What to Know about the First-Time Home Buyer Incentive?

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What’s a First-Time Home Buyer Incentive?

If you want to get technical, the incentive is a shared equity mortgage. That means the
government of Canada will help you finance part of your first home — without adding to
your financial burden

Basically, the federal government will lend you a certain amount based on the purchase
price of your home subject to the property type. This will help first-time home buyers
reduce their monthly payments, without increasing the amount of their down payment.
Plus, there’s no interest, ongoing payments and no prepayment fees.

With a shared equity mortgage, the government will have a shared investment in the
property. That means you both share the ups and downs of the property value. Still with
us? We’ll talk about this more when we get to repayment.

How does the First-Time Home Buyer Incentive lower my
mortgage payments?

Let’s run the numbers. Say you find your dream home and it costs $200,000. You have
$10,000 saved, which covers a 5% down payment (a minimum requirement for the
incentive). That means you’ll need to take out a mortgage to cover the remaining
$190,000.

For example, say you get a First-Time Home Buyer Incentive for 10% of the purchase
price on a new construction property— that’s $20,000. This will lower the total mortgage
amount to $170,000, which in turn lowers your monthly mortgage payments by
approximately $114 per month, footnote ** (1. Monthly mortgage payment amount is based
on a mortgage qualifying rate of 4.79% and 25 years amortization and 2. The Annual
Percentage Rate (APR) of 3.5% per annum and 25 years Amortization), that’s a saving
of approximately $1,300 per year. Also, with a higher down payment, you could benefit
from a lower mortgage default insurance premium.

Do I qualify for First-Time Home Buyer Incentive?

If you’re buying a home in Canada for the first time, you might be eligible for the
incentive subject to program conditions.

First, you must be a Canadian citizen, a permanent resident, or a non-permanent
resident who’s legally authorized to work in Canada. At least one home buyer must be a
first-time home buyer and the combined qualified annual income of all borrowers must
be $150,000 or less for a property purchased in the Census Metropolitan Greater
Toronto Area (GTAG T A), Greater Vancouver Area (GVAG V A) and Victoria or $120,000
or less for a property purchased in the rest of Canada.

Sounds like you? There are a few other important requirements. One is the down
payment. You have to come up with at least 5% of the down payment from traditional
down payment sources. That could be from your savings, your Registered Retirement
Savings Plan (RRSPR R S P), or a gift from an immediate family member.

One more thing: In order to qualify for the incentive, the total amount of your mortgage
including the incentive is limited to 4.5×4.5 times the qualifying income for a property
purchased in the Census Metropolitan GTAG T A, GVAG V A and Victoria, and 4×4
times the qualifying income for a property purchased in the rest of Canada. For
instance, if your qualifying income is $100,000 a year, then your incentive plus the
mortgage amount cannot be more than $450,000 in the Census Metropolitan GTAG T
A, GVAG V A and Victoria area, or $400,000 in the rest of Canada.
So, let’s recap. Here’s how to qualify for the First-Time Home Buyer Incentive:

You must be a Canadian citizen, permanent resident, or non-permanent resident who’s
legally authorized to work in Canada
• You or someone you’re buying the home with must be a first-time homebuyer
• Your combined annual income of all borrowers is either:
o $150,000 or less for a property purchased in Census Metropolitan GTAG T
A, GVAG V A and Victoria; or
o $120,000 or less for a property purchased in the rest of Canada
• You must have at least 5% down payment from traditional down payment sources
• The amount of your mortgage including the incentive is limited to either:

  • 4.5×4.5 times your combined qualified annual income plus down payment for a property purchased in the Census Metropolitan GTAG T A, GVAG V A and Victoria; or
  • 4×4 times your combined qualified annual income plus down payment for a property purchased in the rest of Canada

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