Down Payment Options and Tax Credits for First Time Home Buyers

Purchasing a home is a big financial commitment. In addition to moving costs and closing costs, most home purchases require a down payment of at least 5% of the purchase price. This is the amount of money you are personally committing. Coming up with a down payment can be challenging; however, there are options, depending on the lender, the location of the purchased property, the loan to value and your credit score.

Ideally, you’ve saved the down payment in a savings account or have an RRSP, from which you can withdraw up to $25,000 with no penalty under the Home Buyer’s Plan (HBP). If you choose to take advantage of the HBP, here is what you need to know.

RRSP Withdrawal Conditions

Must be a resident of Canada at the time of the withdrawal.
Must receive or be considered to have received, all withdrawals in the same calendar year.
Only the person who is entitled to receive payments from the RRSP can withdraw funds from an RRSP. You can withdraw funds from more than one RRSP as long as you are the owner of each RRSP. Your RRSP issuer will not withhold tax on withdrawal amounts of $25,000 or less.
Your RRSP contributions must stay in the RRSP for at least 90 days before you can withdraw them under the HBP.
You have to buy or build a qualifying home for yourself, for a related person with a disability, or to help a related person with a disability buy or build a qualifying home.
Also, there are a number of rules for repayment that we can review together.

If an RRSP withdrawal is not an option, here are some other avenues to consider:

Non-repayable gifted funds from an immediate relative
In some cases, you can borrow the down payment, just be aware that the loan payment will be factored into your affordability calculation
You can sell some personal property. Make sure you have proof of ownership and a paper trail. If a lender sees a large amount of money deposited into your account, they want to know where it came from.
You can sell any assets, such as stocks or bonds
Use the cash value built up in your life insurance policy
You can use your TFSA. Remember you can withdraw as much as you want tax-free. As with an RRSP withdrawal, there are few rules to repayment that we can review.

Because different lenders have different down payment requirements, I would be happy to discuss all your options.

I’d also like to mention the First Time Home Buyer’s Tax Credit (HBTC). You will qualify if:

You or your spouse or common-law partner acquired a qualifying home; and
You did not live in another home owned by you or your spouse or common-law partner in the year of acquisition or in any of the four preceding years.

A qualifying home includes existing homes and those being constructed as well as single-family homes, semi-detached homes, townhouses, mobile homes, condominium units, and apartments in duplexes, triplexes, fourplexes, or apartment buildings.

The tax credit is not connected to Home Buyer’s Plan so your eligibility for the tax does not change whether or not you also participate in the Plan.

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