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Navigating the Canadian First-Time Home Buyer Incentive

General Mohsen Ravankhah 8 Sep

Introduction:

Owning a home is a cherished dream for many Canadians, but the ever-rising costs of real estate can be a significant roadblock. The Canadian government recognizes this challenge and has introduced the First-Time Home Buyer Incentive to help aspiring homeowners leap into the real estate market. In this blog post, we’ll delve deeper into this program, exploring how it can make buying a home more affordable and achievable.

Understanding the First-Time Home Buyer Incentive:

The First-Time Home Buyer Incentive is a government initiative aimed at easing the path to homeownership by providing a shared-equity mortgage through the Canada Mortgage and Housing Corporation (CMHC). Here’s how it works:

  • You can receive an additional 5% or 10% of the down payment for your home through this program.
  • When you sell your home or after 25 years, you repay the government 5% or 10% of your property’s market value at that time.
  • The repayment includes a maximum gain to the government of 8% per annum (not compounded) in the case of appreciation or a maximum loss of 8% per annum (not compounded) in the case of depreciation.

Eligibility Criteria:

To determine if you qualify for the First-Time Home Buyer Incentive, consider the following criteria:

  • Your total annual qualifying income should not exceed $120,000 ($150,000 if buying in Toronto, Vancouver, or Victoria).
  • The total amount you borrow should not exceed four times your qualifying income (4.5 times in Toronto, Vancouver, or Victoria).
  • You, or your partner, must be first-time homebuyers.
  • You must be a Canadian citizen, permanent resident, or non-permanent resident authorized to work in Canada.
  • You must meet the minimum down payment requirements with traditional funds, such as savings, RRSP withdrawals, or non-repayable financial gifts from relatives.
  • Your first mortgage must be more outstanding than 80% of the property’s value and eligible through Canada Guaranty, CMHC, or Sagen.

Types of Eligible Properties:

The type of property you plan to purchase also matters. Here’s a breakdown:

  • New Construction: 5% or 10% incentive
  • Existing Home: 5% incentive
  • New and Existing Mobile/Manufactured Homes: 5% incentive

Residential properties can have 1 to 4 units and include single-family homes, duplexes, triplexes, fourplexes, townhouses, condominium units, and mobile homes. The key is that the property must be located in Canada and suitable for full-time, year-round occupancy.

Other Considerations:

Keep in mind that the First-Time Home Buyer Incentive may come with additional costs, such as legal fees for handling two mortgages, appraisal fees, and property insurance premiums. These costs should be factored into your budget.

Example Scenario:

Imagine Anita wants to purchase a new home for $400,000 and has saved the minimum required down payment of $20,000 (5% of the purchase price). With the First-Time Home Buyer Incentive, Anita can receive $40,000 in a shared equity mortgage (10% of the home’s cost). This significantly reduces her borrowing amount, resulting in lower monthly expenses—$228 less per month or $2,736 per year.

How to Apply and Repay:

Once you’re pre-approved for a mortgage and find your dream home, follow these steps:

  • Complete the required application forms, which your lender will submit on your behalf.
  • Keep a signed copy of the shared equity mortgage package with your solicitor.
  • Upon acceptance, activate your incentive by contacting FNF Canada. at 1-(855) 844-4535 to activate your incentive and provide the name of your lawyer/notary. (This must be at least 2 weeks prior to your closing date.)

Repayment of the Incentive is required after 25 years or when you sell the home, with specific triggers for repayment, such as refinancing or changes in the property ownership structure.

Conclusion:

The Canadian First-Time Home Buyer Incentive is a valuable resource for those looking to make homeownership a reality. By offering a shared-equity mortgage with favorable terms, this program empowers first-time buyers to overcome the financial hurdles of owning a home. Explore your eligibility, apply, and take that vital step towards achieving your homeownership dreams. Remember, your dream home might be closer than you think, thanks to this initiative.