Are you thinking of buying your first home? It can be one of the most significant and exciting purchases that you’ll ever make –– however, that excitement can quickly wear off once you see all of the costs associated with home ownership.
Luckily for you, the Canadian federal government has created the First Time Home Buyer Incentive to help Canadians looking to purchase their first home. The incentive offers buyers 5% or 10% (depending on property type) of their home’s purchase price to put towards their down payment. This makes owning your first home more affordable by lowering your monthly mortgage costs.
But there’s a lot more to it.
In this article, you’ll learn everything you need to know about the First Time Home Buyer Incentive, including:
- What the incentive entails
- Who can qualify for it
- What types of properties qualify
- An estimate of how much money you can expect from the incentive
- Details on when you need to pay back the loan
- How to apply for the incentive
The First Time Home Buyer Incentive Explained
The First Time Home Buyer Incentive is a shared equity mortgage that helps finance your first home purchase. The incentive allows you to borrow either 5% or 10% of your home’s purchase price to put towards your down payment, making your monthly mortgage payments more affordable.
For example, if you were to put the 5% minimum down payment of $25,000 towards the purchase of a $500,000 home you would still need to take out a mortgage to pay for the remaining $475,000. In this case, borrowing 5% through the First Time Home Buyers Incentive would provide an extra $25,000 to put towards the down payment; this would lower the mortgage amount to $450,000, which would in turn lower your monthly mortgage payments.
So what is a shared equity mortgage?
Well, it’s quite different than traditional mortgages. Instead of paying interest on your loan, the lender of a shared interest mortgage shares in the investment of the home you are buying. This means they share in the profit when a home’s value increases, as well as the loss when it decreases.
Let’s look at a couple of examples to see how it works:
Through the First Time Home Buyer Incentive, you receive 5% of your home’s purchase price of $350,000, or $17,500. If the value of your home increases to $450,000, you’d need to pay back $22,500, which is 5% of its current value.
Through the First Time Home Buyer Incentive, you receive 10% of your home’s purchase price of $400,000, or $40,000. If the value of your home decreases to $350,000, you’d need to pay back $35,000, which is 10% of its current value.
Do I qualify for the First Time Home Buyer Incentive?
Now that you know what the First Time Home Buyer Incentive is, let’s look at who qualifies. First and foremost, as the name implies, at least one borrower must be a first-time buyer to be eligible for this incentive. This means:
- You have never purchased a house before
- You have not occupied a home that you or your current spouse/common-law partner owned within the last 4 years
If you do not meet any of the two requirements mentioned above, you may still qualify for the incentive if you have suffered a breakdown of a marriage or common-law partnership.
So, being a first-time buyer is a must, but it’s not the only requirement to qualify for the incentive.
Here are the rest of the eligibility criteria:
- You must be a Canadian citizen, permanent resident, or non-permanent resident authorized to work in Canada.
- You must meet the minimum down payment requirements from your savings, RRSP, or non-repayable financial gift from an immediate family member.
- Your first mortgage must be greater than 80% of the property and be subject to mortgage loan insurance.
- You must still pass the mortgage stress test.
- Your total qualifying income (combined income of all borrowers) does not exceed:
- $150,000 if the home is located in Toronto, Vancouver, or Victoria Census Metropolitan Areas.
- $120,000 if the home is located anywhere else in Canada
- Your total borrowing amount (mortgage plus incentive amount) is:
- Less than 4.5 times your qualifying income if the home is located in Toronto, Vancouver, or Victoria.
- Less than 4 times your qualifying income if you live anywhere else in Canada.
- The total amount you put down (including the FTHBI amount) must be less than 20% of the home’s purchase price.
Let’s look at a couple of examples of how some of the above rules can affect the amount that you are able borrow:
Let’s say you live in Vancouver making the maximum allowable qualifying income of 150,000. In this case the most you can borrow is $675,000 ($150,000*4.5).
If you were to live in Edmonton, making the maximum qualifying income of $120,000, then the most that you would be able to borrow is $480,000 ($120,000*4).
Here’s a great tool to help see if you qualify for the First Time Home Buyer Incentive.
Does my house qualify for the First Time Home Buyer Incentive?
To qualify for the First Time Home Buyer Incentive, the property you are purchasing must be a residential home with 1 to 4 units. These types of homes include:
- Single-family homes
- Semi-detached homes
- Condominium units
- Mobile homes
Along with being one of the above mentioned property types, to qualify, your home must:
- Be located in Canada
- Be suitable and available for full-time, year-round occupancy
- Not be used as an investment property
How much money can I get through the First Time Home Buyers Incentive?
If, after reading the last two sections, you’ve determined that you will be able to qualify for the First Time Home Buyers Incentive, that’s great! This means that you’ll be able to receive either 5% or 10% of your home’s purchase price through the incentive.
The amount that you will receive depends on the type of property that you are purchasing:
When do I pay back my loan?
Unfortunately, you will have to pay back the loan provided through the First Time Home Buyer Incentive. You must pay the loan after 25 years or when you sell your home –– whichever comes first. You also have the option to repay the loan at any time of your choosing within those 25 years without any early repayment penalties.
There are also a few other scenarios that may trigger the need to repay the incentive’s loan. They are:
- You port your Mortgage
- You buy out a co-borrower after a breakup, and additional insured funds are required.
- There is a partial release of security. This is considered a sale and will trigger the need for repayment.
- Certain refinancing situations – lender dependant.
How do I apply for the First Time Home Buyer Incentive?
Now, the critical part, applying for the First Time Home Buyer Incentive. To do this, you must fill out the following two applications.
Once complete, all you need to do is:
- Give the completed documents to your lender to submit on your behalf.
- Provide your lawyer with the final signed copy of the shared equity mortgage package to retain for you.
Once you receive your acceptance, there is only one thing left to do. Call FNF Canada at 1-(855) 844-4535 to activate your incentive and provide the name of your lawyer/notary. (This must be at least 2 weeks before your closing date.)
Keep in mind that you cannot apply until you’ve been preapproved for a mortgage and have determined that you are eligible for the First Time Home Buyers Incentive. The best way to do this is by reaching out to us at Pineapple! Our knowledgeable mortgage agents pride themselves on their exceptional customer service and expertise in securing their clients the best mortgage for their needs.
Along with helping you secure your ideal mortgage, our expert agents can help you to identify if you qualify for the First Time Home Buyers Incentive and guide you through the application process to help make breaking into the Canadian housing market go from a dream to reality.