As one of Canada’s most sought-after cities, Toronto is the ultimate dream for many first-time buyers. Something is exciting on the calendar every day of the year, and you’re hard-pressed to find a better place with more opportunities for high-paying careers. To top it all off, Toronto is a nature lover’s paradise even though it’s the most populated city in the nation.
The only problem is that Toronto’s high prices, combined with soaring high interest rates and inflation, puts buying a house here out of reach for many younger people starting out. Is there any help available for first-time buyers? Let’s explore some of the resources designed to help you get into a home of your own.
First Home Savings Account
Financially, several resources are available beyond the Bank of Mom and Dad. The FHSA (First Home Savings Account) is the newest federal program to help young people save for their first house. Since it functions as an investment fund, you will get the maximum benefits by starting as early as possible.
You can open your first FHSA between the ages of 18 and 71 and invest as much as $8,000 per year into the fund. Like an RRSP, there are also tax benefits as your contributions reduce your taxable income for that calendar year. Unlike an RRSP, when you make a withdrawal to purchase a qualifying home, these funds remain tax free.
Though your contributions are capped at $40,000, you still have earning potential as your investment grows in value over time. That’s one more reason to start when you are young. If you decide against buying a house or have funds left over, you can transfer them to an RRSP or other tax-sheltered investment.
Buying your first can be intimidating, but a little background knowledge will help:
- What Is the Real Estate Closing Process in Canada?
- What Is the Property Ladder?
- Everything You Need to Know About Land Transfer Taxes
Home Buyers Plan
The HBP (Home Buyer’s Plan) allows you to pull up to $35,000 from your tax-sheltered investments to put toward your first home. You then have 15 years to repay these funds to avoid a tax penalty.
Considering the prices in Toronto, the HPB might not seem like much help. However, if you’re buying with a partner who is also a first-time buyer, you can both access the program. And if you also have an FHSA, you can combine it with the HBP for maximum benefit. To qualify for the program:
- You must be a Canadian resident who has not purchased a home nor owns an interest in a home anywhere in the world.
- You must have a written agreement to buy or build a qualifying home after withdrawing the funds.
- The home must be your primary residence within one year of purchasing or building the house.
First Time Home Buyer Tax Credit
First time home buyers can happily expect some relief the following tax year. Up until a few years ago, you could have claimed a maximum of $5,000 on your return. This would have resulted in a credit or refund of $750 off of your income taxes for that year.
Under the latest federal policy, you can double this amount to $10,000, resulting in a $1,500 credit. This may not seem like much in comparison to the price of a house in Toronto. However, it all adds up, especially when combined with other available programs and incentives. This credit could cover some of your moving costs or allow you to treat yourself to the perfect house-warming gift!
Land Transfer Rebates
Saving for a down payment is enough of a hurdle when buying a house. If that wasn’t challenging enough, you also have the land transfer taxes. Provincial taxes can be as high as 2.5%, depending on the purchase price, and this is one closing cost you can’t include in your mortgage.
In addition, Toronto charges its own municipal tax, which essentially doubles the amount you owe. Plus, the city implemented an extra luxury tax on all homes over $3 million in 2023. Fortunately, first-time buyers can take advantage of both provincial and municipal rebates, saving you up to $8,475 on the closing costs of your first Toronto home.
Looking for even more tips to get into your first home? Here is some related reading you may enjoy:
- What You Should Know Before Buying A House With Someone Else
- 5 Signs You’ve Found The Right Home
- Should You Buy a House Close to a School?
Work With a Local Real Estate Agent
A Toronto home may seem like an ambitious goal for first-time buyers. However, when you add up all of your resources along with these programs designed to help, that dream can be more accessible than you realize. A local real estate agent can also walk you through the entire process, from getting pre-approved for your mortgage to spotting the best possible value in the Toronto market. Take that first step today, and you never know what tomorrow might bring.
Are you a first-time buyer with questions about Toronto real estate? Our experts are here for you at every stage in your journey. Give us a call at 647.232.7317 today or email ana@asantos.ca to start a conversation.