In Canada, buying a home may not always seem affordable. If you want a place to call your own, you’ll need to have a minimum 5% down payment to purchase a home worth under $500,000. If you choose to make a down payment of less than 20%, you’ll also need to purchase mortgage insurance. Having a poor credit history can make this process even more difficult. Luckily, there are many programs that exist across the country to support first-time home buyers with limited income who need a bit of help to realize their dream of purchasing a home.
What Is Down Payment Assistance?
Often, one of the biggest barriers to owning a home in Canada is being able to save up the cash necessary to make a 5% down payment. Down payment assistance is the process of providing financial support to eligible Canadians who are looking to buy their first home but need some assistance when it comes to providing a large enough sum for a down payment.
How Down Payment Assistance Works
There are a variety of programs available across the country, and in specific provinces, that will provide financial support to eligible first-time home buyers via grants, interest-free loans and more. These programs aim to assist home buyers who may otherwise struggle to afford a down payment, and help make their dream of owning a home a reality.
Different Types Of Down Payment Assistance
Down payment assistance can come in the form of tax-free loans, interest-free loans, one-time grants, rebates and even special insurance programs tailored to help qualified applicants get into their first home.
Down Payment Assistance Programs In Canada
Each down payment assistance program comes with a series of requirements and will provide different benefits to applicants. For this reason, it’s important to do your research into each option so you can better understand what each offers and how they may suit your personal situation.
RRSP Home Buyer’s Plan
If you have a Registered Retirement Savings Plan (RRSP), this program allows you to borrow up to $35,000 tax-free from your account specifically to fund your down payment. If you’re planning to purchase a home with a partner who is also a first-time home buyer, you can borrow up to $70,000 combined.
The Home Buyers Plan (HBP) is treated like a 15-year interest-free loan as long as you begin making payments back to your RRSP within 2 years of borrowing the money. It’s important to remember that the money you plan to use from your RRSP, must have been in the account for at least 90 days before you submit your application and you also don’t have to re-pay the money to the same RRSP account.
RRSP First-Time Home Buyer Incentive
The HBI Program is a shared equity mortgage where the government supplies 5% – 10% of your down payment on a new home or 5% on an existing home in exchange for some equity in your property. This means when you sell your home down the line, you’ll need to pay back that equity to the government. That being said, if your home increases in value over time, you’ll end up paying back more than you originally borrowed.
In order to qualify for this program, buyers must already have a 5% down payment, must be first-time home buyers, have a household income of under $120,000 and can only borrow less than four times the qualifying income. There are higher limits for homes in the Toronto CMA, Vancouver CMA and Victoria CMA.
Land Transfer Tax Rebate
Available in Ontario, PEI or British Columbia, this tax rebate gives first-time home buyers back a portion of their land transfer tax paid on a condo, townhouse or house.
New Housing Rebate
If you’re planning to build a new house or renovate your current one, you could be eligible for a rebate of a portion of the building or renovation costs. You can also claim this rebate for non-traditional homes like mobile homes and floating homes. Do keep in mind that this rebate is only available if the fair market value of the house upon completion is deemed to be less than $450,000.
Also known as mortgage default insurance, this is valuable for home buyers who can’t afford to make a 20% down payment. While it’s not the same as traditional insurance, it instead protects the lender against potential default of mortgage payments. Trading an upfront fee and your commitment to make payments on time in exchange for a lower down payment, means one less barrier to buying a home for some Canadians.
First-Time Home Buyer’s Tax Credit
This tax credit allows first-time home buyers (or home buyers with a disability) to recover some of the costs related to the purchase of their home. This nonrefundable tax credit will cover home inspections, closing costs and legal fees at up to $750.
In order to qualify for this tax credit you’ll need to make sure your purchased home is classified as a single-family home (both existing and newly built), condo, townhome, semi-detached home or duplex.
Who Qualifies As A First-Time Home Buyer?
The dictionary definition of a first-time buyer is “a person buying a house who has not previously owned a home and therefore has no property to sell.” In other words, anyone getting a mortgage who isn’t a homemover, homeowner, buy-to-let investor or simply remortgaging is classed as a first-time buyer. Even if you or your spouse/common-law partner has previously owned a home, you may still be considered a first-time buyer.
If you’re a person with a disability, or the home is being purchased for someone with a disability, you don’t have to be a first-time home buyer. However, the property must be purchased with the intent of providing greater accessibility.
Down Payment Assistance Programs By Province
Some provinces have their own specific programs that are available to support first-time home buyers in a designated area. Whether you’re a current resident or considering moving to a new province, you’ll want to know what each offers in terms of unique down payment assistance programs and how they can help you get into your first home:
Nova Scotia Down Payment Assistance Programs
This pilot program launched in 2017, and as of April 2019 has become permanent. The program provides financial assistance to first-time home buyers with modest incomes by offering interest-free loans of up to 5% of the purchase price of a home ($280,000 maximum home value).
Prince Edward Island Down Payment Assistance Programs
PEI’s Down Payment Assistance Program helps qualified applicants secure an interest-free loan of up to 5% of the home’s purchase price (maximum $11,250) that is to be used toward the down payment.
Quebec Down Payment Assistance Programs
AccèsCondos is a financial assistance tool to help residents who are looking to purchase an affordable condo in Montreal. Applicants make a deposit of $100 and in return, the SHDM (Montreal’s housing development authority) will advance a percentage of the sale price to be used as a down payment on one of the condo units accredited by their organization.
Alberta Down Payment Assistance Programs
The province of Alberta has two unique programs that assist with down payments.
– PEAK Housing Initiatives: Formally known as the PEAK Program, this initiative can provide funding in the form of a second mortgage and covers partial or full down payments up to no more than 5%. This program distributes funding to help as many new home buyers as possible by taking the original loan repayments from each cycle and re-circulating those funds back into new deposits for new homeowners.
– Attainable Homes (AHC): This program was created by and is owned by the City of Calgary. As such, it’s available for residents of Calgary only and has applicants contribute $2,000 toward the down payment of their home while the program covers the remainder.
New Brunswick Down Payment Assistance Programs
The Home Ownership Program issues a repayable loan for a total of 40% of the purchase price of the home. If you’re looking to build a new home instead of buying an existing one, they can provide a repayable loan of up to $75,000.
Saving up enough money for a down payment is often what prevents a lot of Canadians with modest income from being able to own a home. Thanks to the assistance of national and provincial programs, first-time homeownership is an attainable dream, no matter where you live in Canada. To learn more about options offered in your specific province or city, connect with your local government and keep in mind that some programs have specific quotas of funding available so opportunities can disappear quickly.