Whether it’s a bird species or a human species, the primary focus roams around making a safe nest in which families can prosper. Though for us humans, the process involves much more than gathering branches and leaves; for us the same parameter is finance. Having enough financial support is essential while buying a house. And to aid in this, the Canadian Government is doing its share through the program called “First Time Home Buyer Incentive”.
We will get into the program soon, for now, let’s talk about the factor that is crucial to consider for buying your first home.
Down Payment is the Big Pie
The single most expensive part of buying your first house is the down payment. The down payment is the upfront amount you pay to buy a home. In Canada, there are certain criteria to pay the down payment. They are stated below.
Price of the House
The Minimum Down Payment Required
|$500,000 or less||5% of the purchase price|
|$500,000 to $999,999||5% of the first $500,000 of the purchase price|
10% for the portion of the purchase price above $500,000
|$1 million or more||20% of the purchase price|
Also, if your down payment exceeds the limit of 20 percent, you are not eligible for mortgage loan insurance. Not everyone has enough savings to pay the down payment so high, and that’s where the first time home buyer incentive comes into play.
What is a First Time Home Buyer Incentive?
The first-time home buyer incentive is a program started by Canada’s government to help first-time home buyers in having their first home and later in getting lower monthly mortgage EMIs. It is a shared equity mortgage program, which is simply classified as the government sharing any kind of upside or downside risk for the house.
Under this program, you can borrow 5 or 10 percent of the purchasing price of the house. It is a kind of the second mortgage on the house, but it does not require any principal amount. The best thing about this program is that you don’t have to pay any interest on the borrowed amount.
As per your house type, you get a different percent of incentive.
For New Constructions – 5 percent of 10 percent
For Existing House – 5 percent
New and existing mobile/manufactured home – 5 percent
But yes, you will have to return the same amount of money on the current value of your house within 25 years or when you sell the house; whichever happens first. Also, your first mortgage value has to be more than 80 percent of the purchasing price of the house you are planning to buy. It needs to be qualified only through Sagen, Canada Guaranty, or CMHC.
Let me simplify this for you further.
For example, you bought a house under a first-time home buyer incentive and the purchasing price of your house is $400,000. You got $20,000 as the borrowed money at a 5 percent rate.
Now, if the rate of the house increases to $450,000, it would also increase the amount you need to pay back. The amount would be $22,500. Your payback amount would reduce to $17,500 if the house value would reduce to $350,000 at the time of repayment.
Eligibility for the First Time Home Buyer Program
The first and foremost eligibility to qualify is to be a first-time homebuyer. You can call yourself a first-time home purchaser by the following conditions.
- If you haven’t bought any home in the past.
- You haven’t occupied a house on your own or through your spouse or common-law partner in the past four years.
- If you have broken up a marriage or common-law partnership with whom you have said to own the house.
Further eligibility criteria are stated below.
- The sum of your annual qualifying income should not be more than $120,000.
- You or your spouse, or common in-law partner needs to be the first-time homebuyer.
- Your total borrowing amount should not be more than 4 times your total qualifying income.
- You need to be a citizen of Canada and need to be a permanent or non-permanent resident authorized to work in Canada.
- You have to fulfill the minimum amount of down payment with traditional funding like your savings, a withdrawal from Registered Retirement Savings Plan (RRSP), or by a non-repayable financial gift given to you by your immediate family members or your relatives.
Also, the residential property (having 1 to 4 units) definition includes the following.
- Single-family Houses
- Semi-detached Houses
- Town Houses
- Mobile Houses
- Condominium Units
How to Apply for the First Time Home Buyer Incentive?
Follow the stated steps to apply for the first-time homebuyer incentive quickly and easily.
- When you get your mortgage loan pre-approved on your dream house, you become qualified to apply for the incentive program.
- You have to fill FTHBI – SEM Information Package and SEM Attestation and Consent Form.
- After this, you have to provide these forms to your lender and he/she would submit the application form for you.
- Once it’s done, submit the final signed copy of government shared equity to your solicitor for retaining it on your behalf.
- After getting the acceptance, you have to dial FNF Canada on 1-(855) 844-4535, for activating your incentive program and providing your notary’s or lawyer’s name.
- You have to do all these two weeks before closing the deal on your house.
Are There Any Other Charges Involved?
You need to be aware of the following charges linked with the first-time homebuyer incentive program.
Appraisal Charges: You need to schedule an appraisal check on your house to find the fair market value of it in order to repay the borrowed amount.
Legal Charges: As this program acts as the second mortgage, it would mean that you have two mortgage legalities to deal with, for which your lawyer may charge you more.
Property Insurance Premiums: If there is any additional mortgage loan linked with your property, you may have to pay more premiums. You should contact your insurance provider for the same.
Others: If you make any changes to your mortgage like changing or transferring it to a new lender or refinance your mortgage, it can attract costs.
How to Repay the First Time Home Buyer Incentive?
You have to pay the incentive amount in full within 25 years or when you sell your house. There is no interest charge for this period, but if you do not repay it within the stipulated time, it can create tax penalties.
There are scenarios where you might have to repay the incentive based on the changes that place.
- If you part ways with your spouse or common law-partner with whom you co-borrow the space, you have to pay back the borrowed money in full if there arises a need to ensure additional funding.
- Once you port your mortgage, you may have to pay the borrowing amount in full.
- In case you sell your property partially, this would be considered as a sale and that will require you to repay the incentive.
- If the usage of property changes, it will trigger the full payment.
Upcoming Change in the Incentive Program
There are changes going to take place in the first-time homebuyer incentive like, now the home buyers in Toronto, Vancouver and Victoria can buy a house having 4.5 times of their qualified income from earlier 4 times.
Also, the minimum qualified income threshold has been exceeded to $150,000 from $120,000. And last but not the least, for the minimum down payment, $722,000 is the maximum price of a house you can buy in the above-stated three home-buying markets. The new changes are said to be implied from Spring 2021.