How Much Money Does a First-Time Home Buyer Need in Ontario?
Owning your first home in Ontario is a major flex, but it’s also a puzzle of questions, with the biggie being, “How much cash should a first-time home buyer pay”
Luckily, we’ll explore the financial intricacies of purchasing your first home in Ontario, providing a comprehensive understanding of the costs involved. We’ll unravel the money maze, ensuring your dream of owning digs is within reach and navigated with clarity and confidence.
What is the Minimum Down Payment to Buy a Home in Ontario?
As a first-time home buyer in Ontario, the burning question on your mind is, “What is the minimum down payment to purchase a home?” A down payment constitutes an initial lump sum, typically a percentage of the total home price, while the remaining cost is covered by a mortgage.
While 20% is a common recommendation, it’s not practical for everyone. Opting for the minimum down payment—just 5% for homes under $500,000 provides a more accessible entry into the market, potentially expediting your homeownership.
Here’s a brief overview of first time real estate buyer down payment in Ontario:
- For homes under $500,000, a 5% deposit is required.
- Homes priced from over $500,000 to $999,999 necessitate a 5% down payment on the initial $500,000 and 10% on the excess above $500,000.
- Property valued at $1 million or more mandates a minimum 20% down payment.
How to Calculate the Minimum Down Payment
Your home’s purchase price determines the required minimum down payment. Getting mortgage loan insurance is usually necessary if your down payment is less than 20% of the home’s worth. Additionally, if you are self-employed or possess a less-than-ideal credit history, your lender might stipulate a larger down payment.
Purchase Price – $500,000 or Less
Suppose your home’s purchase price is $350,000. To meet the minimum down payment requirement of 5%, you must allocate $17,500, which is calculated by multiplying the purchase price by the specified percentage.
Purchase Price – Over $500,000
Suppose you acquire a home valued at $800,000. Your down payment calculation involves 5% on the initial $500,000, totaling $25,000, and an additional 10% on the remaining $300,000, amounting to $30,000. The down payment for an $800,000 house would be $55,000.
Purchase Price – $1 million or More
For a home priced at $1 million, a minimum down payment of 20% is required. The purchase price multiplied by 20% is equal to $200,000.
How Much is the Cost of Mortgage Loan Insurance
The mortgage loan insurance fee termed a premium, varies from 0.6% to 4.5% of your mortgage amount, contingent on your down payment. You can enjoy reduced insurance premiums if you have a larger down payment.
You can settle your premium by incorporating it into your mortgage or paying it upfront as a lump sum. If added to your mortgage, interest applies at the same rate as your mortgage.
Provincial sales tax on mortgage insurance premiums is applicable in Ontario. Your lender cannot include this tax in your mortgage, and it must be paid separately during the mortgage acquisition.
Does Down Payment Influence Your Mortgage’s Total Cost?
A larger first time real estate buyer down payment reduces your mortgage, potentially saving you thousands in interest charges. For example, a home priced at $350,000 under the following assumptions:
- Interest rate: 4%
- Amortization period: 25 years
- Payment frequency: Monthly
- Mortgage loan insurance premiums are included
| Down Payment | Down Payment Amount | Mortgage | Mortgage Loan Insurance Premium | Mortgage (includes insurance premium) | Total Home Cost (includes all columns) |
| 5% | $17,500 | $332,500 | $13,300 | $345,800 | $563,223 |
| 10% | $35,000 | $315,000 | $9,240 | $324,240 | $549,240 |
| 20% | $70,000 | $280,000 | Not required | $280,000 | $509,059 |
What are the Different Programs and Incentives for First-Time Buyers?
Explore the programs and incentives that may be accessible before purchasing a home.
The Home Buyer’s Plan
The Home Buyers’ Plan (HBP) aids first-time buyers by allowing them to withdraw up to $35,000 from their RRSPs for a down payment. For joint buyers, each individual can withdraw, resulting in a combined limit of $70,000. This withdrawal is tax-free if repaid within 15 years.
The First-Time Home Buyer Incentive
This collaborative program with the Canadian government assists those facing challenges with their down payment. Eligible applicants can seek a loan equivalent to 5% or 10% of the home’s purchase price, though there is a condition to consider.
The Home Buyers’ Amount
The Home Buyers’ Amount, initiated in 2009 as part of “Canada’s Economic Action Plan,” aids first-time home buyers in covering closing costs. Originally a $750 credit, the rebate increased to $1,500 in 2022.
First-Time Home Buyers’ Tax Credit
First-time home buyers can qualify for a non-refundable tax credit of up to $750. The Home Buyers’ Tax Credit (HBTC) is calculated by multiplying $5,000 by the lowest personal income tax rate, such as the 15% rate in 2022, resulting in a potential tax reduction of up to $1,500 in the year of the home purchase.
GST/HST Housing Rebate
The GST/HST New Housing Rebate is accessible to Canadians purchasing a newly built home, undergoing significant renovations, or rebuilding a destroyed house. Qualifying individuals can recover a portion of the GST or federal HST paid for these transactions.
For first-time home buyers in Ontario, the key financial considerations revolve around the down payment influenced by the property’s purchase price. Be sure to explore available incentives, programs, and tax credits. Also, if you diligently save for a down payment, expect reduced mortgage costs and potential savings on interest charges.
