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Thursday, 19 September 2019
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This Old House - Do-it-Yourself

Who Can Use Canada’s First-Time Home Buyer Incentive?

Written by Posted On Thursday, 12 September 2019 11:55

The First-Time Home Buyer Incentive (FTHBI), which took effect on September 2nd, presents a unique opportunity for those looking to get into the housing market in Canada. 

The incentive focuses on helping to the lessen mortgage costs for first-time home buyers by shouldering part of the cost through shared equity loans of 5% for the down payment of a resale home and 5% or 10% for newly built homes. This helps to boost the size of down payments made by buyers, in turn reducing their monthly mortgage costs.

Who Qualifies for the FTHBI?

In order to qualify for the FTHBI, buyers must meet the following criteria:

  • At least one person in the household must be a first-time home buyer. A first-time home buyer is defined as someone who has not owned a home or lived in a home owned by their spouse, over the last four years. There is an exception for buyers who have had a breakdown of a marriage or common-law relationship
  • In order to qualify for an insured mortgage, buyers must have a minimum 5% down payment saved
  • The maximum combined household income of the buyers is $120,000. This limit includes the income of any guarantors co-signing on the mortgage. The limit also includes an income that is generated from tenanting out any part of the home. 
  • The buyers’ Mortgage-to-Income Ratio (MTI) cannot exceed four times their income, including the portion that’s provided by the FTHBIwhich means that the maximum down payment cannot exceed 14.99% for a resale home or 9.99% for a new build.

How Does it Work?

No interest is incurred on the funds provided from the FTHBI and they are registered as a second mortgage. When the first insured mortgage matures at 25 years or at the time the home is sold, whichever occurs first, the second mortgage must be paid back in full. Homeowners may also pay it back early as a lump sum without penalty. 

As it is a shared equity mortgage, the amount required to be paid back also fluctuates over time along with the home’s value. This means that if the home’s value increases, then the loan repayment will also increase by the same per cent. If the home’s value decreases by the time it is sold or the mortgage matures, the loan will decrease by the same per cent. 

Who Does the FTHBI Benefit?

There has been quite a bit of discussion around the FTHBI as mortgage experts highlight the fact that there may be less restrictive MTI criteria for borrowers who explore traditional mortgages and as a result these buyers may qualify for a larger loan. Other experts worry that, depending on the market within which the buyers purchase their homes, they may end up having to make a much larger loan repayment if they live in a market where real estate prices are rising. 

The areas of greatest concern with the incentive are its income and MTI caps which would make it difficult for buyers to purchase in larger, more expensive markets. The criteria, which requires a maximum household income of $120,000 with at least a 5% down payment saved, limits buyers to a resale home purchase price of $505,000. For example, in July, Toronto’s sold prices were $806,755 while Vancouver’s sold prices were $967,314.

Where Can The FTHBI Be Used? 

Analysis from Zoocasa, examining the FTHBI, reveals that the incentive may be effective in most of Canada’s major urban centres; their study of July 2019 average prices in 25 markets shows that average home prices are within the required threshold in 19 cities. The study examined markets within Eastern Canada, Quebec and Prairies as well as smaller urban centres within the Ontario real estate market.

However, the six markets in which the average home buyer would not qualify for the FTHBI include Toronto real estate listings and several other markets within the Golden Horseshoe like Hamilton-Burlington and Kitchener Waterloo. Markets within Greater Vancouver as well as Victoria and Fraser Valley would also not qualify. 

It should be noted that the calculations used for the analysis are based on the average home prices and maximum incomes; home buyers’ ability to qualify for the FTHBI in each city may vary dependent on their income, the size of their down payment and the price of the home they want to purchase. 

Take a look at the infographic above to see where using the FTHBI may be most effective in Canadian cities.

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