The 5 W’s of the New First-Time Home Buyer Incentive
With the 2019 Federal Election quickly approaching, all political parties are addressing housing affordability, especially for first-time buyers. Part of the discussion is the First-Time Home Buyer Incentive that recently took effect under the Trudeau Administration.
Here’s what you need to know about the First-Time Home Buyer Incentive:
Who? The First-Time Home Buyer Incentive is for first-time home buyers who need financial help breaking into the real estate market. The buyer must have an annual household income of less than $120,000 (before tax and deductions) and meet one of these requirements:
- Have never purchased a home before
- Have recently experienced a breakdown of a marriage or common-law partnership
- Have not occupied a home that themselves or their current spouse/common-law partner have owned in the last 4 years
The Government of Canada’s Eligibility and Savings Calculator1 can help you determine if you’re eligible and how much you can save.
What? The First-Time Home Buyer Incentive is a shared equity mortgage offered by the Government of Canada through the Canadian Mortgage and Housing Corporation. It applies to first-time home buyers who are interested in purchasing resale homes, new construction homes, or mobile homes (new or resale). Any of these homes can include up to 4 units.
These first-time buyers can receive 5% or 10% toward their home value. For resale homes and mobile homes, the Government is offering a 5% Incentive towards the buyer’s purchase and 5% or 10% for new construction purchases. This amount provided by the government to the buyer is referred to as the Incentive.
The Incentive must be paid back within 25 years or when the property is sold, whichever happens first. There is no penalty to paying back the incentive early.
Shared equity means the government shares in the upside and downside of the property value. If your property has increased in value from the time you purchased it, you are required to pay the Government the percentage on the current value. Example: Your initial purchase price was $500,000 and you received a 5% Incentive of $25,000. Years later your home is worth $600,000. You now owe the Government 5% on the new value, which is $30,000.
On the flip side, if your property goes down in value, you are responsible for repaying the percentage on the current value. Example: Your initial purchase price was $500,000 and you received a 5% incentive of $25,000. Years later your home is worth $400,000. You now owe the Government 5% on the new value, which is $20,000.
Regarding down payment requirements, a minimum down payment of 5% is required on the first $500,000 of the lending value and 10% on the lending value of over $500,000. Any properties with 3-4 units must provide a minimum down payment of 10%. Down payments can only come from a traditional source, which includes savings, withdrawal or collapse of a RRSP, and financial gift from a relative (non-repayable).
For more details about the First-Time Home Buyer Incentive, visit the Government of Canada website2.
When? The Incentive came into effect on September 2, 2019. The Liberal government has pledged to expand the program if re-elected in the 2019 Federal Election. Other parties are also looking at how to increase housing affordability in Canada.
Where? The incentive is available to all Canadians. However, with the mortgage loan amount being capped at four times the household income of $120,000, the price of the home would likely be capped at under $600,000, depending on the amount of down payment provided by the buyer. For first-time home buyers living in Canada’s largest, most expensive cities, this incentive may be out of reach until the Government expands the program.
Why? For young Canadians, it can be challenging to enter the real estate market. Depending on the location, rental markets are competitive, or housing prices are high compared to income levels. The intention of the First-Time Home Buyer Incentive is to ease the financial strain for buyers in an affordable way.
With this Incentive being in its infancy, it is hard to tell at this time what impact this program will have on helping young Canadians buy their first home. Some have praised the program, while others have their doubts. Considering the political campaigns for the upcoming election are targeting first-time buyers, the issue of home affordability is a hot topic in Canada.
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