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It’s something that many Canadians aspire to: homeownership. But with the prices of homes having skyrocketed in recent years and not enough supply to meet demand, most Canadians feel that their chances of ever owning a home are being dashed.
The First-Time Home Buyer Incentive is one of the government’s answers to the housing crisis. Launched in September, the Canadian Mortgage and Housing Corporation (CMHC) has pledged $1.25 billion towards helping first-time buyers apply for insured mortgages over the next three years.
WHAT IS THE FIRST-TIME HOME BUYER INCENTIVE?
Eligible Canadians — those with a combined income of less than $120,000 — have the opportunity to share a part of the cost of their home purchase with the CMHC. By giving them an interest-free advance of up to five per cent the purchase of an existing home, and up to 10 per cent the cost of a new home, the government believes that the plan will benefit first-time buyers by allowing them to take out a smaller mortgage and keep their monthly payments lower. A home purchased for $450,000 would save homeowners approximately $3,000 a year on mortgage payments.
The CMHC incentive caps at four times the homebuyers’ annual incomes, or up to $480,000. This means that the most expensive home first-time buyers could purchase under the program would be worth between $500,000 and $600,000 depending on the size of the down payment.
WHO QUALIFIES AS A FIRST-TIME HOME BUYER?
A person is considered to be a first-time home buyer if one of the following qualifications are met:
○ The person has never purchased a home before.
○ In the last four years, they did not occupy a home that the homeowner or homeowner’s common-law partner owned.
○ They have gone through a marriage or common-law partnership breakdown (even if or when the other first-time home buyer requirements are met).
HOW DOES THE INCENTIVE WORK?
The First-Time Home Buyer Incentive is a shared equity mortgage (SEM), which means that the government of Canada has a shared investment in the home, and shares in both the appreciation and depreciation of the property value. Homeowners that elect to participate in the program must repay the inventive at the end of a 25-year term or once the property is sold.
WHAT PROPERTIES ARE ELIGIBLE?
Eligible residential properties include new construction, resale homes and new or resale mobile homes. Types of eligible residential properties include single family homes, semi-detached homes, duplexes, triplexes, fourplexes, townhouses and condominium units.
Properties must be located in Canada and must be available for full-time, year-round occupancy.
PROPERTY TYPE x INCENTIVE (OF LENDING VALUE):
New construction = 5% or 10%
Resale home = 5%
New or resale mobile or manufactured home = 5%
HOW DO I KNOW IF I’M ELIGIBLE?
In order to be eligible for the program, you must:
○ Be a Canadian citizen, permanent resident, or non-permanent resident who is legally authorized to work in Canada.
○ At least one borrower must be a first-time home buyer.
○ The first mortgage and incentive amount cannot exceed four times the total qualified annual income.
○ The couple’s total qualified annual income must be $120,000 or less.
HOW CAN I APPLY?
The mortgage application process is unchanged aside from the signed disclosure statement from the borrower. This statement includes Canada’s FTHB Program Attestation, Consent & Privacy form. This will be available online and can be downloaded by the borrower or the lender.
WHAT FORMULAS SHOULD I KNOW?
Use this formula to help calculate the down payment requirement: Homebuyer’s downpayment + incentive — 20% of the property value
Use this formula to determine the maximum purchase price: 4x total qualifying income + down payment = maximum purchase price
Use this formula to determine whether the mortgage to income (MTI) ratio is met: Loan amount + incentive amount / total qualifying income
WHAT IF MY FINANCIAL SITUATION CHANGES PRIOR TO CLOSING ON MY HOME?
In order to qualify for the incentive, the total qualified annual income must be $120,000 or less, and an income verification will be required.
Should income, purchase price, lending value or the closing date change, homeowners will have to resubmit their incentive form. Should the individual homeowner or purchasing couple’s salary increase to over $120,000 prior to close, they will no longer be eligible to receive the incentive.
WHAT RESPONSIBILITIES DO I HAVE WHEN APPLYING?
As a lender, you will be responsible for:
○ Complete proper due diligence of the application.
○ Directing the Solicitor or Notary to contact the Program Administrator to request the Incentive funds.
○ Providing the Solicitor or Notary with the Program Administrator’s contact details.
HOW DO I REPAY THE INCENTIVE?
Homeowners that elect to participate in the program must repay the inventive at the end of a 25-year term or once the property is sold. The repayment amount is based on either 5% or 10% of the fair market value, which is assessed at the time of repayment. An independent third-party appraisal may be required.
ANYTHING ELSE I SHOULD KNOW ABOUT?
○ The incentive is only valid on closings with an 18 month period. Don’t apply for the incentive until closer to your closing date.
○ Pay off the government loan before putting upgrades into your home. If you renovate prior to paying off your loan, the government’s share will appreciate with the property upgrades.
WHERE CAN I LEARN MORE?
Visit placetocallhome.ca for more information about the program.