HELPING MAKE HOME-OWNERSHIP MORE AFFORDABLE
The First Time Home Buyer Incentive(FTHBI) is a new shared equity mortgage plan in which the Government of Canada provides money to help you make a downpayment on a home, in exchange for equity in your home.
When you sell your home, you will pay back the equity share the government has in your home. If your home increases in value, you will pay back more than you initially received under the FTHBI plan. If your home decreases in value, you will pay back less than you received under the plan.
The First Time Home Buyer Incentive provides 5% or 10% of the downpayment on a new home, or a 5% downpayment on an existing home. The home buyer will still need to save at least 5% of the down payment on their own before qualifying for the program. The First Time Home Buyer Incentive will help a new homeowner put between 10% to 30% down when buying a home.
The First-Time Home Buyer Incentive works on a first come, first served basis. There is $1.25 billion available over 3 years.
HIGHLIGHTS and DETAILS:
The Incentive would allow eligible first-time home-buyers, who have the minimum down payment for an insured mortgage, to apply to finance a portion of their home purchase through a form of shared equity mortgage with the Government of Canada.
For the purchase of an existing home, an Incentive amount of 5 percent is available. For the purchase of a newly constructed home, an Incentive amount of 5 percent or 10 percent is available to qualified buyers. The larger Incentive amount is intended to help encourage the home construction needed to address some of the housing supply shortages in Canada, particularly in our largest cities.
Reduce Monthly Mortgage Payments
The Incentive enables first-time home-buyers to reduce their monthly mortgage payment, without increasing the amount that they must save for a down payment.
No on-going repayments are required, the Incentive is not interest bearing, and the homeowner can repay the Incentive at any time without a pre-payment penalty.
The shared equity mortgage means that the government shares in the upside and downside of the property value.
ELIGIBILITY & REQUIREMENTS
First-Time Home-buyer Requirement:
At least one homeowner must be a first-time home-buyer, which is considered as the following:
• Have never purchased a home before
• Have gone through a breakdown of marriage or common-law partnership (even if the other first-time home buyer requirements are not met)
• In the last 4 years did not occupy a home that was occupied by the home-buyer or their spouse
IMPORTANT: It’s possible that you or your spouse or common-law partner qualifies for the First-Time Home Buyer Incentive (if you are in a married or common-law relationship) with the 4-year clause even if you’ve owned a home.
Occupancy
Incentive is to help first-time home-buyers purchase their first home with the intent to occupy. Investment properties are not eligible.
Mortgage Loan Insurance Requirement
Mortgages must be eligible for mortgage loan insurance through either Canada Guaranty, CMHC or Genworth. The first mortgage must be greater than 80% of the value of the property and is subject to a mortgage loan insurance premium.
The premium is based on the loan-to-value ratio of the first mortgage only. That is, the first mortgage amount divided by the purchase price. The Incentive amount is included with the total down payment.
Mortgage loan insurance premiums may be subject to provincial taxes.
Borrower Eligibility
Canadian citizens, permanent residents, and non-permanent residents who are legally authorized to work in Canada.
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Examples
Example 1:Anita wants to buy a home for $400,000. Example 2:John has an annual qualifying income of $83,125. To be eligible for Canada’s First-Time Home Buyer Incentive, John can purchase a condominium unit up to $350,000. John has the required minimum down payment of 5% of the purchase price, $17,500 from savings. Years later, John has decided to sell the condominium unit, but it is now worth $320,000. When the condominium unit is sold at the price of $320,000, John will have to repay the incentive as a percentage of the home’s current value. This would result in John repaying 10%, or $32,000 at the time of selling the house. |
* This example is for illustrative purposes only. All property values and home prices used in this example are not an indicator on how property values are forecasted.
Income Requirement
Total qualifying income must be $120,000 per year or less. Income is subject to qualifying income requirements set out by lenders and mortgage loan insurers.
Property Types
Eligible residential properties include:
• new construction
• re-sale home
• new and re-sale mobile homes
Repayment Requirement
Trigger for repayment: The first-time home-buyer will be required to repay the Incentive amount after 25 years, or when the property is sold, whichever is earlier.
The home-buyer can also choose to repay the Incentive in full at any time, without a pre-payment penalty. Refinancing of the first mortgage will not trigger repayment.
Calculation of repayment amount: At time of repayment, if a home-buyer receives a 5% (or 10%) Incentive, the home-buyer would repay 5% (or 10%) of the home’s value to the government. Repayment will be based upon the home’s fair market value.
FUNDING AVAILABLE
The Government of Canada has allocated $1.25 billion over three years (starting in 2019) for this program.
The program will be ready to receive Incentive applications on September 2, 2019.
The first closing will take effect on November 1, 2019.
PROS and CONS
Pros:
A bigger down payment gives you more equity in your home. Purchasing a home with only 5% down actually provides you with only 1.6% equity! This leaves you vulnerable to real estate market fluctuations, and you could end up underwater on your mortgage very quickly. With the First Time Home Buyer Incentive, your 5% down payment will now become 10% or 15% with the Government of Canada’s Contribution. This reduces the amount of CMHC insurance you’ll need and gives you more equity in your home.
Reduces your monthly mortgage payment. On the same note as the point above, a larger downpayment reduces the amount of your purchase you need to finance and therefore reduces your monthly mortgage payment. A lower monthly mortgage payment will provide greater financial flexibility, and hopefully allow Canadians to save more money and pay down other debt faster.
Cons:
You have to pay back the First Time Home Buyer Incentive. It’s important to note that this isn’t free money like a grant or a subsidy, it’s a shared equity mortgage and the Government of Canada will want their piece of the pie. As mentioned above, you will pay back either 5% or 10% (depending what your borrowed) of your home’s value to the Government when you sell. However, if you do not sell your home, you still must repay the incentive amount you received after 25 years. Therefore, if you buy a house and settle down there for life, expect a hefty bill just as you’re heading into retirement!
The incentive doesn’t really help housing affordability because it is virtually useless in Canada’s most expensive housing markets. The household income and borrowing restrictions on accessing the plan are so limiting, it cannot be used in cities where even a new-build condo costs $600,000+ and incomes are higher. If you call Toronto or Vancouver home, this program might not be for you.
This program contributes to urban sprawl. The incentive favors new builds by offering up to 10% down on new homes, but only a maximum of 5% down on existing homes. In Canada’s more affordable cities where the FTHBI will be used more often, many new builds are not urban condos, but suburban homes. Favoring these housing options contributes to urban sprawl, which is detrimental to the environment and a poor way to build a city.
This program props up Canada’s dangerously overheated housing market. Anything that makes buying homes easier for Canadians, contributes to Canada’s financially irresponsible real estate market. You can’t cool down an overheated market by making it more accessible. More eligible homebuyers will just create more people shopping for homes and continue to drive prices up.
Useful Links:
This material is a quick reference tool. Additional conditions may apply. The information is subject to change at any time. This program cannot be applied retroactively for first-time homeowner who have already purchased and closed on a property.
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