The new First Time Home Buyer Incentive program from CMHC (Canadian Mortgage and Housing Corporation) was officially released on September 2. This program was met with mixed reactions across the mortgage industry, but we wanted to take a minute to give you the facts regarding the program. Below are the key points you need to know:.
What is it?
The new First-Time Home Buyer Incentive allows eligible first-time home buyers, who have the minimum down payment, to apply to finance a portion of their home purchase through a shared equity mortgage with the Government of Canada. The Incentive is not interest bearing and does not require ongoing repayments.
Through the First-Time Home Buyer Incentive, the Government of Canada will offer:
• 5% for a first-time buyer’s purchase of a re-sale home
• 5% or 10% for a first-time buyer’s purchase of a new construction home
As a shared equity mortgage, the government will then OWN 5-10% of the equity of your home (pending on how much was contributed to the down payment).
How do you know if you qualify?
First, you must be considered a “First Time Home Buyer” however this a has a few versions outside of the standard definition. A first-time buyer is stated as:
• Somone who has never purchased a home before
• Someone who has gone through a breakdown of marriage or common-law
partnership (even if the other first-time home buyer requirements
are not met)
• In the last 4 years you did not occupy a home that was occupied
by the home buyer or their spouse
Second, you must have saved 5% of the purchase price of the property, and this must come from your own resources. Cannot be borrowed, however a gift from immediate family is acceptable.
Third, your maximum gross household income cannot exceed $120,000.
Lastly, the total mortgage amount cannot be more than 4 times your gross household income.
What kind of property can you purchase?
The property must be suitable and available for full-time, year-round occupancy. Eligible residential properties include:
- New construction (5-10% incentive)
- Re-sale home (5% incentive)
- New and resale mobile/manufactured homes (5% incentive)
- Freehold or leasehold land titles
Residential properties can include 1 to 4 units. Types of residential properties include:
• Triplex • Single family homes
• Semi-detached homes • Duplex • Fourplex
• Town houses • Condominium units
How does repayment work?
The first-time home buyer will be required to repay the Incentive amount after 25 years or when the property is sold, whichever comes first. The home buyer can also repay the Incentive in full at any time, without a prepayment penalty.
Repayment is based on the property’s fair market value at the point in time where repayment is required. If you receive the 5% Incentive, you will pay 5% of the home’s current market value. If you received 10%, you will pay 10% of the home’s current market value.
Original Purchase Price: $300,000
Original Incentive Approval: $300,000 x 5% = $15,000
Market Value of Home at Time of Repayment: $350,000
Amount of Repayment: $17,500 ($350,000 x 5%)
The repayment must be in full. Incremental payment plans will not be accepted.
This is a brand-new program and more details are coming out each day. There are other pro’s and con’s to this program that are not listed in this short summary. If you wish to find out whether this program is the right fit for you, just contact us and we’ll be happy to assist. Remember, we work for you not the banks.