The First Time Home Buyer Incentive allows you to borrow 5% or 10% of the purchase price of a home. This is an interest free loan which you pay back when you sell your home (with the same percentage of the value of your home), or within a 25-year window. The incentive took effect in September 2019 with $1.25 billion set aside for the program. As of April 2020, there have been 4,414 applications and 2,061 Canadians who have received their money out of 3,708 approvals. Many experts have shared their thoughts on why this may be, and why applying for the First Time Home Buyer Incentive may not have been desirable at the initial cap of $480,000. However, what has been poorly communicated is that Trudeau has promised to raise the threshold to $789,000 which will make the first time home buyer incentive a good deal.
How does the First Time Home Buyer Incentive work?
Along with the incentive that this is an interest free loan, it is also a “shared equity mortgage”. This means that the government shares in any gains or losses of the property value. If your property value takes a hit, your repayment value will be less. CMHC has broken down the numbers:
- You receive a 5% incentive of the home’s purchase price of $200,000, or $10,000. If your home value increases to $300,000, the payback would be 5% of the current value or $15,000.
- You receive a 10% incentive of the home’s purchase price of $200,000, or $20,000. If your home value decreases to $150,000, your repayment value will be 10% of the current value or $15,000.
Who can qualify for First Time Home Buyer Incentive?
First Time Home Buyer Incentive Requirement
Just as the name implies, the First Time Home Buyer Incentive is only for first time home buyers. You are only able to qualify for the incentive if:
- you did not occupy a home that you or your 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).
- you have recently gone through a separation in a marriage or common-law partnership (even if you don’t meet the other first-time home buyer requirements).
Mortgage Loan Insurance Requirement
The First Time Home Buyers Incentive is similar to a second mortgage on your home. The first mortgage must be greater than 80% of the value of the property and is subject to a mortgage loan insurance premium. Mortgages must be eligible for mortgage loan insurance through either Canada Guaranty, CMHC or Genworth. The premium is based on the loan-to-value ratio of the first mortgage only. That is, the first mortgage amount divided by the purchase price. The Incentive amount is included with the total down payment. Mortgage loan insurance premiums may be subject to provincial taxes.
View this document for the full list of qualifications
Why aren’t more Canadians applying for the First Time Home Buyers Incentive?
In the Greater Toronto Area, there were 116 applications and 57 approvals with funds handed out. The program was established as a way to help 100,000 Canadians become homeowners for the first time over the course of three years. At the current rate of 2,000 people getting the incentive over its first five months, it would take nearly 20 years to hit the initial target. This may be because originally, the first time the home buyer incentive was doing little to help home buyers in Canada’s priciest markets, like Toronto, with a cap of $480,000. Since then Trudeau has promised to increase the threshold to $789,000 which may raise the numbers of applicants. Based on the TRREB market report for May 2020, the average price of a home in Toronto is $838,248 so this raise will make it easier for home buyers in Toronto to purchase a home with the First Time Home Buyer Incentive.
We can help
As a first-time home buyer, you will have a lot of questions about beginning the process. We have written a guide that will help to educate you from the perspective of a real estate agent that has more than 15 years’ experience selling over 100 properties per year. There are always things home buyers may miss or not know about, and this guide will not only help narrow down your search, but will give you insight into all aspects of the process of buying your first home. Refer to this link to download our guide.
If you’re looking to save money on your first home, this article will help you learn what first time home buyer tax credit and rebates are available to you.
If you’re interested in starting your home buying journey this year, book a call with us to get started.