if the bank’s prime rate falls, and the opposite will happen if there is an increase.

Down Payment Rules for first time home buyers

“Down payment” refers to the funds a buyer must pay up front when purchasing a home. The down payment is usually a small fraction of the home price. The down payment and the mortgage jointly represent the full value of the home you’re buying. Most financiers will express the down payments as a percentage of the property value. A 20% down payment on a home selling for $400,000 would be $80,000. The balance would be 80 percent or $320,000, and this would comprise the mortgage. In Canada, there are guidelines as to how much a home buyer must have as a down payment. The amount you must pay upfront depends on the purchase price of the home:

  • The minimum down payment for homes costing less than $500,000 is 5%
  • The minimum down payment for homes costing between $500,000 and $1,000,000 is 5% of the first $500,000 and then 10% of the excess
  • The minimum down payment for homes costing more than $1,000,000 is 20%

The amount of your down payment will affect the size of your mortgage, and will also determine whether or not you need CMHC insurance.

CMHC Insurance

You will be required to get mortgage default or CMHC insurance if you’re a home buyer in Canada and your down payment is less than 20%,. This safeguards the institution you borrowed from in case you default on your mortgage. If your down payment is 20% or more, you won’t need CMHC insurance. This insurance product is not available for homes costing more than $1,000,000.

First-Time Home Buyer Programs

It’s important to become familiar with different programs established to help first-time home buyers if you fall in that category. You need to know how to get through the purchasing process and possibly save yourself some money, whether it’s a tax-efficient method of funding your down payment, a rebate you may qualify for, or the minimum you must put down for your home purchase.

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RRSP Homebuyers’ Plan for first time home buyers

You might qualify for the government’s Home buyers’ Plan if you have not bought a house during the last four years (or resided in a house owned by a spouse during that time). You can borrow as much as $25,000 from your Registered Retirement Savings Plan (RRSP) to use toward your down payment, and it’s tax-free. In order to use this option, you must have enough funds in your RRSP at least 90 days prior to purchasing your home. Early drawings from RRSPs are generally regarded as taxable income, so this plan is beneficial to Canadians. Home buyers are exempt from being taxed once the money is taken under the plan. However, they must start paying back the RRSP loan after two years over a maximum period of fifteen years.

Special Grants and Tax Credits for First-Time Home Buyer’s

If you’re buying a home for the first time, know that different tiers of the government offer you grants that can make buying a home economical. Here are the grants you can make use of for assistance.

First-Time Home Buyer’s Tax Credit

According to the prevailing taxation rates, the Home Buyers’ Tax Credit stands at a rebate of around $750 for people buying a home for the first time. First announced by the federal government in the budget for 2009, the grant makes it possible for you to economize on some of the purchase expenses such as home inspections, land transfer taxes, and applicable legal fees. Here are the conditions you need to meet.

  • You need to apply for the non-refundable credit within the purchase year.
  • If you have bought the home in partnership with your spouse, friend, or partner, the combined credit you both claim cannot go above $750.
  • The house you buy should be “qualified” or a new or existing property in Canada.
  • You must plan to move into the house within a year of purchasing it.
  • Homes can be condos, semi-detached, detached, mobile homes, or any other.
  • You must register the property on your own or spouse’s name. At the time of submitting your claim, you need to provide the complete paperwork needed.
  • You should not be a homeowner for 4 years before you claim the rebate.
  • You should not have lived in a home belonging to your spouse in a 4 years’ period.

Land Transfer Tax Rebate

Residents of the City of Toronto and provinces such as Prince Edward Island, British Columbia, and Ontario can qualify for a refund or rebate on a portion of the land transfer tax they pay when buying a house for the first time. If you live in Toronto, you can receive the rebate in addition to the refund available to residents of Ontario.

RRSP Home Buyer’s Plan

Should you withdraw any amount from your RRSP, you’ll have to pay an income tax on it since it is considered taxable income. However, if you’re making the withdrawal to buy a house for the first time, the government allows you to borrow up to $25,000. Here are some conditions you must meet.

