For first-time homebuyers who can’t afford a large down payment and meet the criteria, the First-time Home Buyers Incentive (FTHBI) is available from the Government of Canada.
This incentive is a really useful way to help you get into the housing market and there’s some important changes coming this year to know about.
What is the first-time home buyers incentive?
The first-time home buyers incentive is a shared-equity mortgage with the Government of Canada. The offer terms depend on the type of property you’re buying:
- If buying an existing home, the government will offer 5% of the purchase price to put towards a down payment.
- If you’re buying a newly constructed home, the incentive can increase to 10%.
The incentive allows you to borrow a percentage of the purchase price which in turn, reduces your monthly mortgage repayments. The government incentive is like a second mortgage and needs to be repaid. The incentive is payable either when the home is sold, or after 25 years.
An example of how the FTHBI works:
Note that these are example scenarios. Your specific situation may differ.
Jacob is a first time home buyer and has found a new property to buy for $400,000. He receives the FTHBI of 10% (or $40,000). Jacob doesn’t need to borrow as much money so his mortgage repayment is $228 less per month.
After 5 years, Jacob sells the property. The value of the property is now $420,000 meaning that he pays back $42,000 to the government for the incentive.
For more calculations of how FTHBI works in different situations, the Government of Canada’s National Housing Strategy website contains useful examples.
Who is eligible for the first time home buyer incentive?
There is a range of qualifying criteria which include:
- That you have never purchased a home before,
- You are a Canadian citizen, permanent resident or non-permanent resident who is authorized to work in Canada,
- You must be buying the home for you to live in,
- Your annual income doesn’t exceed $120,000.
In recent news, the government has announced the income threshold will be increasing in spring 2021 to $150,000. Further changes to FTHBI are discussed below.
To check if you’re currently eligible and to use the calculator, check the National Housing Strategy website.
Changes coming this year to help even more first time buyers
In December 2020, changes were announced to the FTHBI which are expected to come into effect this spring.
- The income threshold is being increased to $150,000.
- The home price is also increasing to 4.5 times household income. This will increase the maximum home price to around $722,000 which may be helpful to some first time buyers in expensive cities like Vancouver, Toronto and Calgary.
What are the next steps?
Are you considering buying your first home? We recommend booking a consultation with us to discuss your home purchase and how we can help.
We’ve compiled a list of questions to ask your real estate lawyer if you’re shopping around. You may also find our blog post on lawyer’s fees when buying a home useful to know what you’re paying for.
Happy house hunting!