Federal Government Home Buyers' Plan
The Home Buyers' Plan (HBP) is a Canadian Government program that allows you to withdraw up to $25,000 from your RRSP (if you have one) to help you buy or build a home. Generally, you have to repay all withdrawals to your RRSPs within a period of no more than 15 years starting two years after withdrawal to avoid tax. Application in a Purchase or New Build: The purchase or build must be a qualifying home. Visit here for more details.
First Time Home Buyers' Tax Credit (HBTC)
The Federal Government also has a First Time Home Buyers' Tax Credit (HBTC), which can increase your income tax refund (or decrease your tax bill!), though - unfortunately - it doesn't help out with your down payment. Learn more here
CMHC Down Payment Flexibility
CMHC (Canadian Mortgage and Housing Corporation) and Genworth Financial, as insurers to most of Canada's mortgage lenders, have made it easier to come up with your down payment for traditional mortgage financing. Here are your choices:
- Applicant savings
- A non-repayable gift from immediate relative (this is a very popular and common method)
- RRSP withdrawal (per the HBP above)
- Funds borrowed against proven assets
- Sweat equity (<50% of minimum required equity)
- Land that doesn't have any liens against it
- Proceeds from sale of another property
- Equity grant (non-repayable from federal, provincial or municipal agency - very rare)
- Any borrowed source, such as a line of credit or personal loan, that is arm’s length to and not tied to the purchase or sale of the property such as borrowed funds, gifts, and 100% sweat equity.
Province Specific Programs and Financial Assistance
Provincially, there may be additional programs that you can research here.
Vendor Financing
See below, but be careful.
Questions?
Vendor Assistance Programs
As you may be aware, a vendor or seller cannot provide you with any form of your down payment to purchase their property. A lender would simply reduce the purchase price by the same amount, leaving you without a down payment. However, a vendor may permit you to live in their home until you can accumulate your own down payment sufficient to buy them out, hence the term Vendor Assistance Program.
Buyers that cannot currently qualify for a mortgage, whether insufficient down payment or other qualifying factor, might consider an equitable lease-purchase (rent-to-own) program as a means of assistance to acquire a property. Sellers will often provide this sort of assistance to encourage a buyer to purchase their property over another, so it helps them too.
Buyers are cautioned that rent-to-own needs to be viewed as a stepping stone to a mortgage, not a replacement. Buyers that fail to understand this point and fail to implement a specific plan toward mortgage qualification are often disappointed in the outcome (ie. failure).
General CMHC Guidelines for the Application of Rent-to-Own Down Payment and Rents in Mortgage Qualifying
- Buyer can only use deposits and monthly payments in excess of "fair market rent" or "FMR".
- FMR needs to be established and documented by an independent appraiser at the outset.
- The accumulation of "down payment" must be verifiable so best separated from rent payments
- Down payment cannot be documented retroactively - simply not permitted (a.k.a. fraud).
- The number of lenders willing to recognize accumulation of your down payment in excess of FMR has become very small because of too much game playing. As a result, you risk not getting a mortgage at the end of your lease even if you did set it up correctly.
- If you involve a lawyer at the beginning, it might help authenticate the transaction to a lender, assuming the rules above are followed.
- My advice is simply to rent a property until you can qualify for a mortgage on your own, that way you have no one to blame other than yourself if you still fail to mortgage qualify.
Application of the Federal Home Buyer Plan in a Rent-to-Own
The HBP rules require that the property title transfer to your name, which occurs only when you arrange your own mortgage. Hence, if you are considering using RRSP funds for your rent-to-own down payment, you MUST complete the purchase transaction before October 1 of the year after the year of the withdrawal to avoid a nasty tax bill. This means you'd have a window of between 9 and 21 months to complete your purchase depending when you withdraw. For example: If you withdrew RRSP money on on Jan 1st, 2019 you'd have to September 30th, 2020 (21 months later) to complete purchase. If you withdrew on December 31st, 2018, you'd have until September 30th, 2019 (9 months later) to complete the purchase.
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