In this article, we explain these tools and look at how they can help you buy a home. The tools include the Home Buyers’ Plan, the new First-Time Homebuyers’ Incentive, and the various tax rebates and credits available to first-time homebuyers.

Home Buyers’ Plan: Borrowing from your RRSP

The Home Buyers’ Plan lets any first-time homebuyer buying or building a home to borrow up to $35,000 from their Registered Retirement Savings Plan (RRSP). This amount used to be $25,000 until March 19, 2019, when it was raised to $35,000. If you’re purchasing your home with someone else, like a significant other, each person can use the Home Buyers’ Plan for a total of $70,000.

Although it mentions “first-time” homebuyers, if you’ve previously participated in the plan, you may be able to do it again if your borrowing balance is 0 as of January 1st of the year. Just remember that every year that the money isn’t in your RRSP is another year that it’s not growing. Without the help of this appreciation, it could impact what you have ready for retirement.

Although withdrawing this money is tax-free, it has to be repaid within 15 years to remain so. The repayment period starts the second year after the year that the money is withdrawn. So funds withdrawn in 2019 have 2021 as the first year of repayment. The tax consequences of not paying back the loan within the allotted time could result in a hefty income tax.

Unlike mortgages and other loans, there are no consequences for paying back the money early.

First-Time Homebuyer Incentive: Sharing Equity with the Government

The First-Time Homebuyer Incentive (FTHBI) started on September 2nd, 2019 as part of the government’s national housing strategy. It’s expected to help Canadians fitting into a specific criterion reduce monthly mortgage payments by $286.

The government does this through a shared-equity mortgage program, where they provide a first-time homebuyer with 10% of the purchase price of a new home, or 5% of a resale home. This capital comes interest-free because it is not a loan. The government is actually purchasing part of the equity.

When the property is sold or after 25 years, the homebuyer must pay back either 10% or 5% of the home’s current market value. Thus, if the home declined in value, the homeowner pays back less than what they got. If the home’s value appreciated, they must pay back more.

For example, a homebuyer purchases a $100,000 new home and receives $10,000 (10%) from the FTHBI. If the home appreciates to $400,000 after 25 years or when they sell, they’ll have to pay back $40,000—10% of the market value after 25 years or at the time of the sale. One big benefit is that this amount can be paid back at any time, meaning you could pay it back when the property market is weaker to maximize the benefit.

As great as it sounds, there are severe limitations to this tool. To qualify for FTHBI, homebuyers must have a combined household income of $120,000 or less. The price of the mortgage plus the incentive amount also cannot exceed more than four times the buyers’ household income. This effectively limits the maximum purchase price of a qualified home to around $500,000. This likely rules out Vancouver or Toronto purchases, as even most condos in these cities have surpassed this maximum purchase price.

Another drawback of the program is that homebuyers using the plan with less than a 20% downpayment still need mortgage default insurance. If you have 10% of the purchase price ready and hope to get another 10% from FTHBI, this won’t help you wiggle your way out of default insurance. The FTHBI is almost like a second mortgage on your home—not part of your down payment.

Tax Rebates and Credits

In addition to tools that can help you get the money you need for a down payment or to reduce monthly mortgage payments, multiple tax rebates and credits can help avoid some of the costs of purchasing your first home.

First-Time Home Buyers’ Tax Credit

The First-Time Home Buyers’ Tax Credit came into effect in 2009. It provides a $5,000 non-refundable tax credit if you and the home you’re buying fit a certain criterion. The credit works out to a maximum of $750 back in your pocket.

To qualify, you and your spouse/common-law partner need to buy a qualifying home and must also have not lived in another home owned by you or your partner in the past four years. You and your partner also get a combined total of $5,000 tax credits. This means that regardless of whether it’s a solo or joint purchase, the maximum tax credit is $5,000.

HST/GST Rebate

The HST/GST housing rebate allows a homeowner to recover the GST or federal portion of HST from the purchase of their home or from any renovations that they made to it. To qualify, this home must be your primary place of residence, among other conditions. Depending on your province, the PST or provincial portion of the HST may also be recoverable.

Land Transfer Tax Rebate

If you’re a first-time homebuyer purchasing a home in British Columbia, Ontario, or Prince Edward Island, you could also recover some or all of the land transfer tax paid on your purchase. The recoverable amount depends on the specific province. The City of Toronto also provides a rebate on the city’s land transfer tax, in addition to the provincial one. The qualifications for each rebate differ depending on the province and whether you’re purchasing in the City of Toronto.

As a first-time homebuyer, many tools can help you purchase your first home. You can borrow from your RRSP through the Home Buyers’ Plan, split the equity of your home with the government via First-Time Homebuyer Incentive, or recover some money through various tax credits and rebates. Make sure to speak to an accountant and your realtor to make the best use of these tools.

The post The Tools Available to Canadians Purchasing Their First Home first appeared on RankMyAgent - Trusted resource about Buying, Selling and Renting.

But, before you get the keys to your new home, you have to squirrel away your down payment. This will typically run you about 20 per cent of the cost of the house or condo – if you want to avoid paying Canadian Mortgage and Housing Corporation (CMHC) insurance.

