Are you wondering how the new First time home buyers incentive program works in Canada?
In this video I am going to cover 5 KEY POINTS that will help you decide if this program
is right for you! Welcome back to my channel! I am Patrick Fields
and I am a realtor here in Edmonton, Alberta with Remax Select! If this is your first time
here hit that subscribe button and ring the bell to be notified when my next real estate
video comes out. I am posting new informational videos every week and you don’t want to
miss one! So here is a little history, In January of
2018 The Canadian government introduced a new “stress test” which made it more difficult
for buyers to purchase a home or lessened the amount of a mortgage that buyers qualified
for. The idea was to stop people from getting in over their heads if interest rates were
to spike when they needed to re-new their mortgage and essentially to stop people from
going into foreclosure. There has been a lot of negativity about this and it has been very
difficult for many people to get into the market and buy a home! So On Sept. 2nd The
Canadian government introduced a new Incentive program aimed at helping First-Time Home Buyers
pass that stress test! I have spoken with many mortgage brokers and
a representative from CMHC and here is what I can share:
1. It is a limited time offer! Ottawa has said that they will contribute
up to $1.25 billion dollars over three years for the First-Time Home Buyer Incentive, The
incentive is expected to help 100,000 families purchase their first home! The government
will monitor the program and perhaps extend it if it is successful. But potentially, When
the money gone this could be over! 2. Who will will qualify
You are considered a first-time homebuyer if you meet one of following qualifications:
*you have never purchased a home before, *you’ve recently experienced a breakdown of a marriage
or common-law partnership in the last 4 years, you did not occupy a home that you or your
current spouse or common-law partner owned. 3. Are you Eligible for the First Time Home
Buyers Incentive? So if you qualify for the program, you also need to meet the following
criteria: Your qualifying household income is less than
$120,000 per year. Qualifying income includes money you earn from investments and rental
income, not just your job(s). You have at least the minimum down payment.
The minimum down payment is 5% of the purchase price and the total amount you put down (including
the incentive portion) must be less than 20% of the home’s purchase price. This maximum
down-payment rule also assures that the Incentive applies only to CHMC mortgage-default-insured
mortgages. 4. It’s not feasible in every market across
Canada! We are very lucky in Edmonton in that our average price for a single family home
is around $450,000 as of the recording of this video. So many buyers in our market will
be able to take full advantage of this program if they choose to! Cities like Toronto and
Vancouver might not see many buyers able to use the program since their average prices
are so much higher! CMHC notes the program is intended to help
first-time buyers purchase a home they intend to live in, and therefore investment properties
do not qualify. 5. How does the FTHBI work? If you meet the
eligibility criteria, you can apply for the Incentive, which comes in the form of a shared
equity mortgage with the Government of Canada. (It’s called a shared equity mortgage because the
government shares in any gains or losses on the home’s equity. More on this in a bit.)
The government will loan buyers 5% of the purchase price for a re-sale home, or up to
10% for a brand new one. That works out to a possible $25,000 on a $500,000 resale property,
or $50,000 on a brand new home priced at $500,000. Now remember this is an interest free loan!
Now however much you borrow will save you money on your mortgage payment and monthly
insurance premium—anywhere around $100 to $300 per month according the federal government’s
calculations. Buyers don’t have to make ongoing payments
and are not charged interest on the loan. But they do have to repay the incentive, either
when they sell the house, or after 25 years—whichever comes sooner.
But here’s where it gets tricky. The repayment is not based on the dollar amount borrowed.
Instead, borrowers must repay the same 5% or 10% share that they received through the
incentive, but calculated as a percentage of the home’s fair market value at the time
of sale, or at the 25-year mark if they are still living in it. That’s because, as mentioned
above, the government benefits from any increase in equity of the home or loses out if equity
goes down. In other words, if the home has increased
in value, you will need to pay back more than you borrowed. If the home has decreased in
value, you’ll pay back less than you borrowed. Here’s an example. Anita wants to buy a
brand new home for $400,000. 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) from the Government of Canada. This lowers the amount she needs to borrow and
reduces her monthly expenses. As a result, Anita’s mortgage is roughly
$250 less per month or $3000 a year. If she owned that home for the full 25 years and
then sold it for the same amount as she paid, she would owe $40,000 – however she would
have saved roughly $75,000 on interest over that time! Now if the house has gone up in
value and is worth $600,000 – she would have to pay back $60,000 which is 10% that
she was loaned initially but she gets to keep the other $140,000 increase and she saved
$75,000 on interest. What’s not to like about that??
Now it may be smart to pay the loan back BEFORE you make significant renovations, as that
will add to the value of the home or pay it back if the market dips - because you pay
back the percentage based on the assessed value!
What does that mean in real terms? Whenever you sell the home, you need to count on giving
back the percentage of your equity. Making the right decision for you: Incentive or no
Incentive? Buyers should also be aware that there may
be extra legal, appraisal and mortgage refinancing fees involved in the administration of the
program. Talk to a mortgage professional or give me a call if you’d like to learn more
my cell number is below. I am going to include a link to the National
Housing Strategy website that has more information in the notes below! If you liked this information,
please give the video a thumbs up, share it with a friend and subscribe if you’d like
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Thanks for watching and have a great day!!