: Review of All 10 Incentives
In 2024 the dream of in Canada is still very real. However, with higher rates making it harder to qualify, the and approval strategies are more important now than ever.
This article will review the 10 main strategies in Canada today. For each , we will look at the most important ‘need to know’ information. For each, there is a link for more information, or even better, talk to your broker for further details.
The goal is to give you every advantage to help you get approved sooner and more easily, well ahead of the next jump in housing prices.
The program is a ownership program. It is offered through the Canada Housing and Corporation (CMHC) branch of the Federal Government. Up to 5% of the for an existing resale home or 10% of a new construction home can be borrowed, interest free, under the program. This program could help you qualify for about 5% – 10% more without increasing your regular .
There are some notable limitations to the program.
The maximum income on the application must be at most $120,000 and the must be no more than 4x income. The is, therefore, $480,000.
In Toronto, Vancouver and Victoria metropolitan areas, the maximum application income is $150,000 with a maximum 4.5x of $675,000.
The interest free loan must be paid back at some point, either during the or at the eventual time of sale. If the house has increased in value, then 5% – 10% of those price gains, depending on the original size of the loan, must be paid to the Government.
Our overall opinion of the program is that it can help some buyers increase their and reduce the during this time of higher rates. If this is needed to get into , we think it’s worth it. However, it will likely come at a longer-term cost as home values are projected to increase, perhaps at a higher rate than current rates.
More information:
rebate
An instant rebate on closings in Ontario saves you up to $4,000 on .
Your lawyer handles everything. You don’t need to apply for it, and as long as you are a first-, recognized to live and work in Canada, you should receive it automatically. The rebate varies province by province – Alberta for example has no . In Toronto, there is an additional $4475 of rebate available to mitigate higher land transfer taxes.
If you are buying with a partner who has owned a home before, the % of ownership for each will determine how much is received. If the Non is on title as a 1% owner, then you may be able to obtain up to 99% of the rebate. Discuss with your lawyer for more information.
More information:
calculator (opens in a new tab, select ‘’ to apply the rebate)
RRSP Program
With the , use up to $35,000 of RRSP savings per person in the application for down payment.
The benefit is when you buy the RRSP you should get a tax refund. For example, if you buy $10,000 of RRSP and your tax rate is 35%, then you would get a $3,500 refund at tax time.
This refund can be used to help with , added to the down payment itself, or used however you wish.
When you sell the RRSP to buy your first home, you do not need to repay the tax refund.
However, it’s important to note, that the RRSP savings need to be ‘replenished’ or re saved over a maximum of 15 years, starting in the second year after the purchase. Because this replenished RRSP will eventually be taxed (ie. at retirement), the Home Buyers Program is seen more as a tax deferral strategy.
To be eligible, RRSPs need to be purchased at least 90 days before the closing date of the home. If RRSPs are purchased, for example, 30 days before the closing date, they will not be eligible for the program.
More information:
Tax Credit
One of the most straightforward is the .
In the year of the purchase, you may claim a $750 tax credit. The actual claim is for $5000 but only 15% of this amount, or $750, is refunded.
The 2022 Federal Budget proposes to increase this refund amount to $1500, based on a tax credit $10,000 claim. This will likely be ratified and the claim amount will be used at tax time.
Like all matters with income tax, discuss with a tax specialist.
For more information, visit:
Government of Canada Home Buyers Tax Credit Info
Gifted Down payment Programs
The intention of the gifted down payment program is that some or all of the down payment is given/ transferred to you and does not need to be repaid. Higher down payments increase purchase power, especially once 20% down payment is reached.
This is not an institutional loan, so no other debt payment is associated with reducing your pre approval.
Each lender has their own gift letter template that can be filled out indicating the amount and date of the gifted transfer and the relationship to the giftor.
There are two types of gifted down payment programs. The most common is a gift from immediate family including parent, grand parent, or sibling. Most lenders support this program. The other type of gift can come from a non immediate family member such as a cousin or even a friend. This is a different type of gifted down payment program though, and there are higher default insurance costs associated with this program.
For more information visit:
Borrowed or No Down Payment Programs
With a strong credit and income application, it is possible to borrow the down payment. The borrowings can be from a loan or credit line, and need to be from an ‘arms length’ or 3rd party financial institution.
The most important thing to note is that the monthly repayment of the borrowing needs to be included in the application. So if there is already a more substantial car loan or student loan in the financial picture, this could make qualifying more difficult.
The program can be worth considering though if it means getting into a home sooner, ahead of another sudden increase in values, and also to start building equity sooner.
For more information visit:
Purchase Plus Improvements Program
With this program, additional funds to improve the home can be applied for.
If you can purchase a home at a lower price point, and then for $20,000 – $30,000 refresh the interior to your style and taste, the result could be an excellent value and an opportunity.
The program does have certain requirements, such as completing the renovations, after the closing date but before the improvement funds are released. Also the program is intended for minor, aesthetic improvements such as paint, flooring, trim, tile, and kitchen and bathroom fixtures. Any more substantial renovations that may require a building permit, including anything to do with building or moving walls, or structural in nature, do not qualify under this program.
For more information:
Purchase Plus Improvement Mortage Details
Debt Structuring Strategy
If you have other debt, what is the best strategy to position your debt on a application as a ?
A lower down payment, as low as 5%, could actually help increase your approval and save you money, if it means some of your other debt is repaid.
For example, instead of using a 10% down payment and keeping a $15,000 loan with a $500 on the application, we use a lower 5% down payment and pay out the loan. So on closing, there is no more $500 per month loan payment and the has also been improved.
Alternatively, gifted funds can be used to repay debt to help improve pre approval limits. There would need to be a signed gift letter indicating the source and non repayment of the gifted funds.
In this area of structuring an application, it is especially important to talk to a qualified Broker that understands your specific application.
No Stress Test Approval
The stress test makes it harder to qualify and is known to reduce pre approval limits by as much as 20%. However if 20% down payment can be available, there are approval options available that do not require a stress test rate.
These programs are offered through Ontario Credit Unions, and can lead to notably higher qualification limits.
The specifics of these programs are pretty good too. The rate will not be the lowest in the market, but it won’t be the highest either. The mortgages are otherwise full feature, allowing for up to 30 year amortization and full pre payment/ early payment privileges. There are a full range of terms and options available, and lenders may be switched/changed at the end of the term depending on qualification at the time.
Gifted down payment is possible under these programs. However, it should be from immediate family. No friends or third party gifts.
Connect with us at Altrua for more information.
Co-Signer Strategy
A growing trend in the marketplace has been the use of a co signer for helping to increase the approval on a application.
If a co signer is possible, the pre approval limits can be significantly higher, depending on the co signer income and any existing or other debt.
A co signer would come on to the , and also the title of the home, usually as a 1% owner. This helps to ensure you can take the most advantage of other incentives such as the rebate.
Also, once its easier to qualify for the , such as through higher income or lower rates, the co signer can come off the title of the home and off the . This can happen, for example, after 2 or 3 years, and the process typically costs a few hundred dollars to remove the co signer. It should not be a major cost to remove the co signer.
Typically, we will have a meeting that includes the co-signer, so that they are fully acquainted with the process and have all of their questions answered.
Connect with us today for more information on these strategies and how we can help you best.