What a first-time home buyer in Ontario should know

Buying a home in Ontario is no small feat—it's Canada's most populated province for a reason! Home to Canada's largest city, Toronto, and numerous other beautiful municipalities and rural areas, it makes sense that it's also one of the most expensive provinces in Canada. But, the good news is that the provincial Government of Ontario (and some local municipalities) offers programs that could make it easier to afford a home here. 

The Federal Government of Canada also offers a few incentives to make homeownership more attainable. But first, let's look at the market and set some realistic expectations when it comes to buying a home and getting a mortgage in Ontario. 

What you should know before starting your home search in Ontario 

The Ontario housing market is competitive. Unfortunately, you'll likely be rejected a few times, but that's perfectly normal. When you stay focused and motivated and have a great team on your side, you'll find the process much easier.

Who qualifies as a first-time home buyer in Ontario?

First things first—when it comes to first-time home buyer incentives, you'll want to confirm that you qualify as a first-time home buyer. In Ontario, a first-time home buyer is someone who hasn't owned a home previously here or anywhere else in the world. Also, if you've received your first home as a gift or inheritance, the Ontario government will not consider you a first-time home buyer.

What's the real estate market like in Ontario? 

It will help if you also have a good understanding of the Ontario real estate market so that you can go in with realistic expectations. The Ontario Real Estate Association (OREA) reported that January 2023's home sales marked the slowest start to the year since 2009. Here are some more of its findings: 

• Residential sales activity reported by MLS® numbered 7,766 units in January 2023, which is down by 38.3% from January 2022 
• The average price of resale residential homes sold across the province in January 2023 was $798,835—a significant decline of 20.1% from January 2022 
• The number of new listings on MLS® of real estate boards in Ontario was up 8.1% from January 2022. There were 17,769 new residential listings in January 2023. 

Sure, it's a "sharp decline" since 2022—but with the average home price in Ontario still almost $800,000, it's an incredibly expensive entry point for most people. But, be sure to keep in mind there are still some affordable options in smaller cities and rural areas.

What's the typical down payment in Ontario?

Since real estate prices are higher in Ontario, your down payment will also typically be larger in the province. A down payment is a lump sum paid up-front and is a percentage of the overall price of a home, with the rest of the cost being covered by the mortgage. Here's a quick guide to how down payments work in Canada: 

• If the home is less than $500,000, you'll need to put down a deposit of 5% 
• If the home costs more than $500,000 up to $999,99, your down payment will be 5% on the first $500,000 and 10% on the remainder above $500,000 
• If the home costs $1 million or over, you'll need a minimum of 20% down payment. 

For example, let's say you purchased a home that was $800,000. Your down payment will be 5% on the first $500,000, which equals $25,000. Plus, 10% on the portion after—the remaining $300,000—which equals $30,000. Your down payment for a house worth $800,000 would be $55,000. 

What are the programs for first-time home buyers in Ontario? 

There are a few programs in Ontario to be aware of that can make homeownership slightly more affordable. Some local regions will also have more specific programs that you'll want to check out. 

Ontario Land Transfer Tax Refund 

If you qualify as a first-time home buyer in Ontario, you could be eligible for the provincial land transfer tax refund. The rebate can go up to $4,000 for homes priced over $368,000. The land transfer tax is not applicable for homes priced below this value. It's a nice chunk of change that can make quite the difference when budgeting for your new home. 

To qualify for the refund, you must: 

• Be at least 18 years old 
• Be a Canadian citizen or permanent resident of Canada 
• Live in the home you're purchasing within nine months 
• Apply within 18 months of registration 

If you're married, you'll also need to take into account your partner's property history because it could affect your ability to claim the refund. If your partner acquired a home individually while you've been married, then neither of you would be eligible for the tax refund. But, if your partner's property was purchased or inherited before you got married, you could still be able to claim some of the refund. 

First-time Home Purchase Rebate (Toronto) 

As a first-time home buyer, you could qualify for a rebate of up to $4,475 if you're purchasing a new-build or a residential resale property in Toronto. All of the same requirements for the Ontario Land Transfer Tax apply for this rebate, so hopefully, you can qualify for both.

Local homeownership programs in Ontario you should know about 

Some Ontario municipalities run their own incentive programs to make it easier for residents to find homes and to encourage economic growth in the area. Here are a few helpful programs to know, and be sure to check the local municipality you live in for any other incentives. 