Here are 8 money-saving hacks for you to employ to build up that down payment even faster:

1. Re-evaluate your spending: Be honest with yourself. Do you know where every one of your hard-earned dollars is going?

Make yourself a budget. What are the things you have to pay for each month? How much money do you allot for groceries, gas, and entertainment? Do you stick with your budget, or do you have a tendency to overspend? (Like I do.)

After an investigation into my own personal spending habits, I learned that those coffee runs in the morning were costing me a total of $56 a month — and I’m talking $2 basic drip coffee from 7-11. I thought I was doing myself a favour by moving away from speciality artisan coffees that cost about three times as much. Alas, $56 a month is still $56 I don’t need to be spending if I drank the coffee I already have in my kitchen.

Ultimately, re-evaluating your spending is an important — and often brutally eye-opening — first step. But if you are serious about saving up 20 per cent for your down payment, you need to know what’s realistic so you can set realistic savings goals. Which leads me to my next point…

2. Constructing attainable and realistic savings goals: You want to reach your savings goal, but I’m certain you don’t want to completely change your entire way of life to do it.

By setting savings goals that are realistic and fit within your budget, you won’t have to give up those things that you love and can’t live without. With that being said, you want to ensure that you are maximizing your savings where you can. Just be prepared to work at it for a longer period of time. Perhaps it will take you two or three years to save up that down payment. But, at least, you won’t be making drastic spending cuts from those areas that bring you joy.

If you limit yourself from spending on those fun things too much, it may result in one night of catastrophic spending which will throw you right off of the savings wagon.

3. Pay off those high-interest credit cards first: I mean, you’re not really in a position to save money if you owe interest to our friends at Mastercard.

Try the snowball method to pay off those debts quickly:

Tackle the smallest debts first! Pay your minimum payments across your debts — if you have multiple cards or lenders — but be sure to put extra onto your smallest debt until it’s zero. Celebrate. Then, not unlike constructing the body of a snowman, roll those funds onto the second smallest debt while still paying the minimum payments on other debts. The snowball gets bigger and bigger until your debt is all paid off in no time.

4. Increase your income: This may seem like a “Duh!” suggestion, but it is definitely a sure-fire way to speed things up.

Sling coffee part-time, mow lawns around the neighbourhood, try having an online garage sale on Kijiji or Varage, or try your hand at babysitting/pet sitting. There are even some reliable websites that will pay you for participating in surveys.

By increasing your income and slamming those dollars right into savings, you will be able to reach those goals and milestones you have set for yourself in step 2.

5. Spend wisely: There are some amazing points systems out there that will allow you to save money on groceries, gas, and other essentials.

I am a huge fan of the Presidents’ Choice points system. I can collect points when I shop at specific PC related stores and then I can use those points to pay for groceries. They add up pretty quick, especially when you use the credit card for daily purchases, I typically save $10 minimum on each grocery run.

Did you know that Safeway offers 20 per cent off on the first Tuesday of every month?

Most grocery chains will offer a day like this. If not, be sure to shop your flyers and score sales when they do happen. By cooking at home you will save big dollars, so why not save those cents too on produce and pantry items when you can! Everything adds up.

Before going shopping (for anything, really) pop online and see if you can find any printable coupons. If you download the apps for your favourite stores, there are usually deals for members or active users that can really reduce your spending.

Bonus tip: Check the back of your receipts. Sometimes you will find coupons for other stores in your neighbourhood!

6. Cut your spending the smart way: Take another look at your budget that you reexamined in Step 1. Are there any areas that you can cut and live without?

When I was searching through my budget, I was able to cut my coffee runs, my boutique gym membership — I have access to a free gym at work — and the internet.

I know that last one might be a little surprising to most 20-somethings my age… Rest assured, I live above a café and I can often ride their wifi. This, however, meant a slower connection, therefore I cut ties with Netflix and other streaming services.

I also said goodbye to my major telephone bill with Rogers when I joined up with Freedom Mobile. Just by switching providers, I cut my bill in half while doubling my data. Score. You can call your service providers and ask to renegotiate your contracts. Most companies will do anything they can to keep your business and you can often land some deals that will save you money each month.

7. Use that Tax-Free Savings Account you opened: Build your down payment even faster by investing it into a high-interest tax-free savings account. WIth a high return interest and absence of taxes, this a safe and sure way to make that money work for you.

8. Borrow from your RRSP: You can borrow up to $25,000 from your Registered Retirement Savings Plan tax-free. However, there is a catch. You have only 15 years to replace these funds into your RRSP to avoid those tax payments.

Don’t already have one? While you’re at the bank opening your RRSP ask the financial advisors about tax credits available at a municipal, provincial or federal level that you may be able to qualify for as a first time home buyer. They might be able to lead you to some grants or tax breaks that aren’t regularly advertised.

At the end of the day, saving up for a down payment is no minor task. It will take strength, commitment, hard work and dedication. But when you reach that milestone and you earn that key to your new home the satisfaction, the pride, you will feel, will make it feel all worthwhile! Plus, the saving skills and life skills you earned along this journey will definitely help you for the rest of your life.

I mean… who doesn’t love someone who can cook a delicious restaurant-esque meal in the comfort of their own home!

So to you, the frugal fun-loving savers, I wish you the best of luck on this life adventure!

The post Life hacks to save for a down payment Speedy saving: 8 ways to save faster for your first home first appeared on RankMyAgent - Trusted resource about Buying, Selling and Renting.