First Time Home Buyer’s Incentive With Mortgages By Erin
If you’re struggling to obtain your first mortgage, you’re in luck because the government’s First-Time Home Buyer Incentive (FTHBI), is now at your disposal. The FTHBI is a shared equity program introduced by the government of Canada and is available to first time home buyers. The program was officially launched on September 2, 2019, by the CMHC (Canadian Mortgage and Housing Corporation), and is meant to help younger buyers afford a new house with lower mortgage payments.
However, as the program is fairly new, many have mixed feelings about it. To help you decide for yourself if this program is an ideal match for your needs, Mortgages By Erin wants to take the time to explain the facts about FTHBI.
What does FTHBI offer?
Under the First-Time Home Buyer Incentive program, eligible first-time homebuyers can apply for a 5% or 10% shared equity mortgage with the Government of Canada. By enlisting for the shared equity mortgage, buyers are allowed to increase their down payment. This is expected to reduce their monthly mortgage payments.
Another advantage of this incentive is that borrowers are not charged interest, and there are no ongoing payments associated with it — also, the government shares in both the potential upside and downside of your property value.
Through the FTHBI program, the government will offer:
a. 5% for a first-time buyer’s purchase of a resale home
b. 5% or 10% for a first-time buyer’s purchase of a new construction
Before you decide to apply for this program, it’s essential to understand that with this program, the government will then own about 5% to 10% of the equity of the property purchased (depending on how much was contributed to the down payment). At the same time, besides being a first-time home buyer, a borrower must meet specific eligibility criteria.
Eligibility for the FTHBI program
To be eligible for the First Time Home Buyer Incentive, you must be a first-time home buyer. Next, you need to possess a minimum down payment of 5% from the standard down payment sources (i.e., your own resources). The Federal Government will not give you 5% to put towards or cover the entire down payment. They will simply top it up.
Another requirement to qualify for this program is that you need to maintain a household income that does not exceed $120,000. Finally, the total amount you are allowed to borrow will be limited to four times the qualifying income.
There are also a few restrictions on the type of property you can purchase under this program. The eligible properties include:
a. New constructions (5-10% incentive)
b. Resale homes (5% incentive)
c. New and resale mobile or manufactured homes (5% incentive)
Residential properties include single-family homes, semi-detached homes, duplexes, triplex, fourplex, townhouses, and condominium units. The property being financed by the FTHBI program must be located in Canada, and it must be suitable and available for full-time or year-round occupancy.
The repayment process
The repayment of this mortgage depends on the current market value of the house. That is, either after twenty-five years or at the time of selling or refinancing the property. That means you can repay the incentive in full at any time from your own resources without any prepayment penalty. Or, you can repay the incentive after twenty-five years, or if the property is sold or refinanced – whichever occurs first.
Besides this, you need to know that the repayment of the incentive is based on the property’s fair market value.
a. If you are given a 5% incentive of the home’s purchase price of $200,000 or $10,000, and if your home value increases to $300,000, your payback would be 5% of the current value or $15,000.
b. If you are given a 10% incentive of the home’s purchase price of $200,000 or $20,000, and if your home value decreases to $150,000, your payback amount would be 10% of the current value or $15,000.
For more information about the First Time Home Buyer Incentive program, please reach out to Mortgages By Erin by calling us at (647) 885-6940. The FTHBI program is brand new, and as more information becomes available, we ensure that we are aware of it to understand the implication of the program and help you better.
As an experienced mortgage broker in Toronto, ON, Erin also helps her clients with other mortgage products. She and her team have successfully helped hundreds of people realize their homeownership dreams and successfully manage their mortgages. We are passionate about helping our clients and are happy to offer them tailored solutions. We take the time to understand your needs and ensure they are met with the perfect solutions.
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