First-Time Home Buyer Incentive: What You Need to Know

In today's real estate market, where housing prices continue to climb and interest rates remain unpredictable, homeownership can feel like an impossible dream for many. First-time buyers, in particular, face financial hurdles when trying to secure an affordable mortgage. To ease this burden, the Canadian government introduced the First-Time Home Buyer Incentive (FTHBI) in 2019, a program designed to assist eligible buyers with their down payments and make homeownership more accessible.

How the First-Time Home Buyer Incentive Works

The First-Time Home Buyer Incentive allows applicants to borrow 5% or 10% of a home’s purchase price, reducing their monthly mortgage payments. Essentially, the Canadian government becomes a co-owner of the property. For instance, if you’re purchasing a $300,000 home and have saved $15,000 for a down payment, you’d typically require a $285,000 mortgage. However, with the FTHBI, you could receive an additional 10% ($30,000) to boost your down payment, lowering your mortgage to $255,000.

The percentage of support varies depending on the type of home:

10% for newly built homes
5% for resale homes
5% for new or used manufactured/mobile homes

The loan is interest-free but must be repaid within 25 years or when the home is sold, whichever comes first.

Eligibility Criteria for the FTHBI

To qualify for the First-Time Home Buyer Incentive, applicants must meet certain eligibility criteria. The program is available only to first-time buyers, defined as individuals who:

Have never owned a home before
Have not lived in a home owned by them or their partner in the past four years
Are going through a divorce or separation

Additionally, household income must be $120,000 or less (or up to $150,000 in high-cost areas like Toronto, Vancouver, and Victoria). The mortgage loan amount cannot exceed four times the household income, capping at $480,000 in most areas and $675,000 in select metro regions.

Understanding the Shared Equity Mortgage

One crucial aspect of the FTHBI is its shared equity mortgage structure. This means that the government shares in both the potential gains and losses of the home’s value. If the property appreciates, buyers will repay a percentage of the increased value. Conversely, if the home loses value, they owe less. To make the program more appealing, the Canada Mortgage and Housing Corporation (CMHC) implemented an 8% cap on appreciation and depreciation as of June 2022.

Key Considerations Before Applying

While the First-Time Home Buyer Incentive can significantly reduce upfront costs and monthly mortgage payments, potential buyers should weigh the long-term impact carefully. The program comes with considerations such as additional legal fees, appraisal costs, and refinancing expenses due to the shared equity arrangement. Additionally, homeowners may need to hold off on major renovations until the loan is repaid, as any improvements could increase the home’s value and subsequently, the repayment amount.

Should You Apply for the First-Time Home Buyer Incentive?

If you’re still unsure whether the First-Time Home Buyer Incentive is the right choice, consulting with a real estate expert can help you navigate the decision-making process. Homeownership is a major milestone, and having a professional guide you through the available options can ensure you make the most informed choice.

Are you ready to take the first step toward buying your dream home? Reach out today to explore the best financing solutions tailored to your needs!

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