By Cristina Jisa, Point2Homes
Canada’s new First-Time Home Buyer Incentive (FTHBI) program is now up and running, created to assist first-time homebuyers in purchasing property.
First-time homebuyers – millennials, in particular – will benefit from the program through reduced monthly mortgage payments that won’t increase the required down payment for a home.
The program is part of the federal government’s plan to encourage homeownership and reduce steeply increased home prices across the country. It works as a sort of shared equity between homeowners and the federal government through mortgage insurance providers, such as Canada Guaranty, the CMHC (Canada Mortgage and Housing Corporation) or Genworth.
The FTHBI program could save families as much as $286 per month – or more than $3,430 per year – if they were to purchase a $500,000 home with a $25,000 down payment, for example. The amount saved for each qualifying family is dependent upon where the home is purchased and what type of home it is.
Applications for the program are being accepted now through November 1, 2019.
Who Qualifies for the Program?
As many as 100,000 Canadian families are expected to benefit from the $1.25-billion, three-year program. However, there are a few requirements for first-time homebuyers to qualify for the program:
- First-time homebuyers can receive up to 5% of the cost of an existing home, or up to 10% of the cost of a new home, as long as they have a household income of less than $120,000.
- Buyers will be required to pay back the incentive within 25 years or whenever they sell the home, whichever comes first.
- The government will share in the profits if the property is sold for more than its original purchase price; but, it will also share in the losses if the property decreases in value and is sold for less than its original purchase price.
What Types of Property Can Be Purchased?
The type of property that first-time homebuyers can purchase through the program depends upon the market in which they’re looking. For example, those wanting to purchase property in Vancouver or real estate in Toronto likely won’t qualify for the program.
That’s because the mortgage of a property purchased through the program can’t be more than four times the maximum household income of $120,000, or $480,000. In Toronto and Vancouver – where competition is tough and home prices are steep – it can be harder to find an affordable house.
In July 2019, for example, the average home price in Toronto was $982,427, while in Vancouver it was $826,165. In comparison, the average price of a home purchased through this program will need to be between $500,000 and $600,000, depending on the size of the down payment.
What Are Some Other Things to Consider?
First-time homebuyers interested in using existing RRSP (Registered Retirement Savings Plan) funds toward the purchase of a home should note that the federal government has increased the RRSP withdrawal amount from $25,000 to $35,000.
Another option is the Shared Equity Mortgage Providers Fund (SEMP), a $100-million, five-year program that is meant to make homeownership more affordable for Canadians. The program, which launched on July 31, 2019, will assist in increasing housing supply, attracting new shared equity mortgage providers, and providing two possible funding opportunities to eligible applicants.
What is the Application Process?
First-time homebuyers will need to complete and sign the application forms and give the completed documents to their mortgage lender, who will submit the documents on the homebuyers’ behalf. The application will be processed and, if accepted, the homebuyer must contact the FTHBI at 1-833-974-0963 to provide the name and contact information for their lawyer or notary.
With the rollout of this new program, Canadians will have an opportunity to purchase their first home with some additional assistance. This will help ease the costs involved and allow more residents to enjoy the benefits of homeownership.