The Ultimate Guide to First-Time Home Buying in Ontario

by chris on 25 February 2024

The Ultimate Guide to First-Time Home Buying in Ontario

Embarking on the journey to purchase your first home in Ontario is akin to setting off on an adventure in Canada’s most vibrant and populous province. Here, every city pulse and rural vista tells a story of opportunity, community, and the dream of homeownership.

Yet, as with any great adventure, there are challenges to navigate and mountains to climb—figuratively speaking.

Ontario’s real estate market is as competitive as it is rewarding, making the path to buying your first home one that requires grit, preparation, and a little bit of insider knowledge.

Luckily, with the right guidance and an understanding of the valuable incentives available to you, securing the keys to your first home is not just a possibility but a milestone waiting to be achieved.

Understanding the Ontario Housing Market

The Ontario housing market is a complex landscape, shaped by the forces of supply and demand, economic trends, and the dreams of countless individuals looking to find a place to call home.

Recent data from the Ontario Real Estate Association paints a picture of a market in transition, one where the once-booming sales have given way to a more measured pace of transactions.

January 2023 witnessed home sales at their slowest start since the financial crisis of 2009, a clear sign of the market’s response to a broader economic cooldown.

With 7,766 units sold in January 2023, marking a 38.3% decrease from the previous year, and the average resale price of residential homes falling by 20.1% to $798,835, the market presents a mixed bag of challenges and opportunities.

The increase in new listings by 8.1%, however, suggests a silver lining for potential buyers, offering more options and a bit more breathing room in the competitive arena.

Yet, even with these adjustments, the reality remains that Ontario’s entry point to homeownership is among the highest in Canada. This is particularly true in metropolitan areas like Toronto, where the pulse of Canada’s economy beats strongest.

But it’s not all daunting—outside the urban centers, Ontario is dotted with smaller cities and rural communities where the dream of homeownership is more accessible, painting a diverse and varied picture of the provincial real estate market.

Provincial and Federal Incentives for First-Time Home Buyers

Recognizing the hurdles faced by first-time home buyers in Ontario, both the provincial and federal governments have stepped up with a suite of incentives designed to make the leap into homeownership more attainable.

These programs are crucial lifelines for many, offering financial relief that can make the difference between a dream deferred and a dream realized.

Ontario Land Transfer Tax Refund

In Ontario, when a property changes hands, the new owner is required to pay a land transfer tax to the provincial government. This tax is calculated as a percentage of the property’s purchase price, with rates that increase progressively with the value of the property.

For many first-time buyers, the land transfer tax can represent a substantial financial outlay at a time when they are already facing numerous other expenses.

Eligibility Criteria

To qualify for the Ontario Land Transfer Tax Refund, buyers must meet several criteria:

• First-Time Buyer Status: Applicants must be buying a home for the first time. In this context, a first-time home buyer is someone who has never owned a home, or an interest in a home, anywhere in the world. Additionally, if the applicant’s spouse has owned a home during the time they were spouses of the applicant, neither party qualifies for the rebate.

• Age and Citizenship: Applicants must be at least 18 years old and must be a Canadian citizen or permanent resident of Canada at the time of the home purchase.

• Residency Requirements: The property being purchased must be intended as the principal residence of the applicant, and they must move into the home within nine months of the purchase.

• Application Deadline: The application for the rebate must be made within 18 months of the purchase of the home.

Claiming the Rebate

The rebate can be claimed directly at the time of registration of the property transfer, effectively reducing the amount of land transfer tax needed to be paid upfront.

Buyers can also apply for the rebate after the fact if the land transfer tax has been paid in full at the time of purchase. To do so, applicants must file the appropriate forms and provide supporting documentation to the Ontario Ministry of Finance.

Impact of the Rebate

The Ontario Land Transfer Tax Refund can make a significant difference for first-time home buyers, directly reducing the upfront costs of purchasing a home. By understanding and taking advantage of this rebate, buyers can allocate their resources more effectively, perhaps allowing for a larger down payment, covering moving costs, or furnishing their new home.

First-Time Home Purchase Rebate in Toronto

In Toronto, where the real estate market is particularly robust, the municipal land transfer tax rebate mirrors the provincial one, offering up to $4,475 back. This rebate is critical in a city where every dollar towards homeownership counts.

Eligibility Criteria

To qualify for the First-Time Home Purchase Rebate, applicants must meet several criteria, similar to those for the provincial land transfer tax rebate:

• First-Time Buyer: The applicant must be a first-time home buyer, defined as someone who has never owned a home or had any ownership interest in a home, anywhere in the world. This includes the applicant’s spouse; if the spouse owned a home while married to the applicant, neither is eligible.

• Age and Citizenship: The applicant must be at least 18 years old and either a Canadian citizen or a permanent resident of Canada at the time of the home purchase.

• Principal Residence: The purchased property must be intended as the principal residence of the buyer, and they must move into the home within nine months of purchasing it.

