What To Know About The First Time Home Buyer Incentive

By now you may have heard about the federal government’s First-Time Home Buyer Incentive (FTHBI) launched on September 2, 2019 to help lower mortgage costs for eligible Canadians.

Essentially, the Canada Mortgage and Housing Corporation (CMHC) would advance an interest-free loan so homeowners can take out a smaller mortgage and keep their monthly payments lower.

To help you understand this program better, we hope that this overview will help you into a new hew home sooner.

What Is The Incentive:

The Incentive is the percentage of the lending value of the home.

  • New Construction – 5% or 10%
  • Existing Home – 5%
  • New or re-sale mobile/manufactured home – 5%

Who Qualifies:

A person is considered a first-time home buyer if one of the following is met:

  • Has never purchased a home before
  • In the last 4 years, did not occupy a home that the borrower or borrower’s common law partner owned
  • Has gone through a breakdown of a marriage or common-law partnership (even if/when the other first-time home buyer requirements are not met)

What Type of Home Qualifies:

  • Single family homes
  • Semi-detached
  • Duplex
  • Triplex
  • Fourplex
  • Townhouses
  • Condos
  • Mobile homes

What Are The Requirements:

  • Household annual income must be under $120,000
  • The mortgage + incentive received cannot exceed 4 times the purchaser’s annual income (or $480,000)
  • Purchasers must provide a minimum 5% down payment. The down payment and incentive cannot exceed 20% of the property value
  • Purchase offer is funding on or after November 1, 2019

How Does Repayment Work:

  • When you sell the property
  • Or at the end of the 25 year term
  • Or at any time through voluntary repayment – no penalty to repay early (must pay off the entire incentive amount)
  • Determined by third party appraisal at time of repayment
    • If you received a 5% incentive then you repay 5% of the appraised value.  If the property increases in value, you pay 5% of that new increased amount.  If the property reduces in value then you only have to repay 5% of the loss and not the original incentive amount.

For example, a new house that is purchased for $500,000 could qualify for a 10% interest-free loan worth $50,000. This would save you around $286 per month without increasing your down payment. If the home was later sold for $550,000, the home buyer would need to repay $55,000.

Other Considerations:

In addition to this incentive, the government is increasing the amount first-time home buyers can withdraw from their RRSPs in order to finance their purchase from $25,000 to $35,000 per individual.

However, buyers will not be exempt from the federal “stress test” regulation (a mandatory qualification using the 5-year benchmark rate published by the Bank of Canada or the customer’s mortgage interest rate plus 2%)

If you would like more information, please let us know and we would be more than happy to help you in the first step of owning a home.