Are You Eligible for the First Time Home Buyers Incentive?
Who is eligible for the First Time Home Buyers Incentive (FTHBI)?
For the purposes of this program, first-time home buyers are not only people who have never owned a home before, but also homeowners who have gone through a divorce or breakdown of a common-law partnership, or those who have not lived in a home that they owned (or that was owned by their spouse or common-law partner) for the past four years.
To be eligible for the program, however, you also need to meet the following criteria:
- Your qualifying household income is less than $120,000. Qualifying income includes money you earn from investments and rental income, not just your job(s).
- You have at least the minimum down payment. The minimum down payment is 5% of the first $500,000 of the home’s purchase price, and 10% for any amount above that. However, the total amount you put down (including the FTHBI amount) must be less than 20% of the home’s purchase price. This maximum down-payment rule also assures that the FTHBI applies only to CHMC mortgage-default-insured mortgages.
- You are borrowing less than four times your qualifying income. Since the maximum qualifying income is $120,000, the most any eligible buyer can borrow (and still be able to apply for the Incentive) is $480,000 — including the mortgage, mortgage insurance and the FTHBI amount.
How does the FTHBI work?
If you meet the eligibility criteria, you can apply for the Incentive, which comes in the form of a shared equity mortgage with the Government of Canada.
The government will loan buyers 5% of the purchase price for a re-sale home, or 10% for a new one. That works out to a possible $50,000 on a new $500,000 home, or $25,000 on a $500,000 resale property. That could save you a little bit on your mortgage payment and monthly insurance premium—somewhere around $100 to $300 per month.
Buyers don’t have to make ongoing payments and are not charged interest on the loan. But they do have to repay the incentive, either when they sell the house, or after 25 years—whichever comes sooner.
But here’s where it gets tricky. The repayment is not based on the dollar amount borrowed. Instead, borrowers must repay the same 5% or 10% share that they received through the FTHBI, but calculated as a percentage of the home’s fair market value at the time of sale, or at the 25-year mark. That’s because, as mentioned above, the government benefits from any increase in equity of the home and loses out if equity goes down.
In other words, if the home has increased in value, you will need to pay back more than you borrowed. If the home has decreased in value, you’ll pay back less than you borrowed.
Is the First Time Home Buyers Incentive right for you? Call us today and let’s talk about it – 604.767.4600.