Dear First Time Home Buyer,
Saving up a down payment can be one of the biggest challenges keeping you from achieving your goal of home ownership – but we have good news! There is a new program recently introduced by the Government of Canada, First Time Home Buyer Incentive Program (link to official website), or FTHBI, that will assist you and others looking to buy their first home!
What is the First Time Home Buyer Incentive Program?
First Time Home Buyer Incentive Program (link to official website) is a Government of Canada plan intended to help first time buyers purchase a home, by making it more affordable by reducing their monthly mortgage payment without increasing their down payment.
The FTHBI is a Shared Equity Mortgage where the Government of Canada has a shared interest in the borrower’s property value. This program is available through the default insurers; CMHC, Genworth and Canada Guaranty.
Borrowers will receive an incentive in the form of an interest-free loan towards the down payment:
- 5% for the purchase of a resale property OR
- 5 or 10% for the purchase of a new construction home
In addition to the interest free down payment loan, the Government of Canada has also increased the eligible RRSP withdrawal amount from $25,000 to a maximum to $35,000 (link to Home Buyers’ Plan Website).
How do you know if you qualify for this program?
To be eligible for this program, the borrower must be:
- A Canadian Citizen, Permanent Resident or Non-Permanent Resident who is legally authorized to work in Canada
- At least one borrower must be considered a First Time Home Buyer based on the qualifying criteria
- Property must be owner occupied and located in Canada
- Borrowers must contribute the minimum required down payment from traditional sources
- Default insurance premiums will be calculated based on the purchase price less the borrower’s own down payment and the FTHBI amount
To apply for this program the borrower will have to complete the following requirements:
- Signed privacy agreement
- Credit application
- Signed copy of the FTHBI Program Attestation, Consent and Privacy Notice at the time of application, available on FTHBI website
- Application must be submitted on or after September 2, 2019
- Closing date must be on or after November 1, 2019
- Only High Ratio mortgages (greater than 80% Loan-to-Value) are eligible
- Borrower’s annual qualifying household income does not exceed $120,000
For the repayment of the loan (amount borrowed from the FTHBI) the following conditions will apply:
- Based on fair market value to be determined at the time of repayment
- Required when the property is sold or at the end of the 25-year term, whichever happens earlier
- Voluntary repayment of the full incentive can be made without any prepayment penalties
- The loan has no monthly payment!
There are a few additional conditions a borrow must meet in order to be eligible for this program:
- The combined mortgage loan amount and incentive borrowed amount cannot exceed four times the total annual qualifying income. To verify this, colleagues can use the Government of Canada’s online calculator tool.
What does this mean for you?
|Buying New Build Home WITHOUT Incentive
(Check out our Free Mortgage Calculator)
|Buying New Build Home WITH First Time Home Buyer Incentive Program
(Link to Government of Canada – FTHBI Calculator)
|Purchase Price||$400,000||Purchase Price||$400,000|
|Buyers 5% down payment||$20,000||Buyers 5% down payment||$20,000|
|Mortgage Insurance premium of 4%||$15,200||Mortgage Insurance premium of 2.8%||$9,520|
|Additional 10% as shared equity||$40,000|
|You would require a Mortgage of||$395,200||You would require a Mortgage of||$349,520|
|Your Monthly payment will be||$1,788||Your Monthly payment will be||$1,634|
The Bottom Line:
If you are eligible for the program you will have the opportunity to lower your monthly mortgage payments. From the example above this would be a savings of $154 per monthly mortgage payment.
In addition to reducing your monthly mortgage payments the FTHBI will help in reducing your Mortgage Insurance Premiums. In the example above this would be a savings of $5,689!
Qualify for a higher purchase price!
Opportunity to be a homeowner sooner!
* This example is for illustrative purposes only. Buyer will need to repay the incentive at 10% of the fair market value when they sell the property or after 25 years, whichever comes first. Monthly payments are based on 2.89% Interest and 25 year amortization.
How do I learn more about this program?
A great source for more information about this program is The Government of Canada – National Housing Strategy website.
Also available on the The Government of Canada – National Housing Strategy website is a fantastic calculator to help you with a quick overview of your potential savings and if you quailfy for the program!
If you’re considering using the FTHBI program, one of our preferred lenders (click for more information) will be happy to assist you and discuss your options. Please contact them for more details.
The First Time Home Buyer Incentive program is a great way to get your foot in the door of home ownership. Getting the down payment you need for your first home may not be as challenging after all!