For many years now the Provincial government has not charged Land Transfer Tax on newly constructed homes when being purchased by first-time home buyers. This break on taxes was not an overly significant gesture as it was a very small percentage of first-time home buyers who could afford a newly constructed home. However, now effective as of December 13th, 2007, land transfer tax to an amount up to $2,000.00 is refundable to first-time buyers of resale or used homes.
The criteria is rather simple. To qualify as a first-time buyer of a home you must not have owned a home anywhere in the world. This would include your spouse, even if he or she is not listed or registered as the purchaser of the home. Eligible homes are not only newly constructed but the resale of a freestanding house, detached or semi-detached home, multiple residence up to a fourplex, townhouses or condominiums.
The refund is maxed out at $2,000.00, meaning any home valued at $227,500.00 or under would attract no land transfer tax.
This is a very significant saving to first time home buyers and is a valuable sales technique to real estate agents looking to get new people into the housing market.
Much news has been made recently of the "sub-prime" mortgage boondoggle which is currently adversely affecting financial markets around the world. Sub-prime mortgages in the United States was a real scam which got people into the housing market at a relatively low interest rate on the mortgage but with a "reset" date at which the interest rate escalated considerably. All of this worked well as long as the price of real estate continued to increase. However, the house of cards has fallen in since the bottom fell out of the United States real estate market causing land values to drop and these mortgages to go into default.
The Ontario housing market has been quite stable. Although financing on residential purchases can be up to 95% of the value of the property, the lenders are careful to obtain a qualified appraisal of the property and to vet the buyer's ability to repay. However, by law, the lender must charge a very expensive mortgage insurance fee if the mortgage is more than 75% of the appraised value.
Any first time home buyer needs the advice of a qualified realtor, mortgage broker and their lawyer when looking to the purchase of property. The savings in land transfer tax can be offset by the cost of mortgage insurance but if you are careful, have all of the numbers in front of you and have received proper advice, home ownership may be just for you.
Keith Jones is a partner at the law firm of Cobb & Jones LLP. Should you have any questions for Ask A Lawyer, please direct them to the Simcoe Reformer or ask a lawyer of your choice.