OK, so I have to admit, I had a love/hate relationship with today’s topic: Federal Government First Time Home Buyers Incentive. The reason is that – in the past- we were able to qualify for much higher than this program ever allowed, and mortgage payments/interest rates were affordable; however given the current rate environment it is starting to make a bit more sense to consider as it does lower the borrower’s monthly payment as well as the CMHC fees the borrower is required to pay. To reiterate – this program focuses on lowering the mortgage amount/payment, it does not increase borrowing power.
With this incentive, Government of Canada 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
The incentive is available to first-time homebuyers with a total annual qualifying income that doesn’t exceed $120,000 ($150,000 if the home is in Toronto, Vancouver, or Victoria).
A participant’s insured mortgage and the incentive amount cannot be greater than four times the participant’s qualified annual income plus their down payment (4.5 times if the home is in Toronto, Vancouver, or Victoria)
Here’s an example.
Anita lives in Victoria and wants to buy a NEW BUILD. She and her partner make $120K a year, so the max PURCHASE PRICE they can be approved for under the program is 4.5 times their income ($540K) PLUS their down payment ($35K) = $575,000 MAX PURCHASE PRICE.
Without Incentive With Incentive
Purchase Price ($) $575,000 $575,000
– Down Payment (5% up to $500K, 10% thereafter) -$35,000 -$35,000
– First Time Homebuyer Incentive $0 -$57,500
Mortgage Amount $540,000 $482,500
+ Mortgage Insurance Premium $21,600 $13,510
Total Mortgage Amount $561,600 $496,010
Monthly Payment $3,327.30 $2,938.70
Total Annual Savings $0 $4,663.20
Anita’s Savings with a 10% incentive = $388.60 / Monthly
*subject to income verification, satisfactory credit and qualification using today’s rates and stress test.
To Qualify :
• Must be a first-time homebuyer, which is defined as:
• having never purchased a home before
• having recently experienced the breakdown of a marriage or common-law partnership (even if you don’t meet the other first-time home buyer requirements)
• did not occupy a home that borrower, current spouse or common-law partner owned in the last 4 years (the 4-year period begins on January 1 of the fourth year before the Incentive is funded and ends 31 days before the date the Incentive is funded)
• Must be a Canadian citizen, permanent resident or non-permanent resident authorized to work in Canada,
• Must meet the minimum down payment requirements with traditional funds (savings, withdrawal/collapse of a Registered Retirement Savings Plan (RRSP), or a non-repayable financial gift from a relative/immediate family member)
• First mortgage must be insured, e.g. greater than 80% of the value of the property and is subject to a mortgage loan insurance premium. It also must be eligible through Canada Guaranty, CMHC or Sagen.
• Property must be located in Canada and must be suitable and available for full-time, year-round occupancy. The home is to live in and can’t be used as an investment property.
Shared Equity:
The First-Time Home Buyer Incentive is a shared equity instrument. It works by getting an extra 5% or 10% of the down payment of the home and then repaying the Government either 5% or 10% of the property’s market value at the time of repayment, up to a maximum repayment amount equal to:
• In the case of appreciation, the Incentive amount plus a maximum gain to the Government of 8% per annum (not compounded) on the Incentive amount from the date of advance to the time of repayment; or
• in the case of a depreciation, the Incentive amount minus a maximum loss to the Government of 8% per annum (not compounded) on the Incentive amount from the date of advance to the time of repayment.
Repayment:
There are no payments required under this program, instead, the incentive must be paid in full after 25 years or when the home is sold. There are a few ways where changes to the Incentive can also trigger repayment:
• A spousal / co borrower break up and buy out. If this requires additional insured funds, the Incentive must be paid back in full.
• Porting of the mortgage will trigger a repayment of the Incentive.
• A partial release of security is considered a sale and will trigger repayment of the Incentive.
Do you know someone interested in this program? Have them check out this handy calculator to determine their Max purchase price and then have them call me to confirm qualification with, and without the program.