Everything you need to know about Canada's new First-Time Home Buyer Incentive

Aug 28 2019, 11:10 am

The new federal First-Time Home Buyer Incentive (FTHBI) will officially come into effect as of September 2 this year.

Designed to alleviate mortgage costs for first-time home buyers, the FTHBI will provide shared equity loans of 5% toward the down payment of a resale home, and 5% or 10% for newly-built homes.

The idea is that by boosting the size of buyers’ down payments, the FTHBI whittles down
monthly mortgage costs, offering some relief on the costs of home ownership.

But for potential homebuyers in places like Vancouver and Toronto, it will likely do little to help on the home-purchase front, as these markets are outside the qualification criteria.

So where and who does the the FTHBI apply to? How exactly does it work, and who exactly benefits?

Thanks to Zoocasa, a full breakdown of what to expect is now available:

Who Can Use the FTHBI?

To qualify for the FTHBI, home buyers must satisfy the following:

  • At least one person in the household must be a first-time home buyer, meaning they have not owned a home, or dwelled in a home owned by their spouse, over the last four years. (An exception is made for buyers who’ve had a breakdown of marriage or common-law relationship.)
  • Buyers must have a minimum 5% down payment saved in order to qualify for an insured mortgage.
  • Buyers’ combined household income cannot exceed $120,000. This includes the income of any guarantors co-signing on the mortgage, as well as any rental income generated if part of the home is tenanted out.
  • The buyers’ Mortgage-to-Income Ratio (MTI) cannot exceed 4x their income, including the portion that’s provided by the FTHBI. This means the maximum down payment for a resale home cannot exceed 14.99%, and 9.99% for a new build.

How Does the FTHBI Work?

The funds provided via the FTHBI are registered as a second mortgage, and don’t incur interest.

This second mortgage must be paid back in full when the first insured mortgage matures at 25 years or when the home is sold, whichever comes first, though homeowners may pay it back as a lump sum early without penalty.

Because it is a shared equity mortgage, the amount to be paid back will fluctuate along with the value of the home over time: if the home’s assessed value rises, the loan repayment will increase by the same percent. However, the same will occur if the home has lost value by the time it is sold or the mortgage matures.

Who Will Benefit from the FTHBI?

Since its big reveal in the March 2019 budget, the FTHBI has been the subject of debate; some mortgage experts point out that borrowers taking out a traditional mortgage would actually qualify for a larger loan based on more generous MTI criteria, while others argue that home buyers could be on the hook for a much larger loan repayment if they live in a particularly hot market where real estate prices are rising.

The largest points of contention are the FTHBI’s income and MTI caps; based on the criteria, a household earning the maximum income of $120,000 and making a 5% down payment would be limited to a resale home purchase price of $505,000 – an amount too low to have much traction in larger markets.

However, new analysis from Zoocasa reveals that the FTHBI could be used in 19 of 25 major urban markets in Canada; a study of July 2019 average prices in 25 markets across the nation found home buyers with the maximum income of $120,000 and a 5% down payment could feasibly qualify for the FTHBI in 19 cities.

These include markets in Eastern Canada, Quebec, and Prairies, as well as smaller urban centres in Ontario.

Still tough in Toronto and Vancouver

Not surprisingly, the six markets where the average home buyer would not qualify for the FTHBI include homes for sale in Toronto and several markets in its proximity in the Greater Golden Horseshoe such as Hamilton-Burlington and Kitchener-Waterloo, as well as in Greater Vancouver and neighbouring Victoria and Fraser Valley.

Zoocasa

However, it’s important to note that the study’s calculations are based on average home prices and maximum incomes; home buyers’ ability to use the FTHBI in each city may range based on their income, size of their down payment, and the price of their desired home.