The First-Time Home Buyer Incentive, from the Government of Canada, has been helping people across Canada purchase their first home. Did you know about the Incentive program? Are you eligible? How does it work?
The First-Time Home Buyer Incentive makes it easier for you to buy a home and lower your monthly mortgage payments. The program offers 5 or 10% of the home’s purchase price to put toward a down payment.
HOW DOES IT WORK?
As the name implies, this is for first-time home buyers. You qualify as a first-time home buyer if you have never purchased a home before, have not occupied a home that you or your current spouse/common-law partner owned in the last 4 years or have recently experienced the breakdown of a marriage or common-law partnership (even if you don’t meet the other first-time home buyer requirements).
As mentioned above, it allows you to borrow 5 or 10% of the purchase price of a home from the Government of Canada, which you must pay back at the same value of your home when you sell it or within a 25-year window. This is a shared equity mortgage so the government shares the upside and downside of the property value.
For example, if you receive a 5% incentive on a home’s purchase price of $350,000, you would borrow $17,500. If your home value increases to $400,000, you would be required to pay back 5% of the current value which would be $20,000. HOWEVER, if your property decreases to $300,000, you would be required to pay back 5% of the current value which would be $15,000.
WHO IS ELIGIBLE?
In addition to first-time home buyer qualifications, you must also meet the following criteria
- your total annual qualifying income doesn’t exceed $120,000
- your total borrowing is no more than 4 times your qualifying income
- you are a Canadian citizen, permanent resident or non-permanent resident authorized to work in Canada
- you meet the minimum down payment requirements with traditional funds (savings, RRSP, or non-repayable financial gift from a relative or family member)
This incentive is like a second mortgage on your home. Your first mortgage must be greater than 80% of the value of the property and is subject to a mortgage loan insurance premium. The insurance premium is based on a loan-to-value ratio of the first mortgage only. You do not pay mortgage insurance on the incentive – it is included with the total down payment.
The type of home you plan to purchase also plays a factor. The table indicates the type of home that would qualify and how much of an incentive it may be eligible to receive.
ARE THERE ANY HIDDEN FEES?
The incentive may be associated with additional costs such as:
- legal fees – your lawyer is closing two mortgages so you may be charged higher fees.
- appraisal fees – to repay your incentive, you may need to get an appraisal to determine the market value of your home.
- other fees – may be incurred throughout the lifecycle – such as switching our first mortgage to a new lender or re-financing your first mortgage.
For more information on the first-time home buyers incentive program, contact your Live the Shore agents.