First-Time Home Buyer Mortgage Guide

In the market to buy your first home? You’re not alone! Our First-Time Home Buyer Mortgage Guide will walk you through important programs and information catered specifically to your needs as a first-time home buyer – everything from The Home Buyer’s Plan (HBP), which enables you to tap into your RRSPs as a down payment, to understanding mortgage insurance and rates.

Key Takeaways

• There are numerous first-time home buyer programs available to offset home buying costs as well as help fund your down payment
• Thanks to mortgage default insurance, you can make a smaller down payment and still purchase a home
• Getting preapproved for a mortgage before starting home shopping will ensure you know what you can comfortably afford

First-time home buyer programs

As a first-time home buyer, it’s extremely important that you’re aware of the various programs available to offset home buying costs as well as help fund your down payment, which is often one of the toughest hurdles to home buying. (See: First-Time Home Buyer Grants in Canada)

Tip: In some instances, you may be eligible for a first-time home buyer municipal land transfer tax refund in addition to the provincial one.

Following are details about four key first-time home buyer programs that could save you money:

• First-Time Home Buyers’ Tax Credit (HBTC). The HBTC is offered by the federal government to help offset closing costs associated with buying your first home. The HBTC allows you, as a first-time home buyer, to claim $5,000 on your personal tax return, resulting in up to a $750 rebate. You must apply to receive the credit on the tax return in the same year in which you purchase a home. See: Who Can Benefit From the Home Buyers’ Tax Credit (HBTC)?
• First-Time Home Buyers’ Land Transfer Tax Refund (LTTR). Land Transfer Tax (also known as the Property Transfer Tax or Welcome Tax) was introduced in most Canadian provinces during the 1970s (in Ontario and Quebec) and 1980s (BC). It was a source of revenue for municipalities, who are forbidden from taxing such things as income, sales, etc. It’s paid to the province (or the municipality, in some instances) by the buyer of a property. In some provinces, first-time home buyers are eligible for a refund of all or part of the Land Transfer Tax. Certain metropolitan areas will have a higher Land Transfer Tax. Homebuyers in Toronto, for example, will pay double what their counterparts in Ottawa pay. See: Everything You Need to Know About the Land Transfer Tax
• Home Buyer’s Plan (HBP). Under the federal government’s HBP, you can withdraw up to $35,000 ($70,000 for a couple) from your RRSPs tax- and interest-free to buy or build a qualifying home for yourself or a related person with a disability. The only time you don’t have to be considered a first-time home buyer to take advantage of the HBP is if you have a disability or you’re helping a related person with a disability buy or build a home. The new home must, however, be a better fit for the needs of the disabled person than his/her current home. You’re considered a first-time home buyer if you didn’t occupy a home that you or your current spouse or common-law partner owned in the past four years. See: What is the RRSP Home Buyers’ Plan (HBP)?
• GST/HST New Housing Rebate (NHR). If you’re purchasing a newly built home from a builder, or are custom-building your own home, you may qualify for a rebate of the provincial GST or federal part of the HST that you paid on the home. Details of the rebate vary by province. The new home rebate application in Ontario, for instance, must be filed within two years of the new home closing date. The maximum Ontario new housing rebate amount for owner-built houses depends on whether you paid the HST on your purchase of the land. The Ontario new housing rebate is limited to a maximum of $24,000 if you paid the HST on the purchase of the land, and $16,080 if you didn’t. (See: What is the GST/QST/HST New Housing Rebate?)

Important: You must apply to receive the HBTC on the tax return in the same year in which you purchase a home.

Benefits of mortgage insurance for first-time home buyers

For many people, saving for a down payment is difficult. While it’s recommended that you put down as much as possible to reduce your mortgage amount, the minimum requirement in Canada is 5% for the first $500,000 and 10% for any portion above that threshold. If your down payment is less than 20%, however, you’ll be required to obtain mortgage default insurance, which protects your mortgage lender should you be unable to make your payments. 

Mortgage default insurance is available through three Canadian providers: Canada Mortgage and Housing Corporation (CMHC), Genworth Financial and Canada Guaranty.

Mortgage insurance is payable upon closing, or it can be rolled into your monthly mortgage payments. This latter option makes it subject to interest, so it’s important to make sure you understand what each option involves from a financial perspective.

Understanding mortgage rates for first-time homebuyers

One of the biggest mistakes you can make is only looking at the interest rate when getting a mortgage. Sometimes the lowest rate isn’t always your best choice, especially if you’re planning to move in a couple years. If you end up locking into a low rate that doesn’t enable you to break the mortgage without paying a big penalty, for instance, then the low rate you selected upfront can end up costing you a lot more in the future.

If possible, you’ll want to have the ability to increase your mortgage payments or make lump-sum payments to help pay your mortgage down faster. Even if you don’t think you’ll be making extra payments, remember that every bit helps, so it’s best to have this prepayment option just in case. Be sure to find out the amount you can prepay annually without facing penalties.

It’s tough to predict the future and know exactly how long you’ll remain in your home. What happens if you decide you want to move from your current home to a new home before your existing mortgage term is up? In this case, you’ll want to ‘take your mortgage with you’. In other words, transfer it to your new home. This is known as a portable mortgage. 

Important: Sometimes the lowest interest rate isn’t always your best choice, especially if you’re planning to move in a couple years. If you end up locking into a low rate that doesn’t enable you to break the mortgage without paying a big penalty, then the low rate you selected upfront can end up costing you a lot more in the future.

Get professional home buying advice

Before you start checking real estate listings for homes, it’s important to be preapproved for a mortgage through nesto so you know what you can comfortably afford. After all, there are several different types of homes available, which must also take your personal needs into account. Some of the most common types include condominiums, townhouses and single-family detached homes – each with its own unique features. Your pre-approval will determine what you can spend on a home, which will then narrow down these choices for you. 

It’s also important to work with a local trusted real estate agent. Navigating the home buying process on your own can be overwhelming. And using a reputable local real estate agent will also help ensure you’re working with a professional who understands the intricacies of the community in which you wish to live. Be sure to ask friends and family for trusted referrals and interview some agents. When you’re buying a home, you won’t have to pay for a real estate agent – the seller pays a fee split to both the buyer’s and seller’s agent.

Other articles in this guide: “First-Time Home Buyer Mortgage Guide”

• What is the First-Time Home Buyers’ Tax Credit?
• What is the RRSP Home Buyers’ Plan (HBP)?
• First-Time Home Buyer Land Transfer Tax Rebates Across Canada
• First-Time Home Buyer Programs in Canada
• First-Time Home Buyer Grants in Canada
• First-Time Home Buyer Loans in Canada
• Who Can Benefit From the Home Buyers’ Tax Credit (HBTC)?