The federal government is taking steps to make home ownership more affordable for young buyers with their new First-Time Home Buyer Incentive (FTHBI). The incentive involves the government buying equity stakes in homes purchased by qualified home buyers. This allows for smaller mortgages that will, in turn, help to keep monthly payments lower. Of course, these are the broad strokes. We’re going to break down all the key details of the FTHBI so you can see if this new program is right for you!
How the Incentive Works
The Canada Mortgage and Housing Corp. (CMHC) administers the incentive wherein they pay 5% of the purchase price for an existing home, and up to 10% for the value of a new home, in exchange for an equity stake in the property. Once the homeowner sells or 25 years pass, they are obligated to repay the CMHC. It’s also important to note some of the program’s fine print that will affect the purchase:
- To qualify, you must be a first-time home buyer.
- Buyers must have a down payment of at least 5% of the total purchase price, up to 20%.
- The household’s income must be under $120,000, and the mortgage and incentive amount together can’t be more than four times the household income.
- Only insured mortgages will be eligible, meaning this will be restricted to those with a down payment worth less than 20% of the purchase price.
- Buyers will not be exempt from federal “stress test” regulations
Who Is It For?
Purchasers who are looking for a starter home, but aren’t able to afford the monthly payments needed for a mortgage below $500,000, should be looking into the FTHBI. Also, buyers who are thinking about taking part in this program must be willing to give up at least 5% of the value of their home to the federal government in exchange for lower monthly payments.
A couple important side notes:
- Since the household income and total purchase price are capped under the program, buyers with good credit and low debt might actually be able to borrow more money than the FTHBI would allow.
- Consider the future value of your home over time. Is the neighbourhood likely to increase in value? With a 5-10% equity stake in the home, CMHC will be along for the ride. Whether the home depreciates or appreciates in value their share will reflect this change. If your home has appreciated at the time of repayment, the government gets a share of the gain.
Looking at the initiative, the most expensive home a new homebuyer can get would be about $565,000; which likely disqualifies purchases of detached homes or upscale condos in downtown Niagara. For example, the average home price in Niagara (as of June 2019) is $679,343. Potential buyers will want to be comfortable living in the outer suburbs like Thorold and St. Catharines if they want to take advantage of this incentive.
What You Could Get in Niagara
If you’re set on living in downtown Niagara there are still some options available through the FTHBI. Although there are no houses listed in that price range downtown, one-bedroom and studio condos are available (typically 600-1,000 sq feet). However, you will find that condos will have more rooms and additional bathrooms available as you get further away from the city core.
We hope this helped to clear up any questions you had about CMHC’s new First Time Buyer Incentive. Buying your first home can be a bit of a daunting task but, with the incentive available, you’re sure to see many more options open to you. For more information about housing options around the Niagara region be sure to reach out to Marina Homes and check out our blog series!