What To Know About The First Time Home Buyer Incentive
September 19, 2019
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%
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
- 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.
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.