What is the First Time Home Buyer Incentive?
For homebuyers looking to break into the Calgary housing market, the stress test and other changes have made it a challenge. That is in part why the federal government put the First Time Home Buyers Incentive in place. Participants of the program, which kicked off on September 2, will see the funds released as early as November to get them into a home.
The government has invested $1.2 billion into the Incentive, which they hope will run for three years. However, it will close once all of the funds have been allocated.
How Does The Incentive Work?
The loan sharing program contributes 5 to 10% of the home purchase price to qualified applicants. The contribution will lower the overall net price of the mortgage, resulting in lower monthly payments for the buyer. The plan administrators think this will lower payments by $100-$300 a month. The savings makes owning a home much more affordable and means that buyers can qualify for a higher amount.
The Incentive covers three property types: new construction, existing homes, and new or resale mobile homes. With new construction, the government will contribute 5 to 10%. For existing homes and mobile/manufactured homes, the government will contribute 5%. Buyers are not allowed to purchase the house to rent it out. It must be their primary residence.
First Time Home Buyer Incentive qualifications include:
- You have not purchased a house previously
- You must have the minimum down payment
- The purchase must be in Canada
- It must be your primary residence and not a vacation home
- In the last four year’s you did not reside in a house owned by you, your spouse or common-law partner
- You are a Canadian citizen, a legal permanent or non-permanent resident authorized to work in Canada
- Your household income cannot be over $120,000
Additionally, people who are separating from their spouse or common-law partner would also qualify, even if they do not meet the other incentive requirements.
How Can I Apply?
Applying is relatively easy. There is an online application that can be filled out. However, the first practical step is to assemble a real estate team. You’ll need to apply for a mortgage pre-approval to see what you qualify for. Then, with the help of a real estate agent, it’s time to shop for a home. Once you find a home you’re ready to make an offer on, then it is recommended you fill in the application forms. As mentioned above, you will still need to come up with a minimum of 5% for the down payment.
At The Mortgage Group, we can assist you with the pre-approval process and filling out the paperwork. Our mortgage brokers in Calgary will help you submit the firms to the government administrator. They will then contact us – or whomever you have help submit the forms – when you are accepted. From here, your real estate lawyer will likely become involved as everything is arranged to close the agreement with the government. They will submit all of the documents, and ensure that the government’s contributions are paid to the mortgage upon confirmation of title transfer and possession date.
Is The First Time Home Buyer Incentive Right For Me?
The money the government is giving is not a grant or free; it is a home equity loan. It is a second mortgage on your property, though it has no regular principal payments, nor is it interest bearing.
The loan over a 25-year duration and you can repay it at any time. If homeowners don’t pay it off before 25 years, or they sell the home, the government takes a cut of 5 to 10% of the fair market value price of the home. The percentage is based on how much they put in initially. If it was 5%, then they will only expect 5% in return. The Incentive cannot be ported onto a new property. If you decide to port the mortgage and move into a new home, you will have to pay off the Incentive.
Any increases to the value of your home are shared with the government at final payout or sale. If housing values go down, the government also takes a loss in the final sale. There can be joint mortgagees, but all parties are then responsible for the loan. There are also ways to refinance the loan without triggering a need to repay the government’s money early.
While the cap may not be enough to put you in your forever home, this can be a great way to get into a starter family home. The Incentive is not ideal for everyone. If you have any questions and want to learn more, give us a call. We would be happy to look through the options with you and help you find the perfect mortgage product.