Buying a home for the first time is so exciting but with the housing market today, it can be a costly endeavour.

It's important to prepare yourself financially before making such a large commitment. The average price of a home in Canada is $716,000, according to the Canadian Real Estate Association. That's up more than 8% from last year. That means everything pertaining to the purchase will cost more like the down payment, closing costs and ultimately, the mortgage payments. Even for a young couple with good, stable employment, the budget may be stretched more than it was even a few years ago. The average income has certainly not caught up to the rate of inflation and with everything from housing to groceries nearly doubling in cost, it’s difficult to make ends meet.

The Government of Canada has recognized this trend and to assist people in the purchase of their first home has implemented the First-Time Home Buyer Incentive program to help make home ownership more affordable. The incentive aims to make homeownership more accessible for first-time buyers and encourage developers to build homes to ensure that housing stock can meet the increased demand that the incentive will create. 

To help you navigate this process, we've put together this guide for first-time homebuyers that covers all the basics of buying real estate in Ontario and utilizing the First-Time Home Buyer Incentive Program.

First-Time Home Buyer Incentive Program

The First-Time Home Buyer Incentive makes it easier for you to buy a home and lower your monthly mortgage payments. This program is a shared equity instrument. It works by getting an extra 5% or 10% of the down payment of your home and then repaying the Government either 5% or 10% of the property’s market value at the time of repayment, up to a maximum repayment amount equal to. In the case of appreciation, the Incentive amount plus a maximum gain to the Government of 8% per annum (not compounded) on the Incentive amount from the date of advance to the time of repayment. In the case of a depreciation, the Incentive amount minus a maximum loss to the Government of 8% per annum (not compounded) on the Incentive amount from the date of advance to the time of repayment.

This addition to your down payment lowers your mortgage carrying costs, making homeownership more affordable.

If you live or want to purchase a home in a metropolitan area, the costs are much higher. To help balance the increase, first-time homebuyers purchasing a home in the Toronto, Vancouver, or Victoria metropolitan areas are now eligible for an increased qualifying annual income of $150,000 instead of $120,000, and an increased total borrowing amount of 4.5 instead of 4.0 times their qualifying income.

The Incentive is like a second mortgage on your home. Your first mortgage must be greater than 80% of the value of the property and is subject to a mortgage loan insurance premium. It also must be eligible through Canada Guaranty, CMHC or Sagen.

The insurance premium is based on the loan-to-value ratio of the first mortgage only. That is, the first mortgage amount divided by the purchase price. You don’t pay mortgage insurance on the incentive – it is included with the total down payment.

Eligibility Requirements

To determine your eligibility for the First-Time Home Buyer Incentive Program, the following criteria must be met.

  • You must be a Canadian citizen, permanent resident or non-permanent resident authorized to work in Canada.
  • Your total annual qualifying income doesn’t exceed $120,000 ($150,000 if the home you are purchasing is in Toronto, Vancouver, or Victoria).
  • Your total borrowing is no more than 4 times your qualifying income (4.5 times if the home you are purchasing is in Toronto, Vancouver, or Victoria).
  • You meet the minimum down payment requirements with traditional funds (savings, withdrawal/collapse of a Registered Retirement Savings Plan (RRSP), or a non-repayable financial gift from a relative/immediate family member).
  • You or your partner are a first-time homebuyer.

You’re considered a first-time homebuyer if:

  • You have never purchased a home before.
  • You did not occupy a home that you or your current spouse or common-law partner owned in the last 4 years (the 4-year period begins on January 1 of the fourth year before the Incentive is funded and ends 31 days before the date the Incentive is funded)
  • You have recently experienced the breakdown of a marriage or common-law partnership (even if you don’t meet the other first-time home buyer requirements)
  • Lastly, your property must be located in Canada and must be suitable and available for full-time, year-round occupancy. Your home is for you to live in and can’t be used as an investment property.

How to Apply

Before Applying for the First-Time Home Buyer Incentive Program, there are a few things to consider and that the Incentive may be associated with and may affect the amount of money that will be spent and/or saved for.

  • Additional legal fees: Your lawyer is closing 2 mortgages so you may be charged higher fees.
  • Appraisal fees: To repay your incentive, you may need to have an appraisal done to determine the fair market value of your home.
  • Other fees: Additional fees may be incurred throughout the life cycle of the incentive, like switching your first mortgage to a new lender or refinancing your first mortgage.
  • Property Insurance premiums: Additional costs may be incurred to account for an additional mortgage registered on the property. Talk to your insurance broker or insurance provider to find out more details.

Applying for the First Time Home Buyer Incentive Program is a fairly easy process. Once you are sure you have met all the eligibility requirements and you have a budget in mind, the next steps would be to get pre-approved for a mortgage and find the home you’d like to purchase. Download and fill out these forms; FTHBI - SEM Information Package (PDF) , SEM Attestation and Consent Form (PDF) . Give the signed forms to your lender and they will submit them for you. Two weeks prior to your closing date, give the final signed copy of the shared equity mortgage package to your lawyer to retain on your behalf. Once you’ve received your acceptance, you’ll activate your incentive through a toll-free number. And that’s it!

Buying a home in Ontario just got a little easier. McGarr Realty can make it even easier! If you are considering the purchase of your first home, and need a seasoned professional that knows the ins and outs of Real Estate in Ontario, give us a call today!

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