First-time Home Buyer Incentive
The Canada Mortgage and Housing Corporation (CMHC) announced the first-time home buyer incentive program has been discontinued. If you plan to submit an application (or resubmit), the deadline to do so is March 21, 2024, according to CMHC. This program was introduced in 2019 to lower monthly mortgage payments for first-time home buyers. The goal of the program was to have the government take on partial property ownership while alleviating some of the payment stress on first-time buyers.
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About the First-time Home Buyer Incentive
This program was launched in 2019 by the government of Canada, offering a loan of up to 10% of the purchase price. The loan would be applied to the down payment to decrease monthly payments. The incentive is a shared equity mortgage, where the CMHC becomes a partial owner of your home, while you maintain exclusive access.
The funds are considered a loan and homeowners would need to repay the funds within 25 years or when selling the property. The amount owed would be adjusted to reflect the value of the property. Here is a breakdown of the loan incentive:
- 5 or 10 percent loan on the purchase price of a pre-construction property
- 5 percent loan on the purchase price of a resale property
- 5 percent loan on the purchase price of a resale mobile home or manufactured home
If you bought a home worth $600,000 today and received a 10% loan from CMHC, the down payment contribution would be $60,000. If you were to sell the home and the value increased to $800,000, you would need to pay back 10%, $80,000. In a nutshell, you will pay back the percentage of what you borrowed on the new value of the home when you sell.
Who is Eligible for the First-time Home Buyer Incentive
In order to qualify for the incentive, there are four main requirements. One of the challenges of this program is how difficult it is to qualify. There are a range of restrictions on who is eligible and what type of properties it can be applied against.
One of the weaknesses of the first-time home buyer inventive is the range of restrictions put in place on who can use it, and on what kind of homes it can be used. Here are the four main requirements for qualifying for the first-time home buyer incentive.One of the weaknesses of the first-time home buyer inventive is the range of restrictions put in place on who can use it, and on what kind of homes it can be used. Here are the four main requirements for qualifying for the first-time home buyer incentive.
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First Time Home Buyer
You must be a first-time home buyer which is a given. This refers to someone who has never purchased a home anywhere in the world. This refers to you and your spouse. If one of you has owned before and you are purchasing together, you are not considered a first-time home buyer. This is also defined by an individual not having lived in a home owned by their partner in the past four years.
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Household Income
To qualify, your combined household income needs to be $120,000 or less. If you live in Toronto, Victoria or Vancouver, it can be up to $150,000. The unfortunate part is the average income in Canada is $75,000. There is a strong chance that you and your partners combined income is more than this amount.
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Down Payment
A minimum cash downpayment is necessary. If a property is valued below $500,000, the required downpayment id 5% of the sale price. On a home priced between $500,000 to $1,000,000, the down payment is 5% of the first $500,000 and 10% on the amount over $500,000. The loan amount is not factored into the down payment.
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Borrowing Amount
The maximum amount you are able to receive on this loan is four times your qualifying income. In Toronto, Victoria and Vancouver this amount is up to 4.5 times. Simply put, this means the the most you can borrow while still qualifying for this incentive is $480,000 – $675,000 (only if you earn $120,000 to $150,000 per year). This tends to be the most challenging of incentives especially since the price tags on homes have increased significantly.
The qualifying criteria coupled with the fact that your home would be partially owned by the government posed many challenges for the program. In conclusion, this program the program wasn’t a success and it’s being pulled. March 21, 2024, will be the last day to submit or resubmit your application for the incentive. Whie there doesn’t appear to be any replacement program in the near future, we will keep you up to date on any new programs. If you are a first-time home buyer and would like to chat with one of our Toronto real estate agents, please feel free to reach out!
Sources:
https://www.cbc.ca/news/business/first-time-home-buyers-incentive-discontinued-1.7130966
https://www.ratehub.ca/blog/first-time-home-buyer-incentive/
