HST New-Home Rebate to Help with Down Payment

Finance Minister Bill Gillis has announced an agreement with Canada Mortgage and Housing Corp. that will help buyers of newly constructed homes.

Under the agreement, CMHC will accept the provincial portion of the harmonized sales tax rebate as part of its required down payment for a CMHC-insured mortgage. This change is effective for any purchase and sale agreement finalized as of today, April 7, 1998.

"This change in policy does not cost the provincial government any money, but it does provide more flexibility for people who can afford a new home," said Dr. Gillis. "In particular, the changes help those who have not been able to save enough for a full down payment."

Said Guy Brown, Minister of Housing and Municipal Affairs: "I encourage all eligible Nova Scotians to take advantage of this program, as I believe it is a positive step for people wanting to buy a new home."

New-home buyers are often short of money for a down payment and, thus, are most in need of the flexibility of using the provincial rebate as a down payment.

The provincial government rebates 1.5 percentage points of the 15 per cent HST on the cost of a newly constructed home that is occupied as a principal residence, up to a maximum of $2,250. This is in addition to a federal rebate of 2.5 percentage points of the HST.

For example, on a $100,000 newly constructed home, a buyer would be able to use the provincial rebate of $1,500 as part of CMHC's requirement for a down payment, if the builder agrees.

FINANCE--Backgrounder: Provincial Rebate Down-Payment Process

The following procedures were developed by the Nova Scotia Department of Finance and the Canada Mortgage and Housing Corp. They apply to CMHC-insured mortgages.

Step 1: Upon the signing of a purchase and sale agreement for a newly constructed home, to be owned and occupied by the purchaser, a buyer would normally include a clause that states the purchase is contingent upon obtaining mortgage financing.

Step 2: The same purchase and sale agreement would normally include a clause stating that the purchaser is assigning his/her right to a federal and provincial harmonized sales tax rebates to the builder. This practice would continue.

However, in the case of a purchaser wishing to use the provincial portion of the rebate as part of the down payment on a CMHC-insured mortgage, and where the builder agrees, the purchase and sale agreement must include an additional clause to reflect this requirement.

The Halifax Real Estate Board suggests the following possible wording to reflect this new arrangement:

"All HST rebates will be assigned to the builder. However, it is understood and agreed that a portion of the down payment for this purchase shall be provided by the builder on the day of the closing. This amount provided shall be in the sum of _________, which represents the value of the provincial portion of the HST rebate (1.5 per cent of the purchase price before application of the HST, up to a limit of $2,250)."

In effect, the builder will receive the full rebate, but only reduce the purchase price by the amount of the federal rebate. The purchaser will still have to provide the full minimum down payment, comprising his/her own resources, plus the provincial portion of the rebate, available and verified by the lender on closing.

Step 3: The purchaser will begin normal negotiations with a lender for a mortgage. The purchaser should inform the lender that he/she intends to use the provincial portion of the HST rebate as part of the down payment. Lenders will be informed by CMHC shortly that the federal agency is now allowing such an arrangement when it finances a CMHC-insured mortgage.

As a result, the mortgage financing will work as in the following example:

Example: $100,000 newly constructed home, sold to a buyer occupying it as his/her principal residence.

Prov. Rebate Used Prov. Rebate Used
for Down Payment to Reduce Price of Home

Price: $100,000 $100,000 HST $ 15,000 $ 15,000 Less HST rebate $ (2,500) $ (4,000)\

Amount to finance $112,500 $111,000

Financing:
Mortgage (95%) $106,875 $105,450 Prov. HST rebate $ 1,500 Purchaser $ 4,125 $ 5,550\

Total $112,500 $111,000

Step 4: The lender will use normal lending approval practices to qualify the purchaser for a mortgage.

Step 5: Normally, the builder would then fill in the federal-provincial HST tax rebate application form and send it to Revenue Canada, after the sale of the new home has closed. The processing of this application normally takes about 60 days, so in effect, the builder is providing financing equivalent to the provincial portion of the HST rebate, on the basis that the purchaser is assigning the provincial portion of the rebate to the builder.