Given the increased cost of living and high interest rates seen across Canada, the barriers to first-time home ownership seem higher than ever. Fortunately, there are a couple of federal programs to help put home ownership within reach of first-time buyers.

Home Buyers’ Plan

For many first-time homebuyers, coming up with a down payment is a giant hurdle. The Home Buyers’ Plan aims to make this a little easier by allowing Canadians to withdraw up to $35,000 from their RRSPs, tax-free, to purchase or build a first home. 

There’s a bit of fine print to keep in mind with this program, including: 

• You must meet the federal government’s criteria for a first-time home buyer. This means that you did not occupy a home that you owned or that your current spouse or common-law partner owned in the four years prior to your home purchase. 
• You must intend to occupy the qualifying home as your principal place of residence within one year after buying or building it. 
• You can withdraw funds from more than one RRSP as long as you are the owner of each RRSP account. Some RRSPs, such as locked-in or group RRSPs, do not allow you to withdraw funds from them. 
• You must return the amount you withdrew back into your RRSP within 15 years. 

The First-Time Home Buyer Incentive  

The First-Time Home Buyer Incentive program was put in place to help make home ownership more affordable for first-time buyers. It provides eligible first-time buyers with an interest-free loan of up to 10% of the price of a newly built home or 5% on a resale purchase.

The loan gives the government an equity stake in your home, which means the government will share in any increase or decrease in the value of your home up to a maximum of 8% per year (not compounded) on the loan amount. You would repay the loan plus a portion of the capital gain or loss to the government when you sell the home or after 25 years, whichever is sooner. Here’s an example of how that works:

You want to purchase a resale home for $400,000, and you borrow 5% ($20,000) through the First-Time Home Buyer Incentive.

After five years, you’re ready to sell the home, and its market value is $480,000. Housing sale prices have increased. You still need to repay your loan amount, but because the value of your home went up, the government gets a share of that from the home's shared equity amount, which is $4,000. The total amount to pay back to the government is $24,000, which is $4,000 more than your original loan.

However, imagine if you sell the house after five years and the market value of your home has decreased to $330,000. You would still owe your full loan amount plus the home's shared equity amount, but because the value of your home is lower, the amount you pay back is also lower. The shared equity amount, in this case, is -$3,500, making the total repayment amount $16,500 instead of $20,000.

Read more on how the First Time Home Buyer Incentive works.

Fine print:

• The incentive is available only to first-time home buyers with an annual household income of up to $120,000.
• Mortgages must be less than four times an applicant’s household income. For example, if your household income is $100,000/year, your mortgage can be no more than $400,000.
• The government’s gain or loss will be the lesser of either the Shared Equity Amount or the Maximum Shared Equity Gain/Loss Amount. In the example given above, the Shared Equity Amount was less compared to the Maximum Shared Equity Gain/Loss Amount, which would have resulted in a $28,000 repayment when the home’s value increased and a $12,000 repayment when the home’s value decreased. This is where the up to a maximum of 8% per year comes in. See further examples here.