Rebate Amount

The First-Time Home Purchase Rebate in Toronto can cover the entire amount of the MLTT up to a maximum of $4,475. This cap ensures that first-time buyers purchasing lower-priced homes could potentially pay no MLTT at all, while those buying more expensive properties will still receive a significant discount on their tax bill.

How to Claim the Rebate

The rebate can be claimed at the time of registering the property transfer, allowing eligible buyers to immediately benefit from the reduced tax amount.

If the MLTT has already been paid, buyers can apply for the rebate retroactively by submitting the necessary documentation and application forms to the City of Toronto.

Federal Programs Overview

Navigating the path to homeownership can be daunting for first-time buyers, especially when considering the financial hurdles. Fortunately, the Federal Government of Canada offers several programs designed to make this journey more accessible and affordable.

These initiatives provide financial assistance, tax benefits, and savings opportunities that can significantly impact the affordability of purchasing your first home. Here’s an overview of key federal programs tailored for first-time home buyers.

Home Buyers’ Plan (HBP)

The HBP is a lifeline, allowing the withdrawal of up to $35,000 from your RRSPs tax-free. This program not only aids in managing the down payment but also in planning long-term financial health by requiring repayment within 15 years, encouraging savings discipline among new homeowners. For more information refer to Government Of Canada Website Here 

Eligibility Criteria

To be eligible for the HBP, individuals must meet the following requirements:

First-Time Home Buyer: You must be considered a first-time home buyer, which means you cannot have owned a home that you occupied as your principal place of residence at any time during the four-year period before the date of withdrawal of funds.

• RRSP Holder: You must have a valid RRSP account from which to withdraw the funds. The funds must have been in the RRSP account for at least 90 days before the withdrawal.

• Purchase or Building a Qualifying Home: You must have entered into a written agreement to buy a qualifying home for yourself or for a related person with a disability.

• Principal Residence: The home you are buying or building must be intended as your principal place of residence within one year of purchase or completion of the building.

Repayment

One of the HBP’s critical features is the requirement to repay the withdrawn funds back into your RRSP within a 15-year period, starting the second year following the year in which you made your withdrawal.

Each year, you must repay at least 1/15th of the total amount withdrawn until the full amount is repaid. If you do not repay the annual amount due, it will be included in your taxable income for that year.

How to Participate in the HBP

Participating in the HBP involves several steps:

• Ensure Eligibility: Verify that you meet all the eligibility criteria for the HBP.
• Withdraw Funds from RRSP: Complete Form T1036, Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP, for each withdrawal you make. Submit this form to your financial institution managing your RRSP.
• Purchase or Build Your Home: Proceed with buying or building your qualifying home.
• Repay the HBP: Start repaying the amount you withdrew from your RRSP two years after the initial withdrawal, completing the repayment within 15 years.

Home Buyers’ Amount

The Home Buyers’ Amount offers a $5,000 non-refundable income tax credit on a qualifying home purchase, providing up to $750 in federal tax relief. This benefit is designed to help cover some of the legal expenses, land transfer taxes, and other fees associated with buying a home.

Eligibility Criteria:

• You or your spouse or common-law partner purchased a qualifying home.
• You are considered a first-time home buyer.
• The home is to be used as your principal place of residence.

GST/HST New Housing Rebate

This rebate allows individuals who buy a new home or condo, build, or significantly renovate a home to recover part of the GST or the federal part of the HST paid. It’s a substantial saving, particularly for those purchasing new builds or undertaking major renovations on their first home.

Eligibility Criteria:

• The home must be your primary place of residence.
• You buy the home from a builder or are the first person to occupy the home after construction.
• Substantial renovations or the building of a major addition to a home can also qualify.

Federal Incentives

On the national stage, programs like the Home Buyers’ Plan allow individuals to withdraw up to $35,000 from their RRSPs to contribute towards their down payment, offering a tax-free loan to themselves that they can repay over 15 years.

The First-Time Home Buyer Incentive further eases the down payment hurdle by offering 5% or 10% of the home’s purchase price as a shared equity mortgage with the government.

This innovative program is designed to lower monthly mortgage payments, although it does mean the government will share in the future gain (or loss) of the home’s value.

Conclusion

As we navigate the winding paths and occasional hurdles of buying a first home in Ontario, it’s clear that while the journey may seem daunting, it is far from impossible. With strategic planning, diligent research, and the utilization of available incentives, the dream of homeownership is within reach, even in Canada’s most populous province.

The landscape of the Ontario real estate market is both challenging and ripe with opportunity, offering something for everyone—from bustling cityscapes in Toronto to serene rural retreats.

The array of provincial and federal programs designed to support first-time home buyers is a testament to the value placed on making homeownership accessible and sustainable.

These incentives not only offer financial relief but also signify a commitment to fostering communities and ensuring that the benefits of owning a home are attainable for a broader segment of Canadians.