First-Time Home Buyers in Ontario: Programs, Costs, and Legal Steps

Buying your first home is an exciting milestone, but it can also feel daunting and overwhelming. From real estate contracts to mortgages to legal implications, there are many factors to consider throughout the home-buying process. This blog has been written to provide guidance to first-time home buyers in Ontario.

Prospective First-Time Home Buyers: Save, Save, Save!

There are several financial incentives and government programs available to assist first-time home buyers in Ontario.

First Home Savings Account (FHSA)

The First Home Savings Account (FHSA) is a federal program that offers tax benefits and allows eligible first-time home buyers to save toward the purchase of their first home. Contributions are generally tax-deductible, and qualifying withdrawals used to purchase a first home are tax-free. Currently, the maximum lifetime contribution limit is $40,000.00.

The statutory authority for this account is section 146.6 of the Income Tax Act, RSC 1985, c 1 (5th Supp) (“ITA”).

Because eligibility requirements and investment options vary depending on an individual’s circumstances, prospective buyers should speak with their bank or financial advisor to determine whether an FHSA is appropriate for them. However, if you are a prospective first-time home buyer, an FHSA is certainly worth considering.

Home Buyers’ Plan (HBP)

The Home Buyers’ Plan (HBP) is a federal program that allows eligible first-time home buyers to withdraw funds from their Registered Retirement Savings Plan (RRSP) to help finance the purchase of a home. Unlike an FHSA, amounts withdrawn under the HBP must generally be repaid to the RRSP over a prescribed period to avoid adverse tax consequences.

The statutory authority for this program is section 146.01(1) of the ITA.

As eligibility requirements, withdrawal limits, and repayment obligations depend on an individual’s circumstances, prospective buyers should speak with their bank or financial advisor to determine whether the Home Buyers’ Plan is appropriate for them. Nevertheless, it is important to be aware of these programs, as they may provide significant financial benefits to first-time home buyers.

Ontario Land Transfer Tax Refund

Subject to certain exemptions, the transfer of real property in Ontario is subject to a tax known as Land Transfer Tax (“LTT”). In a real estate transaction, it is the purchaser’s responsibility to pay the LTT upon closing. The LTT is in addition to the purchase price and therefore increases the overall cost of the transaction.

LTT is imposed pursuant to the Land Transfer Tax Act, RSO 1990, c L.6 (“LTTA”). The amount payable is determined using a graduated rate structure and is directly dependent on the purchase price of the property.

If you qualify as a first-time home buyer pursuant to section 9.2 of the LTTA, you may be eligible for a refund of up to $4,000.00 of the LTT payable on the purchase of your first home. When determining eligibility, it is important to consider the following criteria:

• You must be at least 18 years of age (and, if purchasing with a spouse, your spouse must also be at least 18 years of age);
• You must never have owned a home anywhere in the world (and, if purchasing with a spouse, your spouse must not have owned a home anywhere in the world while being your spouse);
• You must be a Canadian citizen or permanent resident of Canada.

If eligible, a real estate lawyer will typically prepare the refund application as part of the closing documentation. As a result, rather than paying the full amount and waiting for a refund, the LTT payable on closing is often reduced by the amount of the available rebate.

Down Payment Consideration: CMHC Mortgage Loan Insurance

Purchasers who are making a down payment of less than 20% of the purchase price will generally be required to obtain mortgage loan insurance through the Canada Mortgage and Housing Corporation (“CMHC”) or another approved insurer. The purpose of mortgage loan insurance is to protect the lender in the event that the borrower defaults on the mortgage.

The mortgage broker or lender will typically explain the insurance requirements, premium costs, and eligibility criteria. The insurance premium is usually added to the mortgage amount and repaid over the life of the mortgage. Purchasers should discuss the costs and implications of mortgage loan insurance with their mortgage broker or lender before finalizing their financing arrangements.

Real Estate Agent: A Brief Introduction

When searching for your first home, it can be beneficial to retain the services of a real estate agent. A real estate agent can help identify suitable properties, arrange viewings, provide information about neighbourhoods, prepare and negotiate offers, and guide you through the purchasing process.

A real estate agent will also assist with the preparation and negotiation of the Agreement of Purchase and Sale (“APS”), which becomes the binding contract governing the transaction. Under the APS, both the purchaser and the seller will have obligations that must be fulfilled before the transaction can successfully close.

Mortgage Broker: A Brief Introduction

A mortgage broker assists purchasers in obtaining financing for their home purchase. Rather than lending money directly, a mortgage broker acts as an intermediary between the borrower and potential lenders.

Mortgage brokers work with multiple lenders to compare mortgage products and help buyers secure financing that best suits their financial circumstances and objectives.

Real Estate Lawyer

A real estate lawyer plays an important role in protecting a buyer’s legal interests throughout a real estate transaction. This is especially important for first-time home buyers, who may be unfamiliar with the legal documents, financial obligations, and closing procedures involved in purchasing a home. A real estate lawyer helps guide buyers through each stage of the transaction and ensures that their interests are protected.

The lawyer will review the APS and explain the buyer’s rights and obligations under the contract, identify any potential legal concerns, and ensure that the terms accurately reflect the agreement reached between the parties.

The lawyer will also conduct title searches to confirm that the seller has legal ownership of the property. While performing the title search, the lawyer will determine whether there are any outstanding issues affecting title and, if so, will requisition the seller or the seller’s lawyer to address and discharge those issues before closing. Title information and documents relating to real property in Ontario are generally maintained and recorded in Ontario’s electronic land registration system, which can be searched by authorized users.

If the purchaser is obtaining a mortgage to finance the transaction, the lawyer will review and explain the mortgage documents provided by the lender. First-time home buyers often have questions about interest rates, prepayment privileges, penalties, the cost of borrowing, and their obligations under the mortgage. The lawyer can help ensure that the purchaser understands these provisions and that they are consistent with the terms agreed upon with the lender. The lawyer will also ensure that the mortgage is properly registered on title.

In addition, the lawyer will arrange for title insurance, which provides protection against certain title-related issues and defects that may not have been identified during the title search. This provides an additional layer of protection for the purchaser.

Before closing, the lawyer will provide the purchaser with a Statement of Adjustments and a Funds Summary. The Statement of Adjustments outlines the final purchase price after accounting for items such as property taxes, utilities, condominium fees, or other expenses that must be adjusted between the buyer and seller. The Funds Summary sets out the total amount that the purchaser must provide to complete the transaction, including the balance of the down payment, closing costs, legal fees, disbursements, and applicable taxes.

On the closing date, the lawyer coordinates the exchange of funds and documents, registers the transfer of ownership and any mortgage documents, and ensures that legal title to the property is properly transferred to the purchaser.

Buying your first home is an exciting and rewarding experience. However, it is also one of the most significant financial commitments that many people will make. Having a knowledgeable team that includes a real estate agent, mortgage broker, banker, and real estate lawyer can help ensure that the process proceeds smoothly and that you understand your rights and obligations at every stage of the transaction.

Ready to take the next step?

You don’t have to navigate it alone. The real estate team at Brown Beattie O’Donovan has guided countless first-time buyers through their first purchase — from reviewing the Agreement of Purchase and Sale to handing over the keys on closing day. We’ll explain every document you sign, make sure you receive every rebate you’re entitled to, and answer the questions you didn’t know to ask. Contact our team to book a consultation.

This blog is intended for general informational purposes only and does not constitute legal advice. Readers should obtain legal advice specific to their circumstances before making any decisions relating to the purchase of real property.