The 2019 income tax season is upon us and for many Canadians, it means getting a tax return on the taxes they paid last year. For many Canadian, this return means they get to book a trip to someplace warm or pay off their purchase from Leons.
With interest rates so low right now and government programs in place to help first-time homebuyers, perhaps this year that tax return could be better spent towards a downpayment for your first home purchase.
Brokerage Mortgage Rates for a 5-year fixed term is sitting at 2.29% at this article being written. These are the lowest rates have been since the fall of 2016.
One of the biggest hurdles first time home buyers face with being able to enter the homeownership ring is being able to save up enough for the down payment. Which is why reconsidering what you are going to use your tax return for, can be the push in the right direction to becoming a homeowner.
There are also Federal and Provincial government incentives to help the first time home buyers, one that has been introduced within the last year that has been so popular, the program was extended.
Where To Get a Down Payment From
Lenders will not accept monies from a loan or credit card for a downpayment. They want to see that you have the fortitude and discipline to save up for a down payment. Also, getting a down payment from a loan or credit card would be just another debt to add to your debt ratio and may impact your ability to pay the mortgage.
Many lenders are wanting to see that the full down payment amount has been sitting in a bank account for at least 90 days as further evidence that the Buyer has exercised due diligence with their home buying plan and not just gathering the down payment amount from various sources last minute.
Down Payment Assistance Program
Known as the, it allows pre-qualified buyers to borrow from the program, up to 5% of the home’s purchase price to be used as the down payment. This is an interest-free, repayable loan. In the Halifax Regional Municipality, the maximum priced property that is eligible is $280,000, while the rest of Nova Scotia the property prices are capped at $150,000. Contact Housing Nova Scotia for more details.
Home Buyer’s Plan
Another option to obtain a down payment would be from your RRSP contributions. The Federal Government Home Buyer’s Plan allows you to withdraw up to $35,000 from your RRSP to use as a downpayment for a home If you have a partner who you are buying the house with, then you can each withdraw up to $35,000. You must be considered a first time home buyer and a resident of Canada. As long as you repay your RRSP funds within 15 years, then it will not be charged as income on your taxes. Go to Canada Revenue Agency for more details.
TFSA (Tax-Free Savings Account)
This is a savings account that you can save up your down payment funds in and when it’s time to take out to use for your down payment then you do not have to pay income tax on it as income. Saving up in this kind of account may be better if there is any doubt that you will be able to pay back your RRSP account according to CRA’s timeline. If you miss any deadlines of RRSP payments then the amount that was due will be charged as personal income tax.
Down payment Given as a Gift.
There are pretty strict laws and criteria around using gifted money toward your down payment. The idea of the buyer saving up for the down payment proves to the bank that buyer has good financing habits and also having to prove that the down payment is a gift and does not have to be paid back, shows that the down payment will not be added to the Buyers debt load.
Parents can contribute a total of $30,000 per child to help with a down payment on a home, anything over and above that they would incur a gift tax. Other family members can gift up to $15,000 lending limit before they, too, have to pay taxes. Any gifter will have to provide evidence or a signed declaration of their relationship with the buyer.
Government Programs After Your Purchase
Home Buyers’ Amount
Save all your receipts during your home buying process as the Federal Government will give up to $5,000 tax credit to first-time homebuyers with the costs associated with the purchase of a home, including legal fees, disbursements and land transfer taxes, within the year following possession date. For an eligible individual, the credit will provide up to $750 in federal tax relief. Please visit the Home Buyers’ Amount webpage for eligibility.
GST/HST New Housing Rebate
You may qualify for this rebate allowing to recover part of the GST or HST that you paid on the purchase price or cost of building your new house, on the cost of substantially renovating or building a major addition onto your existing house, or on converting a non-residential property into a house. For details on this rebate got to GST/HST New Housing
Home Energy Efficiency
Efficiency NS has several programs available addressing making homes for energy efficiency. From getting an energy audit, upgrading light bulbs to financial assistance with solar and heating systems. This department is also a wealth of information with any questions on making your new home more energy-efficient. More details at this link Efficiency NS