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At this point, it goes without saying that owning your own home is a big deal. We all know it. That being said, what some of us might not know is that the Canadian government definitely knows it, too - and it shows.
If you qualify for a mortgage, the government wants to make it even easier for you to make that choice and buy your first home. In a bid to make home ownership more affordable, the first-time home buyer incentive offers 5% or 10% of the percentage of the purchase price for newly constructed homes, 5% to purchase a resold existing home, or 5% for a new or resold mobile or manufactured home. When you add this amount in addition to your own money for a bigger down payment, this will lower your monthly mortgage, making home ownership much more affordable.
Think of it this way: Let’s say a client wants to buy a new home for $400,000. They have $20,000 saved up so far, which is enough for the minimum down payment of 5% If they’re eligible for the First-Time Home Buyer Incentive, they can actually receive up to $40,000 in a shared equity mortgage through the program. This accounts for 10% of the total cost, and in turn reduces the monthly mortgage payments by around $260 a month or $3120 a year.
As the name suggests, this applies only to the first home you would buy. Whether it’s a brand new house, a pre-owned house, or a mobile house, these are all eligible for the incentive.
If you are a Canadian citizen, a permanent or non-permanent resident, and your annual qualifying income doesn’t exceed $120,000 (or $150,000 if the home is in Toronto, Vancouver, or Victoria), there’s a good chance that this incentive is just what you need to get yourself on the road to homeownership.
There are of course a lot of finer details we don’t have to get into, but what matters most is this: for qualified people who might be on the fence about buying a house, the incentive is there to make the decision much easier.
What’s the Cost?
The first-time home buyer incentive is a shared-equity mortgage with the Canadian government. So while it’s free in the sense that there are no upfront costs, you are required to pay back the government an equivalent % when you sell the home down the line, or after 25 years - whichever comes first.
Furthermore, the fact that it’s a shared-equity mortgage means that the government shares in the upside or downside of the property value, up to 8% either way. Let’s go back to our $400,000 property example. If your property goes up by up to 8% by the time you have to pay back the government for the incentive, the amount you owe will go from $40,000 to $43,200, since you were lent 10% of what is now $432,000. The converse of this is true, as you will pay less if your property value decreases.
This usually works to your advantage because any amount beyond 8% is yours to keep. So if you sold your $400,000 home after it appreciated by 10% at $440,000, you’re going to pay back only $43,200 and keep the remaining $8,000 as profit. Canada really wants you to get to buying your first home, and they’re doing everything within their power to help you get there.
How Do I Qualify for this Incentive?
Here are some of the requirements:
- 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 should not exceed the threshold of $120,000 (or $150,000 in Toronto, Vancouver, or Victoria)
- You must have at least 5% down payment from traditional down payment sources
- The amount of your mortgage including the incentive is limited to 4 times your combined annual income plus down payment (or 4.5 times in Toronto, Vancouver, or Victoria)
If all of these apply to you, then applying for this incentive is pretty simple. All you really need to do is to fill out these two forms: the FTHBI-SEM Information Package, and the SEM Attestation and Consent Form. Once completed, your lender will submit them on your behalf.
Once it’s approved, all you have to do is activate your incentive at least two weeks before your closing date. You’re all set!
If I Rent-to-Own with Requity Homes, Can I Still Apply to this Program?
Great news: if you rent to own, you can still take advantage of this incentive once you are about to buy back the home you are renting to own! Just remember that you must still go through the same process of qualifying and applying for the incentive upon near- completion of your Requity Homes rent-to-own program.
Requity's role is to purchase the house for you so that you can already live in the house and rent it, while enjoying the full benefits of the first-time homebuyer incentive upon the completion of the program.
A two-year or even three-year rent-to-own program under Requity Homes slots in perfectly with the government’s assistance, and gives you the ability to choose the house of your dreams without having to worry about anyone else buying it in the years between choosing it and having to buy it.
With the first-time homebuyer incentive and Requity’s rent-to-own program, any qualified person now has the one-two punch they need to eventually own the house of their dreams.
