Down payment assistance programs in Canada
If you’re ready to buy a house, saving for a suitable downpayment and planning to make a move can be daunting. Studies show that 39% of new homeowners rely on gifts from family, 25% rely on loans from family or friends, and 38% count on RRSPs to help save the cash for a reasonable down payment. But not everyone has access to funds beyond their yearly income. Here’s how to maximize your money for a down payment, including accessing down payment assistance programs in Canada.
What is a down payment?
A down payment is an amount of money that you pay when purchasing a home; the payment goes towards the purchase of your home and is deducted from the purchase price of your home. The monthly mortgage costs you pay will accumulate to pay the rest of your total home price.
Can I buy a house without a down payment?
You can technically buy a home without a down payment, but it’s not advisable and comes with more risks. By borrowing the minimum down payment, it can be possible to to get a mortgage without having cash to do so; but this likely requires a separate loan with higher interest, generating a higher risk than more traditional mortgage models. If you buy a house with a low or non-existent payment, you’ll have higher interest payments on your debt, you’ll pay higher insurance premiums and won’t have any home equity. If you’re not able to afford a reasonable down payment on your home, it’s recommended that you wait until you have money to do so or use incentives to afford a bigger down payment.
Why does a down payment matter?
Paying a larger down payment results in a smaller mortgage and reduced monthly costs. By paying as much of the total home price as you can when your home is purchased, you’ll save money. Start by calculating your down payment and then explore the programs below to see if any are relevant to you.
Down payment assistance programs in Canada
Canadians have access to down payment programs that offer support to help potential homebuyers find the resources they need to afford a down payment. Some programs are national, while others are specific to the province.
1. Home Buyers’ Amount
This incentive is smaller but can be a useful boost for eligible individuals, offering a $5,000 non-refundable income tax credit amount on a qualifying home purchased during that tax year. You are eligible if:
- You or your spouse or common-law partner acquired a qualifying home in the relevant tax year.
- 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 (first-time home buyer).
What counts as a qualifying home?
The property must be registered in you or your spouse or common-law partner’s name with the applicable land registration system in Canada. This can include both existing properties, and homes under construction. You must plan to inhabit or occupy the home, or have plans for a related person with a disability to occupy the home, as their principal residence within a year of purchase.
2. The Home Buyer’s Plan (HBP)
The HBP allows eligible Canadians to withdraw up to $35,000 per year from their registered savings plans (RRSPs) to buy or build a qualifying home for themselves or for a relative with a disability. The funds can be repaid over the 15 years following home purchase. Some RRSPs like locked-in or group RRSPs won’t allow funds to be withdrawn. You can also withdraw amounts from several RRSPs, as long as you are the owner of each account; RRSP issuers won’t withhold tax on amounts that are $35,000 or less.
What conditions apply?
You must be a first-time home buyer to qualify, with a written agreement to buy or build a home that qualifies –– for yourself or a relative with a disability. You need to be a Canadian resident when you withdraw the funds from your RRSPs up to the time when your home is bought or built, and need to occupy the home or ensure that the family member is occupying it within one year of building or buying.
3. GST/HST New Housing Rebate
You may qualify for a rebate for part of the GST or HST that you paid to purchase, build, or renovate your new home. You may be eligible if you:
- Purchased a new or substantially renovated home from a builder, including a property on leased land (with some conditions), for use as your primary residence.
- Purchased shares in a co-operative housing corporation (with some conditions).
- Purchased a new or substantially renovated mobile home or floating home (with some conditions).
4. Private down payment assistance programs for first-time homebuyers
Private companies also offer customized assistance programs specific to first-time buyers. Canadian-owned private mortgage insurers, independent lenders, and other private companies can help create a customized program that helps you meet financial goals. From products and programs to help maximize down payments and lower mortgage payments, to useful resources for new buyers. The advantage in private assistance programs is the opportunity to choose a program that suits your individual circumstances; to build solutions for opportunities like increased amortization, introducing partial or shared payments, and deferring payments.
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