  • You should not be a homeowner in the last 4 years before the purchase.
  • You should not have lived in a home owned by your spouse in the last 4 years.
  • The borrowed amount from your RRSP must be repaid.
  • You are required to begin making payments towards the mortgage 2 years after the purchase of the property. The mortgage should be cleared within 15 years.

GST/HST New Housing Rebate

As a Canadian citizen, you can claim a refund on the GST or HST that you have paid to the federal government when buying a new home. You can also claim a rebate for making renovations to an existing property or reconstructing property that was destroyed by fire on condition that the property was your primary residence. The home can be a modular home, floating or mobile home. As a resident of Ontario, you can claim a rebate on the provincial portion of the HST you paid when buying or renovating your home.

 

The federal government has initiated the First-time Home Buyers’ Tax Credit to help Canadians buying their first homes. Included in the ‘Canada’s Economic Action Plan,’ the program was intended to assist new homeowners with closing costs. These costs may cover land transfer taxes, home inspections, and legal expenses.

Here’s some additional information you may need:

  • At prevailing taxation rates, the Home Buyers’ Tax Credit allows first-time homeowners a rebate of $750.
  • You must claim the nonrefundable credit in the year when you purchase the house.
  • If you’re buying the property in partnership with a friend, partner, or spouse, the total of both your claims cannot go over $750.
  • You or your spouse should intend to buy a “qualified” property.
  • Registration of the property should be in your or your spouse’s name.
  • You should own home for the first time in the last 4
  • You cannot have lived in a property that your spouse owned in the last 4
  • You must present the necessary paperwork showing that you own the house.

Qualification Criteria for the First-time Home Buyers’ Tax Credit

To be called a “qualified” property, the house must meet certain conditions:

  • The property must be located in Canada.
  • It can be an existing or newly-constructed property.
  • Apartments, condos, mobile homes, semi, and single homes are all included in the scheme.
  • The property can be a share in a co-operative housing corporation according to which you receive ownership of the house.
  • You must intend to move into the house within 12 months of buying it.

Home Buyers’ Tax Credit for the Physically Challenged

If you’re physically challenged and qualify for a disability amount in the tax return you file in the year when you purchase the home, you can claim the Home Buyers’ Tax Credit. You need not be a first-time homeowner and can request for a rebate if the home is designed to meet your specific requirements and you intend to move into it within 12 months of the purchase.

Land Transfer Tax Rebate for First Time Homebuyers

Homebuyers in the provinces of Prince Edward Island, British Columbia, and Ontario can avail of the land transfer tax rebate according to their regulations. Each province allows a specific rebate according to the location and value of the property. The rebate can also depend on whether or not the owners are first-time homebuyers. Depending on certain conditions, residents of the city of Toronto can avail of a rebate of a maximum of $3,725 on the municipal land transfer tax.

GST/HST New Housing Rebate

According to the GST/HST New Housing Rebate, you can claim a rebate on a part of the sales tax. Here are certain conditions:

  • You must buy a home under construction.
  • You must conduct extensive renovations on your existing residential property.
  • You can claim rebate only if the value of the purchased property is $450,000 or less.
  • The rebate amount will depend on the purchase price of the home.
  • All qualifying Canadians can claim this rebate even if they’ve owned residential property before.

Land Transfer Tax Rebate for First Time Home Buyers

If you live in Ontario, British Columbia, or Prince Edward Island you can get a refund on a portion of land transfer taxes paid. Along with the provincial rebate, City of Toronto residents is also entitled to get a refund of the city’s land transfer tax. This rebate only applies if you’re a first-time home buyer, and the amount you get back depends on your location.

Tax Credit for First-Time Home Buyers

Since 2009, first-time home buyers in Canada have been given the chance to recoup a portion of the costs related to their purchase. Inspections, legal fees, and other costs of a similar nature can be offset using this credit. This tax credit is non-refundable and is about $750.

Rebate of GST/HST for New Housing

Canadians who significantly refurbish an existing home, purchase a recently built home, or reconstruct a home previously devastated by fire can claim this rebate. Homeowners would normally pay GST/HST on any purchases they make in all three cases. These Canadians can get a rebate on the GST paid for a renovation or the purchase of a new home.

