If you are buying a home for the first time as a Canadian, then you should be aware of the First Time Home Buyer Incentive. This program is intended to make first-time home ownership more affordable for Canadians and their families.
Basically, the CMHC will loan you some money for the down payment of your first home in order to lower your monthly payments. In turn, they will also share some of the appreciation or losses on the fair market value of the home.
The amortisation period for the incentive is 25 years. Repayment is required in full at the end of this period, or if and when you end up selling the home. There is a maximum appreciation as well as a maximum loss amount that the CMHC will share.
There are also similar programs offered at the provincial and municipal levels which can be used in tandem with the FTHBI to make owning a home even more affordable. Staying informed on all the conditions associated with these loans is essential.
Keep reading to find details on the First Time Home Buyer Incentive from the CMHC, as well as information on how to qualify and how repayment works.
The First-Time Home Buyer Incentive Program – What It Is
The First Time Home Buyers Incentive (FTHBI) is designed to increase homeownership affordability for first-time buyers. It’s basically a shared equity program through which CMHS contributes a mortgage and incentive amount of down payment, and shares appreciation or losses if homes eventually sell.
CMHC can help with the down payment by contributing to the purchase of a home by up to 10%. The program is subject to changes and updates, so it’s important to check the FTHBI details on the Government site as time goes on.
Just as the name implies, this incentive is for first-time buyers. If you already own a home or have owned a home elsewhere in the world, you will not qualify for the incentive. There are also provincial and municipal incentives that may be used in tandem with the FTHBI.
The incentive, in simpler terms, is a shared equity mortgage. This means that, without increasing your financial load, the federal government will assist you in financing a portion of your first home.
The government will own a portion of the property through a shared equity mortgage. That implies that the property value ups and downs are shared by the two of you. Repayment will be due in full after 25 years or if you end up selling the home.
How the Canada Mortgage Housing Corporation FTHBI Works
The Canada Mortgage and Housing Corporation (CMHC) offers a 5% or 10% equity stake in the sale of existing homes. After-sale of the property the homeowners are responsible for paying back the CMHC.
The Incentive must be repaid in full after 25 years or once the home is sold. Some occurrences may trigger repayment and partial repayments are not available. Payment details will be discussed later on in this article.
For example, consider a home with a purchase price of $200,000. With your $10,000 in savings, you can put down 5% on a house (a minimum requirement for the incentive). As a result, you will require a mortgage to pay the remaining $190,000.
Further, let’s say you receive a First-Time Home Buyer Incentive worth $20,000, or 10% of the price of a new build property. As a result, the total mortgage balance will drop to $170,000, which decreases your monthly mortgage payments by about $114.
The monthly mortgage payment amount is based on a mortgage qualifying rate of 4.79% and 25 years of amortisation. The annual percentage rate (APR) is 3.5% per year and 25 years of amortisation.
Do I Qualify For The FTHBI?
You may check the following requirements to see if you qualify for the First-Time Home Buyer Incentive:
- If the house you’re buying is in Toronto, Vancouver, or Victoria, your total yearly qualifying income cannot exceed $150,000.
- Your total borrowing cannot exceed four times your minimum income (4.5 times if the home you are purchasing is in Toronto, Vancouver, or Victoria )
- You or your common-law partner must be a first-time homebuyer who meets the minimum down payment requirements using conventional funds (savings, withdrawal from or collapse of a Registered Retirement Savings Plan, or a non-repayable financial gift from a relative or close family member).
- You must be a Canadian citizen, permanent resident, or non-permanent resident who is permitted to work in Canada.
The incentive can be thought of as a second mortgage on your home. A mortgage loan insurance premium is required for first mortgages that are more than 80% of the property’s value. Additionally, it needs to qualify through Canada Guaranty, CMHC, or Sagen.
Only the first mortgage’s loan-to-value ratio is used to determine the insurance price. This is calculated by dividing the first mortgage balance by the home purchase price. The incentive is not subject to mortgage insurance; it is part of the total down payment.
The kind of house you want to buy also plays a role. New construction homes can qualify for either 5% or 10% while Existing homes only qualify for 5% (this also includes existing mobile homes).
How Purchase Price Affects Monthly Mortgage Payments
The down payment requirement is 5% of the first $500,000 of the home’s purchase price and 10% of any sum over that. The total down payment you make must, however, be less than 20% of the home’s purchase price. Additionally, this maximum down payment requirement guarantees that the FTHBI only applies to mortgages with mortgage default insurance.
Any eligible buyer may borrow up to $480,000 and still be eligible to apply for the incentive because the maximum qualifying income is $120,000. In order to qualify for the incentive, people with lower incomes are eligible for even less money, which presents difficulty due to soaring house prices across Canada.
Toronto First-Time Home Buyer Incentive
In Ontario, first-time homebuyers are eligible for a land transfer tax rebate of up to $4,000. If you’re a first-time home buyer buying a house in Ontario for less than $368,000, you’ll get the maximum Ontario land transfer tax refund.
Additionally, Toronto first-time homebuyers are eligible for a municipal land transfer tax credit of up to $4,475. You will be eligible for the entire Toronto land transfer tax credit if you are a first-time home buyer in Toronto and your home costs less than $400,000.
Toronto residents who buy their first house will be eligible for both a municipal and a provincial land transfer tax break. Taking advantage of the land transfer tax incentives can ensure that you don’t get dragged down by the land transfer tax.
To qualify for the land transfer tax rebate, the homeowner must be a Canadian national or permanent resident. However, buyers may apply for citizenship in Canada or permanent residency within 18 months. Upon registration, you may claim the refund within 18 months.
Staying up to date on all the available land transfer tax incentives for first-time home ownership can be complex. However, making sure that you understand the land transfer tax can help you afford your first home much cheaper than you think.
First-Time Home Buyer Incentive Updates
Due to emergent economic conditions, the home buyer incentive and land transfer tax rebates are subject to changes from time to time. The CMHC will maintain updates on its website, but it is up to you to stay current on these updates as they happen.
The Liberals raised the property price cap from 4 times household income to 4.5 times and the income eligibility criterion from $120K to $150K in their budget proposal for 2021. These changes were in response to soaring house prices in Toronto and Vancouver.
If you want to stay up-to-date on the incentive without constantly checking the website, it is possible to sign up for email updates. If you sign up, you will receive email notifications from the CMHC in case the home buyers’ incentive changes.
It is still a good idea to comb the CMHC website for information on the FTHBI, as well as other programs. Staying well informed on the stipulations of these types of programs can help you understand how to effectively get the best help when trying to afford your first home.
It is also in your best interest to regularly check provincial and municipal websites for information on other programs for which you may qualify. These include the First-Time Buyer Land Transfer Tax Rebate, the Shared-Equity Incentive, and the Home Buyer’s Plan (RRSP).
It’s important to keep in mind that purchasers with strong credit and minimal debt may be able to borrow more money than the FTHBI would permit because both the household income and the overall purchase price are capped under the programme.
This situation “forces you to buy less housing than you would be able to” otherwise. The fundamental question is whether or not consumers have the self-control to engage in that, claims Paul Taylor, president, and CEO of Mortgage Professionals of Canada.
The future worth of the home that program participants plan to purchase should also be taken into account. With a 5–10% equity share in the property, CMHC will be there for the ride, regardless of whether the value of the home has increased or decreased.