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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.
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