Land Transfer Tax Rebate for First Time Home Buyers

As a homebuyer living in the provinces of Prince Edward Island, British Columbia, and Ontario or in the city of Toronto, you can avail of a land transfer tax rebate. A facility available to people buying a home for the first time, you can claim a partial refund on the land transfer tax you pay.

Ontario Land Transfer Tax

If you’re buying a home in Ontario for the first time, you can request for a rebate or refund equivalent to the full amount that you pay as land transfer tax that may be a maximum of $4,000. However, the Ontario Land Transfer Tax Refund for First-Time Homebuyers facility is subject to certain conditions:

  • You need to be at least 18 years of age.
  • You need to move into the home within a period of 9 months after buying it.
  • You need to be buying a home for the first time.
  • If you’re married, your spouse must also be a first-time homeowner during the time of your marriage.

While you can get all the information you need at the  Land Transfer Tax Refund for First-Time Homebuyers website, here are some other factors you need to know:

  • According to the Ontario land transfer tax rates, a rebate equivalent to the complete tax amount can be claimed on homes of the value of a maximum of $368,250.
  • If the house you’re buying is more than $368,250 in value, you can avail of a rebate but you’ll have to pay the remaining land transfer tax.
  • If you are buying the house as a married partner and only one of you can avail of the rebate, you’ll need to pay only 50% of the applicable rebate.
  • You have a window of 18 months from the time the house is transferred in your name to apply for the rebate.
  • You can request the assistance of your real estate lawyer to submit the necessary application along with the required paperwork.
  • File your application for the land transfer rebate online or download and submit a filled Ontario Land Transfer Tax Refund Affidavit for First-Time Purchasers of Eligible Homes form.

Toronto Land Transfer Tax

As a resident buying a home for the first time in Toronto, you can avail of a rebate equivalent to the complete amount you paid towards municipal land transfer tax that is up to $3,725. You can also apply for both the Ontario rebate and Toronto rebate. However, you need to meet certain conditions to apply for the Toronto Municipal Land Transfer Tax Rebate for First-Time Purchasers. They are:

  • You need to be at least 18 years of age.
  • You need to move into the home within a period of 9 months after buying it.
  • You need to be buying a home for the first time.
  • If you’re married, your spouse must also be a first-time homeowner during the time of your marriage.

Do visit the Municipal Land Transfer Tax Rebate website for all the information you need. Here are some of the factors you need to be aware of:

  • According to the Toronto land transfer tax rates, the rebate is applicable on the complete tax amount on homes with a maximum value of $400,000.
  • If your home price is over $400,000, you can qualify for the rebate but you’ll have to pay the remaining land transfer tax.
  • If you’re buying the property along with your spouse but only one of you is a first-time homeowner, you can avail of 50% of the rebate.
  • If you meet the necessary conditions, your real estate lawyer can apply for the rebate online by Teraview at the time of registering the transfer deed.

British Columbia Land Transfer Tax

Under certain conditions, residents of British Columbia buying a home for the first time can apply for a rebate equivalent to the full amount of the land transfer tax they pay up to $7,500.

  • You need to be a permanent resident or citizen of Canada.
  • You need to live in BC for 12 consecutive months in the time just before you register your home. Alternatively, in the last 6 years, you need to have filed at least two income tax returns in B.C.
  • You need to be a first-time homeowner
  • You need to be a first-time recipient of the homebuyers’ exemption or refund.

You can find all the information you need at the First Time Home Buyers’ Program website. Here are some factors you need to be aware of:

  • According to the British Columbia property transfer tax rates, the rebate can be an equivalent of the complete tax amount on homes of a maximum of $475,000 in value.
  • If you’re buying a home of value more than $475,000 to $499,999, you can avail of only a part of the rebate.
  • If the home price is $500,000 and above, you’ll need to pay the complete applicable land transfer tax and no rebate is available.
  • If you meet the necessary conditions, your real estate lawyer will assist you in applying by way of the First Time Home Buyers’ Property Transfer Tax Return form at the time of registering the transfer of the home.

Final thoughts

It’s really important to have realistic expectations when it comes to saving money for a down payment.  Saving your money via different investment options may sound complicated, but it can help to bring you peace of mind and grow your savings. In most cases, you have the option to quickly access your cash when you make the decision to buy your new house.

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