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.
Not only that, but young adulthood is when careers are just starting off and entry-level salaries are being earned, which is often not enough to help them save up for a sizeable down payment in a relatively short period of time.
But, as out-of-reach, as you think buying a home is, it doesn’t have to be. This is especially true thanks to the various programs designed to help Canadians realize their dreams of homeownership.
One such program is 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?
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 obtain the funds to 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.
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:
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.
In order to be eligible for the new FTHBI, certain criteria must be met first, including the following:
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:
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.
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.
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
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:
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.
Rating of 5/5 based on 2 votes.
Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.
Save time and money with Loans Canada. Research and compare lenders before you apply. Share your experiences with Canada's top lenders.
Loans Canada is pleased to announce it placed No. 131 on the 2022 Report on Business ranking of Canada’s Top Growing Companies.
Frank Mortgage is Canada’s one-stop shop for mortgages. Get up to $1,500 cash back on your mortgage.
Great unsecured credit card for customers currently in, or recently discharged from, a consumer proposal or bankruptcy
Earn an average 5%¹ cashback at thousands of partners and at least 0.5%² cashback guaranteed with Neo.
KOHO’s Credit Building Program helps you build a better credit history with easy to manage payments for just $10/month.
All consultations and conversations with Loans Canada and its partners are confidential and risk-free. Speak with a trusted specialist today and see how we can help you achieve your financial goals faster. Loans Canada and its partners will never ask you for an upfront fee, deposit or insurance payments on a loan. Loans Canada is not a mortgage broker and does not arrange mortgage loans or any other type of financial service.
When you apply for a Loans Canada service, our website simply refers your request to qualified third party providers who can assist you with your search. Loans Canada may receive compensation from the offers shown on its website.
Only provide your information to trusted sources and be aware of online phishing scams and the risks associated with them, including identity theft and financial loss. Nothing on this website constitutes professional and/or financial advice.
