First-Time Home Buyer Incentive

First Time Home Buyer Incentive

The Program for First-Time Home Buyers was introduced during the federal budget in March 2019, but some of the key details about how the program would work, were left out.  The Federal government has now outlined these details and the program will be launched September 2, 2019.

Under this Program, the government would help some first-time buyers by advancing an interest-free loan of up to 5% of the purchase price of an existing home, and up to 10% of the cost of a new home.  This would allow the homebuyer to take out a smaller mortgage and keep their monthly payments lower.

There are a number of shortcomings to the program.  The Buyers must have a household income below $120,000 a year.  The amount of the insured mortgage plus the CMHC incentive would be capped at 4 times the homebuyer’s annual incomes, or up to $480,000.  This means the most expensive home you can hope to buy under the plan, would be worth somewhere between $500,000 and $600,000, depending on the size of your down payment.

Buyers must repay the incentive after 25 years or if the property is sold, and they can repay it at any time without any penalty, but when the client repays the loan, it will be based on the property’s fair market value.  If a homebuyer received 5% Incentive, he would repay 5% of the home’s value at repayment.

So let’s have a closer look at some of the details:

Who can apply? 

  • Canadian citizens, permanent residents and non-permanent residents who are legally authorized to work in Canada.
  • Borrowers must have a maximum qualifying annual income of $120,000 or less.
    • Total qualifying income cannot exceed $120,000 per year
    • This is subject to qualifying income requirements set out by lenders and mortgage loan insurers
  • At least one borrower must be a first-time homebuyer, according to the definition described here.

Do you qualify as a First-time homebuyer?

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.
  • IMPORTANT:  With the 4-year clause, it is possible that you or your spouse or common-law partner qualifies for the first-time homebuyer incentive (if you are in a married or common-law relationship).  Even if you or your spouse or common-law partner has previously owned a home in the last 4 years.

How does this 4-year period work?

  • The 4-year period begins on January 01 of the fourth year, before the year you purchased your home.  It ends 31 days before the date you purchase your new home.  Some Examples:
    • If you purchased a home on March 31,2015, the 4-year period begins on January 01,2015 and ends on February 28,2019.
    • If you sold your home you lived in, in 2013, you may be able to participate in 2018, or if you sold the home in 2014, you may be able to participate in 2019.

What are the down payment requirements?

  • Minimum down payment is 5% of the first $500,000 of the lending value.  It is 10% of the lending value above $500,000 from traditional down payment sources.
  • Traditional down payment comes from the borrower’s own resources and may include:
    • Savings
    • Withdrawal/collapse of a registered RRSP
    • Non-repayable financial gift from a relative
    • NOTE: Unsecured personal loans or unsecured LOC used to satisfy minimum down payment requirements will NOT be eligible for the program.

What properties are eligible?

The incentive is to help first-time homebuyers purchase their first home.  Eligible properties include:

  • 1 – 4-unit residential properties which includes
    • New construction
    • Re-sale home
    • New and re-sale mobile/manufactured homes
  • The property must be located in Canada and must be suitable and available for full-time, year-round occupancy.  For more information click this link  

If you are a First-time Homebuyer, don’t delay, contact Steve or Nathan for expert advice.

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