Affordability: Taking Advantage of the First-Time Home Buyer Incentive

Affordability: Taking Advantage of the First Time Home Buyer Incentive Affordability: Taking Advantage of the First Time Home Buyer Incentive

In a climate where wages are not keeping pace with inflation, never mind home prices, how do Canadians manage to buy a home? If you qualify as a “first-time home buyer”, the government wants to help you get into the market by investing in your home. Relatively few people have taken advantage of this program since its launch so we’re spreading the word about what we like to call “co-buying with the government”. Read on to see how you can take advantage of it.

A young couple embracing in front of their first home.

What is the Canada First-Time Home Buyer Incentive?

Canada’s First-Time Home Buyer Incentive is a federal government program launched in 2019 through which the government will invest an additional 5% (existing home) or 10% (newly constructed) down payment in your home purchase, in order to lower your monthly mortgage payment.

Who is eligible?

You’re considered a first-time home buyer if you fit one of these categories:

  • you have never purchased a home before 
  • you did not occupy a home that you or your current spouse or common-law partner owned in the last 4 years (the 4-year period begins on January 1 of the fourth year before the Incentive is funded and ends 31 days before the date the Incentive is funded) 
  • you have recently experienced the breakdown of a marriage or common-law partnership (even if you don’t meet the other first-time home buyer requirements) 

Additional eligibility requirements include:

  • your total annual qualifying income doesn’t exceed $120,000 ($150,000 if the home you are purchasing is in Toronto, Vancouver, or Victoria)
  • your total borrowing is no more than 4 times your qualifying income (4.5 times if the home you are purchasing is in Toronto, Vancouver or Victoria)
  • you or your partner are a first-time homebuyer 
  • you are a Canadian citizen, permanent resident or non-permanent resident authorized to work in Canada
  • you meet the minimum down payment requirements with traditional funds (savings, withdrawal/collapse of a Registered Retirement Savings Plan (RRSP), or a non-repayable financial gift from a relative/immediate family member)
  • You are pre-approved for a mortgage
A happy young couple shows keys to their first home.

Income and mortgage requirements include:

The program is targeting people whose household income is below $120,000 (or if you are in Toronto or Vancouver, it’s below $150,000). 

The mortgage on the home cannot exceed four times your income (4.5x if you are in Toronto or Vancouver).

Here are some handy examples with different scenarios. The more you read, and the more you understand, the more it makes you wonder, “what am I waiting for?”

You can fiddle with your own calculations here with the mortgage calculator or the “how much can I afford to spend” calculator.

A small tidy home with shrubs.

How it works

Once you have a down payment, the first step is to get pre-approved for a mortgage. Then you choose a home. (Correction, then you call FairSquare Group Realty to help you find your first home and get $2,000 cash back* – Ka-ching!) Then you apply for the First Time Home Buyer Incentive, with at least 2 weeks' notice to the government. (Plan for a longer closing time just to be safe.) 

The government describes the shared equity mortgage as similar to having a second mortgage registered on your home. They “invest” 5% (10% if it’s new construction) down, and then you pay them back after 25 years or when you sell, whichever comes first. When you pay them back, the amount you pay increases or decreases according to the change in value of the home between when you buy and when you sell. Instead of paying interest, the government shares the risk and reward with you in the form of increased (or decreased) equity rather than increased mortgage payments. Fortunately, your federal co-buying partner, aka the Government of Canada, limits their gain/loss to 8% per year (not compounded – whew!). There are some scenarios on the website that cover tricky what-ifs that may happen down the road, like divorce etc. (Can we divorce the government?) 

It’s actually ingenious; a second mortgage that is interest-free and acts like a down payment to lower your monthly mortgage payments. What’s not to like?

Close-up of a new-looking apartment building.

Now what?

As of Spring 2022, only 16,000 of 23,000 applicants had been approved for the program, a lot less than the 100,000 loans that were budgeted for. Popular media suggest home buyers don’t want to co-buy with the government, but home prices - and the fact that most of the successful applicants were in Alberta and Quebec where prices are relatively lower - suggest that for many people who are eligible, housing is still not affordable, even with the government holding a second mortgage. 

So, the trick is to find a property that you can afford. With the real estate market the way it is, the wisdom is to find an affordable – and sustainable - way to buy a home sooner, rather than later. Never mind dream home – think starter home. Unlike relationships, you don’t have to love it, you just have to be able to afford it. The trick is to find a home that you can afford – and live with. 

If you fit the government’s criteria, talk to your FairSquare real estate agent to start the search for a home that fits your criteria. 

Oh, and here is a 7-step guide for first-time home buyers, and a few more incentives to help you make that first home purchase. 

FairSquare Group Realty supports Canadians by providing real estate experiences with incredible rewards: sellers save thousands in commission and buyers receive $2.000 cash back* when they purchase a home with one of our REALTORS®. Call 1-855-999-9740 to learn more. 

*Cash back – How the Home Buying Service cash back works: FairSquare Group Realty will share with the buyer the commission it receives from the seller’s agent up to a maximum of $2,000 in cash back. No cash back if the commission received is lower than $5,000. Where available.

On December 1, 2021, Purplebricks rebranded to FairSquare Group Realty. Blog articles published before this date were created under the Purplebricks brand but remain the property of FairSquare Group Realty.

In January 2019, ComFree Commonsense Network Brokerage rebranded to Purplebricks.