Have you ever heard of an FHA loan? Perhaps while looking through various mortgage options, this term has come up. This article will explain everything you need to know about FHA loans. Furthermore, you’ll learn about similar incentives offered in Canada. Below, we highlight the Canadian equivalent to an FHA loan. Lastly, we go over some key points to help you decide whether it’s right for you.
An FHA loan stands for the Federal Housing Administration loan. As the name suggests, this is a federally backed mortgage. They offer this loan to low-to-moderate income earners in the United States of America.
There are a few key benefits to this loan. The first being a lower minimum down payment. Those who qualify can still get mortgage approval. The second benefit is a lower credit score. This is great news for those who may not have the best credit score. Many conventional loans will require an average credit score of 620. However, with an FHA loan, the score is 500. Compared to a conventional loan, an FHA loan offers a down payment assistance program.
FHA Loan Equivalent In Canada
With that said, what is the equivalent of the FHA loan in Canada? Luckily, there are options available to those who qualify.
First-Time Home Buyer Incentive
Similar to the FHA loan, the First-Time Home Buyer Incentive is tied to the Government of Canada. By that, we mean the Government of Canada has a shared investment. You may wonder how or why that would be the case. Let’s take a further look at the incentive.
Above all, the borrower must be a first-time homebuyer. In addition, they must be a Canadian citizen. Permanent residents and those who can work in Canada also qualify.
Next, they must have a household income of less than $120,000. $150,000 if the home you are purchasing is in Toronto, Vancouver, or Victoria
Lastly, your borrowing has a maximum. It cannot exceed four times your household income. Therefore, it would be $480,000 in Alberta. That means the average price of the home would be between $500,000 and $600,000. However, this also depends on the down payment.
Before we move onto the benefits, here’s another important note. Qualification changes depending on where you’re buying. Toronto, Vancouver, and Victoria have the most expensive housing markets in Canada. Therefore, the government has increased the maximum household income to $150,000. You can also borrow up to four and a half times your income instead. This qualification change makes it easier for more Canadians to buy a home.
First-Time Home Buyer Incentive Benefits
There are three major benefits to this incentive. Because it’s a shared-equity mortgage, the Government of Canada offers five or ten percent for a newly constructed home. Second, the incentive offers five percent for a resale home. Lastly, there is a five percent for first-time buyers of a resale mobile home.
So, what does this mean? As mentioned earlier, the Government of Canada shares the investment in the home. That means first-time buyers may not have to save as much. This makes it more affordable for those who may not have enough savings for a down payment. Further, it can help lessen future mortgage payments.
Is It Right For Me?
Another factor to consider is repayment. You would therefore pay the incentive amount of either five or ten percent. They base payments on the property’s fair market value during that time. You must repay the incentive after 25 years or when you sell the property.
During this time, you may repay the incentive in full without a pre-payment penalty. This can be convenient if your financial situation changes. You find yourself with extra money and want to put it towards your payment. You can repay without worrying about additional charges.
Don’t worry if you don’t qualify for the First-Time Home Buyer Incentive. There are other incentives to consider. They offer these incentives on both a local and national level. Buying a home is one of life’s biggest purchases. Taking advantage of an incentive can lessen financial strain.
Talk To A Mortgage Broker
We hope this article gives clarity to what an FHA loan is and the Canadian equivalent. When it comes to a mortgage, there are many hurdles to overcome. Terminology and the fine print can make it difficult to understand what’s best for you. Further, each incentive has a different list of qualifications. Working with a mortgage broker can help ease the pressure.
To put it simply, mortgage brokers bring borrowers and lenders together. Based on your financial situation, they can find you the best interest rates. Mortgage brokers can provide more options because they work closely with lenders. Some of these could be ones you otherwise won’t have access to. Need a second opinion, advice, or guidance? Your broker will work with you to make sure you find a real financial solution.