First Time Home Buyers
Updated: Sep 24, 2021
What is the First Time Home Buyers Grant/ Incentive?
About a year ago, the federal government came out with a program designed to help first-time homes buyers into the market. There has been some misunderstanding around this program; it seemed like a great time to look at this a little deeper.
The First Time Home Buyers Incentive helps qualified first-time homebuyers reduce their monthly mortgage payments without adding to their financial burdens.
The First Time Home Buyers Incentive is a shared-equity mortgage with the Government of Canada. It offers:
● 5% or 10% for a first-time home 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/manufacture home.
The incentive's shared-equity mortgage is one where the government has a shared investment in the home. As a result, the government shares in both the upside and downside of the property value.
By obtaining the incentive, the borrower may not have to save as much of a down payment to be able to afford the payments associated with the mortgage. The benefit of the larger down payment is a smaller mortgage, and ultimately, lower monthly costs.
The home buyers will have to repay the incentive based on the property's fair market value at the time of repayment. If a home buyer received a 5% incentive, they would repay 5% of the home's value at repayment. If a home buyer received a 10% incentive, they would repay 10% of the home's value at repayment.
The home buyer must repay the incentive after 25 years, or when the property is sold, whichever comes first. The home buyer can also repay the incentive in full any time before, without a pre-payment penalty.
Are You Eligible?
These are a few criteria to determine your eligibility for the First Time Home Buyers Incentive:
● Your total annual qualifying income doesn't exceed $120,000.
● Your total borrowing is no more than 4 times your qualifying income.
● You or your partner are a first-time homebuyer.
● You are a Canadian citizen, permanent resident, or non-permanent resident
authorized to work in Canada.
● You meet 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).
The incentive is like a second mortgage on your home. Your first mortgage must be 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.
The insurance premium is based on the loan-to-value ratio of the first mortgage only.
The first mortgage amount is divided by the purchase price. You don't pay mortgage insurance on the incentive - it is included with the total down payment. The type of home you plan to purchase also plays a factor. Once you have found a house you simply fill in the proper forms and the bank does the rest.
If you have any questions or concerns feel free to contact your local well-qualified mortgage professional, we’re here to help!