For everyone who does not know about this, The government is introducing a new program called the First-Time Home Buyers Incentive (FTHBI), and it is rolling out on Sept 2/2019. This is for First time home buyers only (see qualifications of first time home buyer on website).
How it works is (basically), the government is going to be offering help with the purchase of a home as an interest and payment free loan on new and existing houses. The way it works is if the client puts 5%-14.99% (Maximum total including the incentive is 19.99% down) down, they will match s down payment up to 5% for an existing home or 5%/10% for a new build. The client still must have 5% minimum down payment and must be insured. The extra % will not reduce insured mortgage insurance fees as the Down payment is increased, but it will reduce the amount they pay, as the insurance fee is calculated on the final mortgage number. So if the client only puts 5% down the insurance rate will be at 95% LTV, even though it seems like it should be 10% (5 % from client and 5% from the government).
To qualify for this program the maximum income for the application is $120,000. And the maximum mortgage amount you can get is 4 times the applicants income. This is including the amount the government gives as it is listed as a second mortgage.
Example: Client buys $400,000 new build home and puts 5% down this is what it would look like:
Purchase amount: $400,000
Income: $100,000
Down Payment (5%) $20,000
First time home plan (10%) $40,000
Total Mortgage $340,000
CMHC Fee 4% $13,600
Total Mortgage $353,600
CMHC Fee savings is $1600 (4% of $40,000), plus savings on the payment because of the extra $40000.
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Let’s look at a specific situation (From FTHBI Site)
Anita wants to buy a new home for $400,000 and has saved the minimum required down payment of $20,000 (5% of the purchase price).
Under the First-Time Home Buyer Incentive, Anita can apply to receive $40,000 in a shared equity mortgage (10% of the cost of a new home) through the program.
This lowers the amount Anita needs to borrow and reduces the monthly expenses.
As a result, Anita’s mortgage is $228 less a month or $2,736 a year.
Ten years later, Anita sells the home for $420,000. The Incentive will need to be repaid as a percentage of the home’s current value.
This would result in Anita repaying 10%, or $42,000 at the time of selling the house.To qualify the yearly household pre-tax income must be a maximum $120,000 per year. And they can qualify for a maximum of 4 times that income ($480,000). This is including the incentive as a total.
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The Incentive will be a second mortgage on the title of the property. There will be no regular principal payments, it’s not interest bearing and has a maximum term of 25 years. If the home is sold early the client will have to pay back loan at that time at fair market value. Or at 25 years the loan will also have to be paid back at fair market value (to be assessed by a professional assessor).
The Government of Canada will share in the upside and downside of the property value upon repayment. Barring any unforeseen circumstances the program will launch on September 2, 2019. The first closing will take effect on November 1, 2019.
There are certain other qualifications, so here is the link to the government website to look at, or call/email me with any questions.
https://www.placetocallhome.ca/fthbi/first-time-homebuyer-incentive#journey
Norm Weller 780-909-8709 normweller@dominnionlending.ca