IBoth the government of Canada and the Ontario government have established programs to assist first time home buyers. The two best known programs are the RRSP Home Buyer's Plan and the Land Transfer Tax rebate.

In addition to information about the programs to assist first time home buyers, we have also added a paragraph with tips. If you are buying a home, your real estate sales representative can help you find the right type of home at the right price, prepare your offer to purchase, and present your offer to the seller. In most cases, there is no direct cost to you for these services.

The RRSP Home Buyer's Plan (HBP) was introduced by the federal government, and allows first time home buyers to withdraw up to $25,000 from their RRSPs tax free to use towards the purchase of a home.   (increased to $25,000 on January 27, 2009)

To qualify as a first time home buyer, purchaser must not have lived in a home owned by himself or his spouse in the last five years. If both you and your spouse qualify under the Plan, you can each withdraw up to $25,000 from your RRSPs for a total of $50,000.  (increased to $50,000 per couple on January 27, 2009)

Before you are entitled to withdraw the money from your RRSP, you must have entered into a written agreement to purchase or build a home that you intend to occupy as your principal residence. The purchase of a cottage, for example, would not qualify for this program because it is not a principal residence.

Money can be withdrawn from your RRSP provided it has been in your RRSP for at least 90 days. If you have signed an Agreement of Purchase and Sale and you have at least 90 days until your closing, you can open an RRSP and make a contribution, receive the tax deferred benefit and then withdraw the same money and put it towards the purchase of your home.

Money withdrawn under this federal program must be paid back to your RRSP within 15 years. People generally deposit one fifteenth of the amount withdrawn back to the RRSP over each of the following 15 years. If you do not pay the full amount back to your RRSP within 15 years, the amount outstanding will be subject to tax when you file your income tax return in the following year.

What if you don't have any money in your RRSP?

Do not worry, you can still take advantage of the Home Buyers Plan (HBP). If you are earning income, or have earned income in the past few years, you are entitled to contribute to an RRSP. What is not very well known about the HBP is that you can contribute to an RRSP retroactive. Therefore, check to see what your RRSP contribution limit is. It is shown on your previous years Notice of Assessment, or call Revenue Canada.

If you need help raising a downpayment, the HBP may be of some use to you. If there are significant unused contributions from previous years, take out a short-term RRSP loan to cover them. After 90 days, you repay your loan by cashing in your RRSP and you use your tax refund for the downpayment on your new home.

A tax refund is an acceptable downpayment if it is in hand at the time of closing.

For general information about Registered Retirement Savings Plans (RRSP), visit the website of Canada Customs and Revenue Agency.

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