Canada’s new first-time homebuyer incentive aims to make it easier for new buyers to step into the real estate market.
If you’re thinking of buying your first home, listen up. This month, a new first-time homebuyer incentive program opened its doors to help Canadians who want to buy homes do just that. With recent inflation in housing markets around the country, the dream of homeownership became out of reach for many millennials.
Homeownership allows people to build equity in their own investment by paying a mortgage rather than paying rent to a landlord to help them pay off further real estate investments. But with the average price of homes in some of Canada’s biggest cities reaching over $800,000—a far cry from where the market was even five years ago—first-time homebuyers are struggling to meet the minimum requirements for a down payment and the debt service ratio required to be approved for a mortgage.
The new first-time homebuyer incentive aims to help people buying their first home by providing up to 10% of the purchase price of the home.
How does it work?
If you’re buying a resale home, the government will offer 5% of the purchase price and if you are buying a newly constructed home, you can apply for either 5% or 10% of the purchase price to be funded by the new incentive.
However, there’s a catch—the money isn’t free.
Funding is provided as what is called a shared equity mortgage. This means that the government owns a portion of your home and when the time comes to sell, you have to pay back 5% of the sale price of the home.
So, if you buy a home for $400,000 and are given $20,000 towards the purchase price of your new home, when you decide to sell if the property has appreciated and sells for $500,000, you have to repay $25,000 (5% of the total value of the home at the time of sale).
To qualify, you have to meet specific criteria:
1. You have to be a first-time homebuyer, have gone through a divorce or breakdown of a common-law partnership, or haven’t occupied a home that you or your current spouse or common-law partner owned
2. You must earn less than $120,000 annually as your borrowing power is limited to four times your qualifying income
3. Your down payment must be under 20% so that the mortgage is insured through either the Canada Guaranty Mortgage Insurance Corporation, Genworth Canada, or the Canada Mortgage and Housing Corporation
4. Your down payment must be at least 5% if the home is valued under $500,000 and 10% if the home is over $500,000
The new first-time homebuyer incentive aims to make housing more affordable for the next generation of homeowners stepping into real estate markets that are unrealistic for first-time buyers. This incentive will provide an opportunity to reduce mortgage costs and make it easier to obtain a mortgage by reducing the debt service ratio of taking on a bigger loan through your financial institution or private mortgage lender.
It is important to speak with your mortgage broker, real estate agent, or financial representative to find out which incentives and programs are best for your needs and situation.