Demystifying Canada’s First-Time Home Buyer Incentive

As real estate prices and interest rates are breaking records every month, it seems the down payment required to get such a house gets dragged along for the ride, skyrocketing into numbers that are difficult or impossible to save. This creates a nightmare for first-time homebuyers who want to have their own little place to call home. They cut back and save, only to come to the other end and find that prices have increased yet again, and their dream is just out of reach.

If the high down payment is standing between you and your first home, the First-Time Homebuyers Incentive could provide the boost you need to get into the real estate market. The First Time Home Buyer Incentive (FTHBI) is a shared-equity mortgage aimed at middle-class first-time home buyers, designed to lower their monthly mortgage payments without increasing the amount they need to save for a down payment. Here you’ll find everything you need to know about Canada’s First Time Home Buyer Incentive.

Canada’s First–Time Home Buyer Incentive

1. How does the First Time Home Buyer Incentive work
2. Why is the First Time Home Buyer Incentive important for Canadians?
3. What to consider before getting the First Time Home Buyer Incentive
4. Do I qualify for the First Time Home Buyer Incentive?
5. Will the First Time Home Buyer Incentive really help?

How does the First Time Home Buyer Incentive work?

The First-Time Homebuyers Incentive is a program administered by the Government of Canada that helps first-time homebuyers secure their down payment and give them more equity at the outset of their mortgage.

For buyers who qualify, the government puts up five per cent of the price of a resale home or either five or 10 per cent of the price of a newly constructed home. The incentive is a second mortgage on the title of the property, but no regular principal payments are required. The loan is interest-free, and it can be repaid at any time without incurring penalties.

Why is it important for Canadians?

A recent survey conducted by Leger on behalf of RE/MAX reveals that many Canadians continue to struggle with housing affordability. To help Canadian home buyers get their foot in the door, the federal government has offered an incentive to help carry the weight of those hefty mortgage payments. The incentive took effect in September 2019, with $1.25 billion in funding earmarked for the program over the next three years.

Despite the FTHBI being in effect for a number of years now, confusion continues to swirl. Is it a loan? With no interest or regular payments? And no definitive dollar amount to be repaid?

What to consider before applying for the First–Time Home Buyer Incentive

The FTHBI is a loan based on the fair market value of the property.

1. The loan must be repaid within 25 years of the date borrowed or when the home is sold, whichever comes first.
2. While the loan is interest-free, it’s a “shared equity mortgage,” which means the government shares in any gains on the property value.
3. Alternately, if your property value takes a hit, your repayment amount to the government will be less than the amount borrowed.

For example, let’s say you took the five-per-cent incentive on a home priced at $200,000 (wishful thinking!), which would be $10,000. If you sell your home for $300,000 or its value increased to $300,000 at the 25-year mark, you would have to repay five percent of the current value, or $15,000. On the flip side, if the home’s value decreased to $100,000, you’d only have to repay $5,000.

Once you have been pre-approved for a mortgage, found the home you are looking for, and determined that you are eligible to apply for the First-Time Home Buyer Incentive, then fill out the application forms and submit them to your lender, who will submit the application for you. This must all be done before you close on the house.

Do I qualify for the First-Time Home Buyer Incentive?

The FTHBI is aimed at helping middle-class home buyers who need a boost. Thus, in order to qualify:

• the borrower must be a first-time homebuyer
• the borrower must have a household income of less than $120,000
• the mortgage is capped at four times the maximum household income of $120,000, or $480,000. This means the average price of a home would be $500,000 to $600,000, depending on the down payment.

New qualification rules take effect in Canada’s priciest cities

Recently, new FTHBI eligibility criteria were announced for those buying a home in Canada’s priciest markets of Toronto, Vancouver and Victoria. In these cities, in order to qualify, the first-time homebuyer:

• should have a maximum household income of $150,000 (increased from $120,000)
• can borrow up to 4.5 times their household income (increased from 4 times)

This would increase their buying power to roughly $722,000, up from $505,000. The firmer rules still apply for all other regions in Canada.

If you are still determining whether your home falls in the Toronto, Vancouver, or Victoria metropolitan areas, you can check a Statistical Area Map online to double-check. Confirmation of the location of the property will come from the Program Administrator.

Will the First-Time Home Buyer Incentive really help?

Critics have questioned the value of the FTHBI, arguing that it will do little to help homebuyers in Canada’s priciest housing markets – those people who need the incentive the most. The first iteration of the incentive was originally capped at $480,000. According to the RE/MAX Canadian Housing Market Outlook Report, this is where home prices in these cities sat in 2021 and where they’re expected to go in 2022:

Toronto:
$1,075,636 (2021)
$1,257,257 (2022)

Vancouver:
$1,097,000 (2021)
$1,313,000 (2022)

Victoria:
$885,117 (2021)
$1,017,292 (2022)

Furthermore, media had reported that only one-third of applicants for the incentive were from Canada’s largest cities, and homebuyers don’t seem too keen on the idea of the government having a stake in their home.

RE/MAX’s 2022 Housing Affordability Report revealed that homebuyers were employing some creative measures to assist with their purchase, including co-ownership, multiple families residing in a traditional single-family home, and financial assistance from parents.

In the end, it comes down to personal preference. The First Time Home Buyers Incentive provides a way out for people who are really struggling with securing their first home, but some people may not like the idea of having to owe money to the government. If you are unsure whether the First Time Home Buyers Incentive is right for you, a RE/MAX real estate agent can give you more information and help you make an informed decision.