This September, the federal government rolled out its new First Time Home Buyer Incentive. The purpose of the Incentive is to assist qualified first-time home buyers to reduce the cost of their monthly mortgage payments without adding to their overall financial burden of purchasing a home.
To qualify for the First Time Home Buyer Incentive, you must meet the following criteria:
- Be a Canadian citizen, permanent resident, or a non-permanent resident who is legally eligible to work in Canada.
- Have a minimum down payment. (5% for the first $500,000 and 10% for the value exceeding $500,000). Unsecured loans may not be used for the down payment.
- Have a combined total income of $120,000 or less. (also subject to minimum requirements set out by lenders).
- Borrowing limit is equal to four times your income.
- Mortgages must be eligible for mortgage insurance through CMHC, Canada Guaranty or Genworth.
- Property must be located in Canada and be suitable for year-round living.
- If purchasing a home as a couple, at least one person must be a first-time home buyer per the definition below.
Who is considered a first-time home buyer?
- Someone who has never purchased a home before.
- Someone who has gone through a martial breakdown or the breakdown of a common-law relationship (even if they don’t meet the other requirements for a first-time home buyer)
- Someone who has not lived in the home of their current spouse or common-law partner within four years.
Those who meet the above criteria, may apply for a 5% or 10% shared equity mortgage with the Government of Canada. This means that the federal government would share in both profits or losses in the property value.
How does the Incentive work?
The Incentive is a way for first time homebuyers to reduce their monthly mortgage costs without having to increase their down payment. The Incentive does not require interest payments, nor is there an ongoing repayment schedule.
Through the Incentive, the Government of Canada will offer:
- 5% to first-time home buyers on the purchase of a re-sale home.
- 5% or 10% to first-time home buyers on the purchase of a newly constructed home.
How is the Incentive paid back?
The Incentive may be paid back in part or in full at any time without penalty. The Incentive must be paid back after 25 years or when you sell the property – whichever happens first.
The amount that you pay back will be based on the value of your home at the time. Say for example, the home is worth $200,000 when you buy it and you borrow 5% ($10,000). If the home is worth $300,000 when you pay back the incentive, you still have to pay back 5% which will then be $15,000. Likewise, however, if the property value drops – say to $180,000, the amount you will pay back will still be 5% or in this case, $9000.
Note: The total amount of funding that will be available to first time home buyers across the country is $1.25 B over the next three years.
If you are interested in purchasing a home and taking advantage of the First-Time Homebuyer Incentive Plan, we can help. Contact Adelson and Weiss today to learn more.