*This post was created in collaboration with Mortgage Maestro.
Depending on where you live, the price of homes could be extremely high and often out of reach, especially for first-time home buyers. Young adults are often burdened by student debt and have yet to accumulate the type of wealth that older Canadians have. Thankfully, there are programs available to help them such as the First-Time Home Buyer Incentive issued by the CMHC.
But what exactly is this program all about, and how can it help you get into the real estate market more easily?
What Is The First-Time Home Buyer Incentive?
The First-Time Home Buyer Incentive is a shared-equity mortgage with the Government of Canada. Shared equity loans mean the government will share in either the profit or loss when the home is sold.
Without having to come up with a bigger down payment, buyers can cut down on the overall loan amount to make it easier to secure a loan and reduce loan-to-value ratios. In turn, this will translate into smaller monthly payments, which can help free up more money to be spent elsewhere rather than having to dedicate a larger portion of income toward a mortgage.
How Much Can You Get Through The First-Time Home Buyer Incentive?
Officially in effect as of September 2, 2019, the First-Time Home Buyer Incentive (FTHBI) was developed to help ease the pressures of mortgage costs for first-time buyers. The FTHBI provides:
- 5% or 10% for a first-time buyer’s purchase of a newly constructed home
- 5% for a first-time buyer’s purchase of a resale (existing) home
- 5% for a first-time buyer’s purchase of a new or resale mobile/manufactured home
How Does The First-Time Home Buyer Incentive Work?
The borrower is loaned either 5% or 10% of the value of the house, from the government. This money goes toward the down payment. No interest is charged on money but the amount that must be repaid is based on the market value of the home at the time of repayment equal to the percentage that was originally borrowed.
The funds must be fully repaid by the time the first insured mortgage reaches 25 years or the house is sold, whichever of the two occurs first. Should homeowners be able to save up enough to pay back the amount early before either one of the two scenarios occurs, no prepayment penalty will be charged.
Types Of Houses Eligible For The First-Time Home Buyer Incentive
To be eligible for the First-Time Home Buyer Incentive, the house you wish to purchase must be located in Canada and be your main residence (i.e. you’re able to live there all year). Investment properties are not eligible.
Eligible properties can have1 to 4 units:
- single-family homes
- semi-detached homes
- condominium units
- mobile homes
What Are The Qualification Requirements For The FTHBI?
In order to be eligible for the new FTHBI, certain criteria must be met first, including the following:
- One owner must be a first-time homebuyer and not have ever owned property or lived in one owned by their spouse over the previous four years, except in the event of a dissolved marriage.
- A 5% minimum down payment is needed.
- Only insured mortgages qualify, which means down payments cannot be more than 20% of the purchase price.
- The combined household income must not be greater than $120,000, which includes any income generated by co-signers or rent collected from tenants.
- The mortgage amount must be less than $500,000.
- The mortgage-to-income ratio cannot be any more than four times the household income, including any part covered by the FTHBI – this translates into no more than 14.99% for an existing resale home and 9.99% for new home construction.
How To Get A Mortgage If You Don’t Qualify For The First-Time Home Buyer Incentive
While the First-Time Home Buyer Incentive program may help make your mortgage payments more affordable, you don’t need it to get approved for a mortgage. Even if you don’t qualify for this program, you can still obtain financing to buy a home.
There are mortgage brokers available that can help streamline the mortgage application and approval process without having to jump through all the hoops that the average bank might require. Brokers like Mortgage Maestro can help connect you with lenders who will approve your loan application based on your finances and credit profile.
Here are just some of the perks of working with a mortgage broker instead of a traditional bank:
Custom Mortgage Products
Traditional banks are only able to offer you the products they have. Instead, a mortgage broker works with a network of different lenders who offer a wide variety of mortgage products. As such, you’ve got a lot more to choose from without being restricted to just what one lender offers.
Plus, brokers will work with you to gauge your financial situation and build a personalized mortgage solution that suits you best. Moreover, since mortgage brokers work with so many different lenders, they can shop around to find you the lowest mortgage rates.
Mortgage brokers don’t work for one specific bank or lender. They’re independent, which means their opinions are completely unbiased. Rather than working on behalf of a lender, mortgage brokers have your best interests in mind. That means they’ll work to find the best mortgage solution for you from several lenders.
How Do You Pay Back The First-Time Home Buyer Incentive?
Under the FTHBI, the borrower must repay a percentage of up to 8% of the home’s current value. For example, let’s say you borrowed 8% ($40,000) of a $500,000 house through the FTHBI, and then decide to sell the house 5 years later for $550,000. You’ll have to repay 8% or $44,000 when you sell your home.
How Much Do You Have To Repay If Your Home Deprecates In Value?
Using the same example as above, let’s say you decide to sell your house for $450,000. In that case, you’ll have to repay $36,000 instead of the $40,000 you borrowed.
When Must The First-Time Home Buyer Incentive Be Repaid?
The FTHBI must be paid back in full after 25 years or when you sell your home (whichever comes first). Repayment may also be required if you
- Port your mortgage
- Want to buy out your co-borrower
- Partially release a security
How Do You Apply For The First-Time Home Buyer Incentive?
Before applying for the First-Time Home Buyer Incentive, you must be pre-approved for a mortgage. You should also have found the home you’re looking to purchase. Once you do, you can apply for the FTHBI by following these steps:
- Step 1. Print and sign the forms: SEM Information Package and SEM Attestation and Consent Form.
- Step 2. Take the signed documents and give them to your lender. They will apply for the program on your behalf.
- Step 3. Your lender will reach out to you if you’ve been approved for the FTHBI. If approved, be sure to call 1-(855) 844-4535 or email FTHBI@FNF.ca and provide them with the name of your lawyer/notary. This information must be provided at least two weeks prior to closing.
Are There Other Government Programs To Help You Buy A House?
The First-Time Home Buyer Incentive plan is just one of many programs offered by the government to help make buying a home more accessible. Here are a few others you may want to look further into:
The First-Time Home Buyers’ Tax Credit (HBTC)
The HBTC is available to first-time buyers who purchase a qualifying home. The subject property must be located in Canada and be registered in your name or your spouse’s or common-law partner’s name. Buyers who qualify for the HBTC can claim a tax credit of up to $1,500.
The GST/HST New Housing Rebate
This rebate allows Canadian homebuyers or homeowners to recoup part of the GST or HST spent on a new or significantly renovated home. The subject property must be used as your primary residence in order for you to qualify.
The Home Buyers’ Plan (HBP)
If you’ve never bought a home before and are planning to purchase your first one, you may be eligible for the HBP. You can borrow a maximum of $35,000 from your RRSP or $70,000 if you’re married to buy your first home or to build a qualifying house for yourself or for a relative with a disability. You’ll then have 15 years to repay the borrowed funds back to your RRSP.
It can be tough to gather the funds needed for a down payment and all the closing costs that come with buying a home. But programs such as the First-Time Home Buyer Incentive (FTHBI) can help make homeownership a reality for many Canadians.