Applications are now being accepted for the new First Time Home Buyer Incentive. Below are the main points surrounding the program, and what it can do to help you.
There are a few qualifiers to apply to this incentive:
- You need to have the minimum down payment to be eligible [5% of the purchase price]
- Your maximum qualifying income is no more than $120,000
- Your total borrowing is limited to 4 times the qualifying income. Ie. $80,000 income x 4 = $320,000
HOW DOES IT WORK:
- Enables first-time homebuyers to reduce their monthly mortgage payment without increasing their own down payment
- The Government of Canada will:
- – Offer 5% for purchase of existing home
- – 5% or 10% for a buyer’s purchase of new construction
HOW DO I KNOW HOW MUCH I HAVE TO PAY BACK?
- You can repay the incentive at any time in full without penalty
- You have to repay after 25 years, or if the property is sold [whichever comes first]
- Repayment is based on the property’s fair market value at the time of repayment
- You receive a 5% incentive of the home’s purchase price of $200,000 [$10,000]
– If your home value increases to $300,000 your payback would be 5% of the current value [$15,000]
- You receive a 10% incentive of the home’s purchase price of $200,000 [$20,000]
– If your home value decreases to $150,000, your repayment value will be 10% of the current value [$15,000]
WHAT KIND OF PROPERTY CAN I PURCHASE?
Eligible Residential Properties Include:
- New Construction
- Re-Sale Home [existing property]
- New and Re-Sale Mobile/Manufactured Homes
Types of Residential Properties Include:
- Single Family Homes
- Semi-Detached Homes
- Town Houses
- Condominium Units
The property must be located in Canada and must be suitable and available for full time, year-round occupancy. Intended solely for First-Time Home buyers, therefore the property must be owner-occupied.
- Total borrowing is limited to 4 times the qualifying income
The combined mortgage and incentive amount, can not exceed four times the total of the qualifying income. The amount for the mortgage loan insurance premium is excluded from this calculation.
- The maximum threshold for debt service ratios are GDS 39% and TDS 44%
This is only applied on the first mortgage and is subject to requirements by lenders and mortgage insurers.
- The incentive is a second mortgage on the title of the property
There are no regular principal payments. It isn’t interest bearing and has a maximum term of 25 years.
- Mortgages must be eligible for mortgage loan insurance through either Canada Guaranty, CMHC or Genworth.
The first mortgage must be greater than 80% of the value of the property and is subject to a mortgage loan insurance premium.
WHEN DOES REPAYMENT HAPPEN?
- The first-time homebuyer is required to pay the incentive amount after 25 years or when the property is sold, whichever comes first.
- The homebuyer can also repay the incentive in full at anytime, without pre-payment penalty. Refinancing of the first mortgage will not trigger repayment.
- Before selling the property, the homebuyer must obtain approval of the sale from the Program Administrator. For more information consult the operational policy manual.
- Repayment is based on the property’s fair market value at the point in time where repayment is required.
- Additional Legal Fees: Your lawyer is closing 2 mortgages so you may be charged higher fees
- Appraisal Fees: To repay your incentive, you may need an appraisal done to value determine the fair market value of your home.
- Other Fees: Additional fees may be incurred throughout the life cycle of the incentive, like switching your first mortgage to a new lender or refinancing your first.
- Anita wants to buy a new home for $400,000 and has saved the minimum required down payment of $20,000 (5% of the purchase price).
- Under the First-Time Home Buyer Incentive, Anita can apply to receive $40,000 in a shared equity mortgage (10% of the cost of a new home) through the program.
- This lowers the amount Anita needs to borrow and reduces the monthly expenses.
- As a result, Anita’s mortgage is $228 less a month or $2,736 a year.
- Ten years later, Anita sells the home for $420,000. The Incentive will need to be repaid as a percentage of the home’s current value
- This would result in Anita repaying 10%, or $42,000 at the time of selling the house.
- John has an annual qualifying income of $83,125.
- To be eligible for Canada’s First-Time Home Buyer Incentive, John can purchase condominium unit up to $350,000. John has the required minimum down payment of 5% of the purchase price, $17,500 from savings.
- John can receive $35,000 in a shared equity mortgage – 10% of a newly constructed home.
- This would reduce John’s mortgage payments by $200 a month or $2,401 a year.
- Years later, John has decided to sell the condominium unit, but it is now worth $320,000. When the condominium unit is sold at the price of $320,000, John will have to repay the incentive as a percentage of the home’s current value. This would result in John repaying 10%, or $32,000 at the time of selling the house.