First Time Home Buyer Incentive Program

If a person is buying their first home in Canada, they can take advantage of the first-time home buyer incentive program that is designed to assist them with the purchase of their dream home. There are certain conditions that must be fulfilled to become eligible for the first-time buyer incentive program. The main condition is that the person must be a Canadian citizen, a permanent resident, or a non-permanent resident who is legally allowed to work in Canada.

Furthermore, the combined annual income of the borrower or borrowers must be $150,000 or less. This is a necessary condition that must be satisfied for buyers purchasing homes in the Greater Toronto Area (GTA), the Greater Vancouver Area (GVA), and in Victoria. In the remaining Canadian territories, the amount is $120,000 or less.

In September 2019, the Government of Canada launched an incentive program called First-Time Home Buyer Incentive Program (FTHBI). The aim of this program is to assist first-time home buyers in purchasing a house without adding any additional financial burdens. Moreover, the benefit of this program, for first-time buyers, is that there is no interest, ongoing payments, and no prepayment fees.

In the First-time Home Buyer Incentive Program, the Government of Canada shares the home equity. They offer:

• 5% or 10% for purchasing a new home
• 5% for purchasing a resale home
• 5% for purchasing of a new or resale manufactured home

To become eligible for the FTHBI program, the following criteria must be met:

            1. The qualifying household income must be less than $120,00: Qualifying income includes money that is earned from rental income or investments and is also inclusive of job salary.

            2. Minimum down payment amount must be available: To become eligible, the minimum down payment amount is 5% for the first $500,000 of the home’s price. For any amount greater than $500,000, a 10% down payment is required.

            3. The borrowing amount must be less than 4 times the qualifying income: Since the maximum amount of qualifying income is $120,000, a buyer can borrow a maximum of $480,000, and this is inclusive of the mortgage, mortgage insurance, and FTHBI amount.

Since the Government of Canada will share the equity on the home being purchased by the buyer, the buyer is not charged interest on the loan. However, when it comes to repayment of the incentive, it must be done through the sale of house, or after 25 years – whichever comes first. Furthermore, it is also important to highlight that the repayment amount is based on the dollar amount that is borrowed. As an alternative, the 5% or 10% share that is received through FTHBI, must be repaid in the exact same way as it was received.

The cost calculation is completed using the home’s fair market value at the time of sale, or at the 25-year mark. This is so the government can be included in the gains for an increase in the value of the house or loses if the value of house goes down. Subsequently, if the value of the home increases, the borrower must pay back more and vice versa. However, it is important to note that historically the home values have always been increasing.

Since the average price of homes in Canada are increasing due to economic factors, and the average prices can be much higher in Toronto and Vancouver markets, this makes it essential for first-time buyers to benefit from any tax credits, grants, rebates, and incentives that would assist them in purchasing their first home.