With the high cost of real estate here in the Lower Mainland, it’s harder than ever for first time buyers to afford their first home.
Banks and mortgage lenders require home buyers to put a minimum of 5% of the purchase price as a down payment on the home if the home is $500,000 or less. For homes more than $500,000 the required down payment is 5% on the first $500,000 and 10% on the remaining.
So, on a $500,000 purchase that amounts to $25,000 that is needed as a down payment.
On a $600,000 home, that is $35,000.
That’s a lot of money to save, especially when one considers rent and living expenses, on top of saving for their first home.
There are a variety of programs to help home buyers purchase their first home; and the new federal program just announced is very encouraging.
When first time buyers first meet us, their biggest concern is trying to save for their down payment, and a worry that if they wait too long, they may get priced out of the market or miss out on the perfect home.
Through the new First-Time Home Buyer Incentive (FTHBI) program recently announced, up to $1.25 billion in government funds will be used over three years to help first-time home buyers with their down payment. This incentive will see the federal government matching or doubling their minimum down payment on a mortgage, which could reduce their monthly payments by up to $286, without any additional fees or interest.
Now that’s good news for buyers currently trying to get into the real estate market.
Home buyers need to have a minimum down payment (5% to 9.99%) for a CMHC, Genworth or Canada Guaranty-insured mortgage.
The home must cost less than 4x their maximum qualified household income of up to $120,000 (that’s a home valued at up to $480,000)
The incentive works as follows:
- 5% or 10% down payment on new construction
- 5% on an existing home
- 5% on new or resale mobile/manufactured home
- The home must be located in Canada and must be used for full-time, year round occupancy.
- The mortgage must be eligible for loan insurance and greater than 80% of the property’s fair market value
- The FBTHI is listed as a second mortgage on the title of the property.
How Can A Home Buyer Obtain Their Portion of the Down Payment?
The down payment can come from a variety of sources including:
- Non-repayment financial gift from a relative
*Note - Unsecured personal loans or lines of credit used to satisfy minimum down payment requirements are not eligible for the FTHBI.
What Are the Qualifications to Be Considered for the Program?
- Must be a Canadian citizen, permanent resident or non-permanent resident who is legally authorized to work in Canada
- Qualifying household income cannot exceed $120,000
- Must meet Canada Revenue Agency’s definition of first-time home buyer which means matching one or more of the following:
○ Has never purchased a home before
○ Have gone through a breakdown of marriage or common-law partnership (even if they don’t meet other first-time home buyer definition)
○ In the last four years, they did not occupy a home that they or their current spouse or common-law partner has owned
Do You Have to Pay the Government Back? And How?
Yes. This program is being created to help first-time buyers get into the market sooner; however, it does need to be paid back within 25 years of a home purchase or when the home is sold. There will be no interest adopted.
Paying It Back When the Property is Sold
The FTHBI has an equity-like payout. The government would share in the market gain or loss of the property value. In other words, if the home appreciates when it is sold, the amount payable to the government is the 5% or 10% incentive they initially received, based on the home’s fair market value. If the value of the home decreases when the property is sold, the same 5% or 10% is calculated on the home’s reduced value.
Paying it Back Early
Some homeowners may wish to pay back the amount early; especially if they are anticipated a big increase in value or are undertaking substantial renovations designed to increase the value of the home. The funds can be repaid at any time without a pre-payment penalty.
When Does the Program Take Effect?
Applications open on September 2 for closings starting on November 1.
This is exciting news for those first-time home buyers who are currently saving for their first home purchase. Here at Sutton West Coast Realty, Natasha Taylor always enjoys working with first time buyers.
A first home is likely the biggest purchase made to-date and can be stressful. Having good, experienced representation is key to ensuring the process is smooth.
Natasha Taylor looks forward to helping first-time home buyers understand this new incentive and to help ensure they are taking advantage of all programs that can help them purchase their first home.
It is interesting to note that the Federal Government did make note that the cap price of a home qualifying under this program ($480,000) makes it almost impossible for buyers to purchase a single-family home in Vancouver or Toronto’s real estate market.
There are still a variety of real estate options for our first time home buyers that would qualify.
If this program is of interest to you, please do get in touch and we can work together to find you the right home.