• The Niagara Homeownership Program offers 5% down payment assistance to a maximum of $23,408.30 as a forgivable loan--a loan where parts of the amount or the full amount are forgiven and or deferred based on certain criteria. Eligible properties must be valued under $468,116, and participants must be renters earning a gross household income of less than $85,000. 
• Kingston and the surrounding County of Frontenac's Home Ownership Program is available to renters in the form of a forgivable loan of 10% of the purchase price to a maximum of $44,000. The combined household income must be $91,000, and the maximum home price must be $440,000 or less.
• The Simcoe Affordable Homeownership Program offers 10% down payment assistance to a maximum of $50,000 as a 20-year forgivable loan. If participants choose to sell before 20 years, they'll need to repay the loan in full, as well as a percentage of the capital gains. Eligible properties must be worth $593,879 or less, and participants must be renters earning a gross household income of less than $103,200. 
• The Region of Waterloo's Affordable Home Ownership Program offers eligible residents a 5% down payment assistance loan to use on properties worth $506,000 or less. To be eligible, the participant's household income must be less than $101,300, and they have resided in the region for the last 12 months. 
• The Affordable Homeownership Program in Chatham-Kent is a down payment assistance program that helps cover 10% of the purchase price, up to$25,000. The applicants must earn less than $80,100 or less. 
• Programs like the above also exist in the District of Muskoka, Brantford, and Dufferin County.

What are the programs for first-time home buyers in Canada? 

Canada also offers some programs for first-time home buyers (thank goodness). Here are some of the major ones you may consider applying for. 

The Home Buyers' Plan 

The Home Buyers' Plan (HBP) is a program offered by the Government of Canada to help first-time home buyers get into the market. If you're eligible, you can withdraw up to $35,000 from your registered retirement savings plan (RRSP) towards the down payment on your first home. If you and someone else are buying a home together, you can each withdraw from your individual RRSPs to withdraw a combined $70,000. The withdrawal is tax-free as long as it's paid back within 15 years. 

To qualify for the HBP, you must:

• Be a first-time home buyer
• Be a resident of Canada 
• Use the home within a year of purchasing it or building it 

The First-time Home Buyer Incentive 

First-Time Home Buyer Incentive is a shared equity program with the Canadian government and can help you if you're struggling to come up with a down payment. Eligible Canadians can apply for a loan worth either 5% or 10% of a home's purchase price, but there's a catch. 

When you eventually pay back the loan, you'll be required to pay the equivalent of 5% or 10% of the property's current value. While it's a great tool to help Canadians get into the market, the downside is that you don't know how much your home's value will be in the future, and you're paying the government a percentage back—not a set amount. Let's say you purchased a home for $600,000 and borrowed 5% of the value for the down payment, which would be $30,000. You would owe the government 5% of the final sale price. So, if you held on to the home for eight years and sold it for $950,000, you would have to pay the government back $47,500. 

The Home Buyers' Amount 

The Home Buyers' Amount was introduced as part of "Canada's Economic Action Plan" in 2009 to assist Canadians in purchasing their first home. It was created to help recover closing costs like legal expenses, inspections, and land transfer taxes that can add up for first-time home buyers. Until 2022, the Home Buyers' Tax Credit worked out to about $750, but in 2022, the rebate amount was doubled to $1,500. 

To qualify for the Home Buyers’ Amount, you must: 

• Buy an eligible home 
• Include it with your personal tax return under line 31270 of your schedule 1 
• Be a resident of Canada
• Intend to live in the home within one year or purchase 

First-Time Home Buyers' Tax Credit

If you're stepping into the realm of home ownership for the first time, you may be eligible for a non-refundable tax credit of up to $750 when you buy a qualifying home. The calculation for the Home Buyers' Tax Credit (HBTC) involves multiplying $5,000 by the lowest personal income tax rate. For instance, in 2022, this rate was 15%, resulting in a tax credit of $10,000. In simpler terms, this can translate to a tax reduction of up to $1,500 for the year you make your home purchase.

To qualify for the First-Time Home Buyers' Tax Credit, you have to:

• New Homeowners: Essentially, this credit targets those new to home ownership. You're eligible if neither you nor your spouse or common-law partner have owned a home in the purchase year or the previous four years.

• Persons with Disabilities: There are provisions for individuals with disabilities too. Even if you've previously owned a home, you can still be eligible for the credit if:

1. You have a recognized disability and claim the Disability Tax Credit.
2. The purchased home is adapted to meet the needs of the person with the disability.
3. The home is occupied within a year of purchase.
4. The disability amount is claimed on the tax return for the year the home is bought.

GST/HST Housing Rebate

The GST/HST New Housing Rebate is available to Canadians who buy a newly built home, significantly renovate an existing home, or rebuild a home that was destroyed. If you qualify, the rebate allows you to recover some of the goods and services tax (GST) or the federal part of the harmonized sales tax (HST) that you paid toward these purchases. 

What are typical property taxes in Ontario? 

As with seemingly everything in Canada, if you own it, you pay tax on it! Property tax is used to pay for city services like the fire department, police, public transit and public education. Typical property taxes in Ontario can vary drastically based on the region you live in, and how much you pay is determined by the municipality tax rates and the most recent value assessment of your home. Use this property tax calculator to determine how much tax you could pay based on where you live. 

Getting a mortgage in Ontario 

Once you find the home you love and have a good idea of some of the programs that could help you buy a home, it's time to get a mortgage in Ontario. A great, competitive rate is important, but so is having knowledgeable mortgage agents to help you at every turn. If you have questions about getting a mortgage in Ontario, apply with Pine, and a mortgage agent would be happy to answer any questions you may have.