Are you looking to purchase your first home? The First-Time Home Buyer Incentive was designed to help Canadians just like you. Let’s have a look at how the program works along with its eligibility requirements.
Basics Of The Program
Canada’s First-Time Home Buyer Incentive is a loan-giving program aimed at lowering mortgage carrying costs and how much first-time buyers will need for their down payments. The program began in late 2019 and started with over one billion dollars set aside at the time. While the program has changed over the years, it continues to help everyone looking to purchase their first home.
The loan granted by the program is for a certain percentage of a home’s purchase price, either 5% in most cases or 10% when buying select newly built homes. The loans are interest-free but must be repaid in full within 25 years or while selling the property, with a penalty for paying outside of those parameters. Some situations, such as partner separation, will cause the repayment to be required earlier.
If approved, the loan becomes a Shared-Equity Mortgage with the Canadian government, meaning that the amount you pay back will likely be different than what you received initially. The government gains or loses money on their loan depending on the changing fair market property value of your home, to a limit of 8% per annum non-compounded, from grant date until repayment. Simply stated, if the property value in your area goes up, you pay back more than what you got from the loan. If the property value goes down, you pay back less. You may be required to pay for an appraisal to learn the fair market value of the home.
Buyer And Property Qualifications
For starters, the program is only for qualified homes. The property being purchased must be located in Canada and this can include newly built or existing homes, resales or a manufactured/mobile home. One to four residential units are allowed, such as duplexes or townhouses. Investment properties are not allowed.
The home buyer must make less than $120,000 per year. For partners buying a home, this means $120,000 per year combined. You must also be a Canadian citizen and a resident legally authorized to work in Canada.
The amount that you borrow for the purchase of your first home cannot go above four times your annual income. So with an annual income of $100,000, you could not borrow more than $400,000 to buy the home, which includes the program’s loan.
Also, your down payment on the home, including the program’s loan, must be less than 20% of the total purchase price.
Finally, as the program’s name suggests, the buyers must be purchasing their first home. This certainly includes anyone who hasn’t purchased a home before, but some buyers may qualify due to a recent divorce, separation or common-law breakup.
How To Apply For The Program
Start by checking out the program’s informational website at A Place to Call Home for more help and to ensure that you have the latest information. You can also check your eligibility there, then get the necessary documents to print and sign.
The documents should include both the “FTHBI – Shared Equity Mortgage Information Package” as well as the “SEM Attestation and Consent Form.” Once signed, these documents go to a mortgage broker or lender who submits them for you. The final copies should be kept by your solicitor.
If the application is accepted, you will next call FNF Canada to officially get the loan and tell them who is overseeing the deal. The deal must be closed at least two weeks before closing the home purchase so all documents can be sent and the loan approved.
The loan you get from the program becomes a second mortgage on the property. Any first mortgage on the property must be for 80% or more of the property’s value, be subject to a mortgage loan insurance premium, and must be eligible through certain programs.
