February 14, 2017
Is It Financially Sweeter to Buy a Home as a Couple?
Buying a home isn’t for the financially faint of heart – and as prices rise, it’s becoming harder to purchase real estate solo.While the majority of first-time buyers tend to purchase in pairs (a 2015 study by Genworth Guaranty found 62% of buyers do so with a spouse or long-term partner), it can take even more than two to tango to get ahead in real estate markets like Toronto and Vancouver, as co-buying in groups rises in popularity.
Related Read: The Pros and Cons of Co-Buying a Home
While splitting the cost of a home can bring your wallet relief, though, it can complicate some of the tax credits and rebates you can expect to receive as a first-time buyer. Here’s a look at where buying as a couple (romantic or otherwise) can boost your affordability, and where you’ll benefit when buying by yourself.
Mortgages: Double the Scrutiny
While having two sources of income can be a great advantage when qualifying for a mortgage, if one applicant has less-than-stellar credit or a hefty debt-to-income ratio, that may not score you a better rate. It’s important to confer closely with your mortgage broker or specialist to determine whether both buyers should apply as loan applicants. In some cases, incurring a much higher interest rate as a result of one partner’s financial situation could be more detrimental than qualifying for a smaller amount at a very competitive rate based on just the other’s. Just another reason to have the “money talk” before taking your love to the home ownership level.
The Home Buyers’ Plan: Two Nesteggs Are Better Than One
The Home Buyers’ Plan, a federal program that allows first-time buyers to withdraw up to $25,000 from their RRSPs tax-free for the purchase of their home, can be doubly nice for two; a total of $50,000 of savings can be withdrawn from partners (assuming both have saved fastidiously and have the funds), to be paid back over a 15-year period. A solo first-time buyer, by contrast, will have only their own nest egg to tuck into.
However, both buyers must be first-timers in order to be eligible to access up to $50,000 – should one have owned property anywhere else in the world prior, they no longer qualify for their half of the program.
The First-Time Home Buyers’ Tax Credit: Sharing is Caring
The First-Time Home Buyers’ Tax Credit (Line 369) allows first-time buyers to claim $5,000 of their home purchase on their taxes which, when taxed at the minimum rate of 15%, equals a $750 credit. It’s a nice little perk designed to offset closing costs for buyers, but can only be claimed once per property – meaning you can split it with your sweetheart, but only up to the $750 total. Should one buyer not qualify as a first-timer though, the other partner can claim up to the full amount on their taxes – an amount a solo first-timer would receive in full, regardless.
Land Transfer Tax Rebates: “It’s Complicated”
Depending on which province you reside in – for example, in Ontario – you may be required to pay land transfer tax on the purchase of your home. It’s considered one of the more loathsome closing costs, taxing buyers on a sliding scale depending on the total purchase price:
- amounts up to and including $55,000: 0.5%
- amounts exceeding $55,000, up to and including $250,000: 1.0%
- amounts exceeding $250,000, up to and including $400,000: 1.5%
- amounts exceeding $400,000: 2.0%
- amounts exceeding $2,000,000, where the land contains one or two single family residences: 2.5%.
For example, if you were purchasing a house in Toronto priced at the January resale average (reported by the Toronto Real Estate Board) of $1,336,640, you’d owe the following to the province:
The first $55,000 x 0.5% = $275
The next portion of $195,000 x 1.0% = $1,950
The next portion of $150,000 x 1.5% = $2250
The remaining $936,640 x 2.0% = $18,732.80
= a total of $23,207.80 in provincial LTT
The good news is, if you are a first time buyer, you’ll receive $4,000 back as a rebate from the province. But your relationship status – whether you’re married, how long you’ve been together, and whether your sweetie owned a home before – can affect this.
First of all, that rebate is per property, meaning you and your spouse are entitled to $2,000 each for a total of $4,000, assuming you both qualify as first time buyers.
If one of you doesn’t and the other does, one partner still only gets $2,000. Why? This is because the province calculates the rebate based on the buyers’ “interest” in the property – if only half of the financially-invested users qualify, only half the credit is given. It’s a similar case in instances where parents and children purchase together. Should the parent be a repeat buyer and the child a first-timer, and the parent either plans to dwell in the home or reap financial benefit, only the child would receive the rebate, at $2,000. However, if the parent is acting only as a trustee in the sale, the child – who is the only end user and purchaser – is eligible for all $4,000.
Cohabitation Could Impact Your First-Timer Status
It also matters whether you lived with your spouse or common-law partner ( together for a three-year minimum, according to the province) in a home previously purchased by either of you. If you did, that means your first-timer status is now null and void, regardless if you contributed any of your own money or not. However, if you dwelled with your now-partner in their previously-purchased home when not married to them, or having achieving common-law status, you could technically still be considered a first-time buyer. Depending on how complicated the situation, you may need to explain the extent you were “just friends” at the time.
A solo buyer who qualifies as a first-timer would receive the entire $4,000 rebate – with nary a lover’s quarrel to contend with.