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First-Time Home Buyer Incentive Program

First Time Home Buyer Incentive Program

With ever-increasing stacks of bills and high levels of debt to contend with, many Canadians are struggling to gain a foothold in the housing market. In places like Vancouver and Toronto, home prices are extraordinarily high, leaving people with few options and financial hardship.

To help Canadians purchase their first home in an economically responsible way, the government has instituted the First-Time Home Buyer Incentive Program (FTHBI), which will officially launch on September 2, 2019.

How does the program work?

The Incentive allows first-time homebuyers to reduce their mortgage payments, all without having to increase the size of their down payment. The government will contribute funds to the purchase of a home for qualified first-time homebuyers. This contribution doesn’t require the homebuyer to pay interest or make regular principal payments.

 The government will offer:

  • 5% for the purchase of a re-sale home
  • 5% or 10% for the purchase of a new home

This type of arrangement is called a Shared Equity Mortgage Loan. Essentially, the government purchases equity in your home, with the right to share in the gain or loss of the property value. The contribution from the government can be thought of as a second mortgage on your property.

Even though the contribution doesn’t require regular payments like a traditional mortgage, you will have to repay the Incentive after 25 years or if the property is sold, whichever occurs first. The amount you’ll have to pay is based on the property’s fair market value at the time.

As an example, suppose you purchase a new home for $300,000 and have saved the minimum down payment required, which is $15,000 (5% of the purchase price). Under the FTHBI, you can submit an application to receive $30,000 (10% of the cost of the home), which lowers the amount you’ll need to borrow to $255,000 ($300,000 – $15,000 – $30,000). The result is lower mortgage payments.

If you later sell your home for $350,000, the total amount you’ll need to repay is $35,000 (10% of the sale price).

Before selling your property, you’ll have to obtain approval from the Program Administrator. If you’re struggling financially, the Program Administrator will work with you to create a manageable repayment plan.

Who is eligible?

The program is designed for first-time homebuyers who meet the following criteria:

  • They are Canadians Citizens, permanent residents, or non-permanent residents legally authorized to work in Canada
  • They have satisfied the minimum down payment requirement (the down payment must come from traditional sources, such as a savings account, RRSP, etc)
  • Their income is no more than $120,000 per year (includes salary, investment income, and rental income)
  • Their total borrowing (the combination of both the mortgage and Incentive) is capped at four times their income.

You are considered to be a first-time homebuyer if you fall under one of these categories:

  • You’ve never purchased a home before
  • You’ve gone through a dissolution of a marriage or common-law partnership
  • You’ve not occupied a home in the last four years that was owned by you or your current spouse or common-law partner

What kind of property is eligible?

Most properties are eligible for the Incentive. Both re-sale homes and new homes qualify, including single-family homes, duplexes, semi-detached homes, townhouses, and condominium units.

To be eligible under the Incentive, homes must be located in Canada and occupied full-time by the owner. Investment properties are disallowed.

Mortgage and down payment details

The total amount that can be borrowed (comprised of both the mortgage and Incentive) is limited to four times the qualifying income. As mentioned, the Incentive doesn’t require you to pay principal payments and is non-interest bearing.

The maximum debt service ratios that are allowed are GDS 39% and TDS 44%. These thresholds are only applied to the first mortgage.

All mortgages must be eligible for mortgage loan insurance. The amount of the premium that must be paid is derived only from the value of the first mortgage.

The Incentive has a maximum term of 25 years. You’re permitted to switch your mortgage to another financial institution without repaying the Incentive as long as the initial terms are not amended.

How to get started

If this program sounds right for you, follow these steps to get approved:

  1. Complete and sign the application documents
  2. Take the documents to your lender, who will submit them on your behalf
  3. Once your application is accepted, call 1-833-974-0963 to activate the FTHBI payment and provide the name of the lawyer who will be closing the deal. The purchase transaction must be closed on or after November 1, 2019.

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