The First-Time Home Buyer Incentive | What You Need To Know

04 September 2019
Life and the City

A new federal program called the First-Time Home Buyer's Incentive (FTHBI) has just launched, and applications are being accepted until November 1st, 2019. Here's what you need to know about it!

What is the First-Time Home Buyer's Incentive?

The FTHBI is a program from the Canadian Mortgage and Housing Corporation (CMHC) which was announced earlier this year as part of the government’s 2019 platform. It's intended to help first-time homeowners enter the hottest real estate markets across the country by reducing their mortgage amounts, thereby lowering both down payment requirements and monthly payments.

How does it work?

The FTHBI contributes a 5% equity loan towards the purchase of resale homes, or a 5-10% equity loan towards the purchase of a new construction. To qualify, the mortgage of the property cannot exceed more than four times the maximum household income of $120,000, which caps out at $480,000. This means the average price of a home available to be purchased through this program will be between $500,000 and $600,000, depending on the size of your down payment. It also assumes the buyer is putting in a minimum down payment of 5%.

Receiving incentives through this program means that you would have a shared equity mortgage, which is where the government shares in the upside and downside of the property value. Essentially, this program will allow the government to have an ownership stake in the property of qualified home buyers. So if a property is sold at a value higher than when it was bought, the government will benefit. Similarly, if the property decreases in value, the government will take a hit.

The incentive is interest-free, and there are no penalties for buying out the CMHC’s stake. However, if the house price goes up, the amount the homeowner owes will also increase.

How do I qualify?

To qualify for this program, you'll need to meet a few requirements:

  • You need to have the minimum down payment to be eligible
  • Your maximum qualifying income is no more than $120,000 (That means whether you are applying by yourself, with a friend or a spouse you have to add your qualifying income and make sure it is less than $120,000.)
  • Your total borrowing is limited to 4 times the qualifying income 
  • Applications must be in by November 1st, 2019
  • At least one borrower must be a first-time home buyer, as per the definition below.

You are considered a first-time home buyer if you meet one of following qualifications:

  • You have never purchased a home before
  • You have gone through a breakdown of a marriage or common-law partnership (even if you don’t meet the other first-time home buyer requirements).
  • In the last 4 years, you did not occupy a home that you or your current spouse or common-law partner owned

IMPORTANT: It’s possible that you or your spouse or common-law partner qualifies for the First-Time Home Buyer Incentive (if you are in a married or common-law relationship) with the 4-year clause even if you’ve owned a home.

The 4-year period begins on January 1st of the fourth year before the incentive is funded and ends 31 days before the date the incentive is funded. For example, if the incentive will be funded on November 1st, 2019, the four-year period begins on January 1st, 2015 and ends on September 30th, 2019.

If you meet these criteria, you can then apply for a 5% or 10% shared equity mortgage with the Government of Canada. 

How do I know how much I have to pay back?   

You can repay the incentive at any time in full without a pre-payment penalty. You have to repay the incentive after 25 years or if the property is sold, whichever happens first. The repayment of the Incentive is based on the property’s fair market value. 

  • 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 your 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 and your home value decreases to $150,000, your repayment value will be 10% of the current value or $15,000. 

NOTE: If your property value goes down, you are still responsible for repaying the shared equity mortgage based on the current home value at time of repayment.  

What kind of property can I purchase?

Unfortunately, if you're looking to purchase a home in Toronto, you likely won't be able to use the FTHBI. That’s because the restrictions of the incentive put a price cap on the homes Canadians can purchase. Only those with a household income of less than $120,000 are eligible for the program, and the mortgage cannot exceed more than four times that income, or up to $480,000. That means the most expensive home that could be bought with the incentive is between $500,000 and $600,000, depending on the down payment. For an expensive and competitive market like Toronto, that renders most houses ineligible (the average price of a home in Toronto in July of this year was $982,427).

But first-time buyers in Toronto are not entirely out of luck - those interested in owning a condo could still see their dreams of homeownership become a reality, since condos in many areas across the city are within the qualifying price point.

How much will this program save me?

If you're looking to purchase a $500,000 property with a $25,000 down payment, this program could save you as much as $286 per month or more than $3,430 a year. Of course, this statistic will change depending on the type of property purchased and in which market it is bought.

How do I apply?

Complete and sign the application documents here, and take them to your lender. Your lender will submit these documents on your behalf.

Once processed and accepted, you MUST call 1.833.974.0963 to activate the FTHBI payment and provide the name of the lawyer/notary you have chosen to close your deal. You must provide your lawyer/notary information as soon as you have chosen one and no less than 2 weeks prior to your closing.

If approved for the incentive, the purchase transaction must close on or after November 1st, 2019.

What else should I know?

Keep in mind that the federal government has increased the RRSP withdrawal amount from $25,000 to $35,000. Additionally, the Shared Equity Mortgage Providers Fund (SEMP) has been created to help Canadians own homes in a more affordable way. Launched on July 31st, 2019, this $100-million program will support existing shared equity mortgage providers. As a five-year program, the fund will encourage additional housing supply, help attract new providers of shared equity mortgages and offer eligible applications the chance to benefit from one of two possible funding opportunities.

Go here for more information on the First-Time Home Buyer Incentive program

Still have questions, or want to know if you or someone you know would qualify for this program? Let us know!