First Time Buyers
What constitutes a first time buyer? Contrary to what might be commonly believed, a person does not have to purchase their very first house in order to be a “first time” buyer. By definition, a first time buyer is an individual who has not owned a house in Canada within the previous 5 years. Consequently, if you are buying a house after owning a property more than 5 years ago, then you effectively fall into this category.
However, it is important to note that if you and your married spouse are purchasing a house, then both of you must fulfill this criteria in order to be eligible for the benefits of first time buyers. This is can rather unfortunate, and in my personal opinion, I believe that if only one spouse fulfills the conditions then they should be granted at least half the benefits.
But what are these benefits?
First, this includes the mitigation of the Land Transfer Tax – which is the tax that must be paid when purchasing a property anywhere within the province of Ontario. Additionally, if the property is within the GTA, then a Mississauga Land Transfer Tax or other municipality land transfer tax must be paid as well. These taxes are often quite costly (about 1.5 – 2% of the buying price). First time buyers are therefore not required to pay the first $2000 in taxes when buying anywhere in Ontario and are not required to pay the first $3,225 if purchasing in the GTA.
Secondly, another benefit includes the ability of using your RRSP funds towards the down payment. Each person can take out up to $20,000, which adds up to a total of $40,000 for a married couple – but it must be noted that all this must then be paid back to the RRSP fund in annual rates during the next 15 years. The benefit of this option is that, to a certain degree, it allows a homebuyer to purchase a property without a down payment. How does this work? Well, we know that the minimum required down payment is 5%. If a person does not have enough, but has a good credit score, then this money for the RRSP can be loaned from the bank and then used towards the down payment. Of course, this loan must be paid off; but with the rapidly increasing house prices, in many cases it is more beneficial to the home buyer when compared to attempts of saving up for the down payment outright.
In fact, the growing price of houses is one of the largest challenges that face first time home buyers. It is for this reason that the condominium market has been moving really well in recent years, since it appears to be the only reasonable option. But is it really?
I believe there is a better alternative when you account for a potential rental income that can be made when you rent out a part of the house (for example, the basement). This can be a better option financially, but also in terms of your quality of life. There is also another important matter to consider – which is the investment itself. By paying a similar amount each month, you are building equity of a much larger sum. After years of payments, even if prices remained stable, a house will therefore be worth substantially more than the condo.
This article serves to only present the basic ideas that first time home buyers should be familiar with. If you are a first time buyer and are interested to learn more, I encourage you to contact me. I can help explain these concepts in more detail, and work with you through the calculations so you know all the options that are available to you.