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The First-Time Home Buyer incentive aims to help qualified first-time buyers reduce their monthly mortgage carrying costs without adding to their financial burdens. The Federal Government along with the Canadian Mortgage and Housing Corporation have announced this program will launch on September 2, 2019. According to the tip sheet provided by the Government of Canada, you will be able to submit your incentive application on September 2, 2019 (barring any unforeseen circumstances). The first closing will take effect on November 1, 2019.
HOW DOES IT WORK?
The incentive will help enable first-time homebuyers to reduce their monthly mortgage payment without increasing the down payment. The incentive is not interest-bearing and does not require ongoing repayments. If you meet the criteria for the incentive program, you can then apply for a shared equity mortgage with the Government of Canada. A shared equity mortgage is where the government shares in the upside, and the downside of the property value.
TO QUALIFY FOR THE INCENTIVE
You still need to have the minimum 5% down payment to be eligible, this program will not cover a down payment shortage.
Your maximum qualifying incoming is no more than $120,000
The total borrowed amount is limited to 4 times the qualifying income
DETAILS
Through the First Time Home Buyer Incentive, the Government of Canada will offer
5% Down for a first-time buyer’s purchase of a resale home
5% or 10% for a first-time home buyer’s purchase of a new construction home
HOW DOES IT GET PAID BACK?
The incentive can be paid in full at any time without a pre-payment penalty; however the incentive will need to be repaid 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.
If you receive a 5% incentive of the home’s purchase price of $200,000, you would receive $10,000 as an incentive. If your homes value increases to $300,000 your payback would be 5% of the current value or $15,000
If you receive a 10% incentive of the home’s purchase price of $200,000, or $20,000 and your homes value decreases to $150,000, your repayment value would be 10% of the current value or $15,0000
* If your property value goes down, you are still responsible for repaying the shared equity mortgage based on the current home value at the time of repayment.
INCENTIVE BY PROPERTY TYPE
New Construction Home: 5% or 10%
Existing Home: 5%
New or Re-Sale Mobile/Manufactured Home: 5%
WHO CAN APPLY?
Canadian citizens, permanent residents, and non-permanent residents who are legally authorized to work in Canada
Borrowers with a maximum qualifying income of $120,000
Total qualifying income must be $120,000 per year or less, this is subject to qualifying income requirements set out by lenders and mortage loan insurers
At least one borrower must be a first-time homebuyer as per the definitions below
ARE YOU CONSIDERED A FIRST TIME HOME BUYER?
You are considered a first-time homebuyer if you meet one of the 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
It is possible that you, your spouse or common-law partner qualify for the First-Time Home Buyer Incentive (if you are married or common-law relationship) with the 4-year clause, even if you have owned a home.
HOW DOES THE 4 YEAR PERIOD WORK?
The 4 year period begins on January 1 of the fourth year before the year you purchased your home. It ends 31 days before the date you purchase your new home. Here are a few examples:
If you purchased a home on March 31, 2016, the 4 year period begins on January 1, 2016, and ends on February 28, 2020
If you sold your home that you lived in in 2014, you may be able to participate in 2019 or if you sold the home you lived in in 2015, you may be able to participate in 2020.
WHAT ELSE SHOULD YOU KNOW?
Total borrowing is limited to 4 times the qualifying income. The combined mortgage and incentive amount cannot exceed 4 times the qualifying income. The amount for the mortgage loan insurance premium is excluded from this calculation.
The maximum threshold for debt service ratios is, Gross Debt Service 39% and Total Debt Service 44%. This is only applied on the first mortgage and is subject to requirements by lenders and mortgage loan insurers
The incentive is a second mortgage on the land title of the property. There are no regular principal payments. It isn’t interest bearing and has a maximum term of 25 years.
The Government of Canada will share in the upside and downside of the property value upon repayment.
WHAT ARE THE DOWN PAYMENT REQUIREMENTS
The minimum down payment is 5% of the first $500,000 of the lending value and 10% of the lending value above $500,000
The minimum down payment must come from traditional down payment sources (savings, withdrawl/collapse of RRSP, non-repayable financial gift from a relative
Unsecured personal loans or unsecured lines of credit used to satisfy minimum down payment requirements are not eligible for the program.
WHAT PROPERTIES ARE ELIGIBLE?
Single Family Homes
Semi-Detached Homes
Duplex
Triplex
Fourplex
Townhouses
Condominium Unit
The property must be located in Canada and must be suitable and available for Full Time, year-round occupancy.
