Buying your first home in Canada can be exciting but expensive if you are a middle-class citizen. High real estate prices, high cost of living, and inflation make buying a home feel intimidating and less achievable.
If you are pinching your pennies to become a first-time home buyer, the government-administered program, First Time Home Buyer Incentive, can increase your down payment by a certain percentage and provide the boost you need to get your first home.
To help first-time home buyers with the cost of buying a home, the Canadian government offers a shared-equity mortgage designed to lower their monthly mortgage payments without increasing their down payment.
The Canadian government launched the incentive program to make buying a home more accessible and affordable to Canadians by financing part of their home payment.
This article covers all you need to know about the First Time Home Buyer Incentive, how it works, its benefits and downsides, eligibility criteria, and how to apply for the First Time Home Buyer Incentive.
Without much ado, let’s get into it.
What is First Time Home Buyer Incentive?
The First Time Home Buyer Incentive, also called the FTHBI, is an incentive program administered by the Government of Canada through the Canada Mortgage and Housing Corporation (CMHC).
The program offers eligible home buyers in Canada an interest-free loan of 5% or 10% of their home’s purchase price.
Launched in 2019, the program offers first-time home buyers a shared-equity mortgage with the Canadian government.
The government provides loans to the individuals, and in return, the government shares in the gains or losses of the property value.
The First Time Home Buyer Incentive allows first-time home buyers to enjoy substantial savings by reducing their monthly mortgage payments.
How Does the First Time Home Buyer Incentive Work?
Canadians who qualify for the First Time Home Buyer Incentive receive 5% or 10% of the price of a home from the government.
No regular principal payments are required, and the incentive is the second mortgage on the property title.
The loan is interest-free, with no ongoing payments and no prepayment fees. The government only has a shared investment in the property through the shared equity mortgage.
The First Time Home Buyer Incentive is not a grant but a loan, and you will need to pay it back either when you sell your home or in 25 years.
Let’s take a look at how this program works with the example.
For example, suppose you find your dream home, a newly built home, and it costs $450,000. In that case, you will need a 5% down payment of $22,500 and a mortgage of $427,500.
With the First Time Home Buyer Incentive, you can get an interest-free loan of $45,000 (10% of $450,000) from the government.
Your mortgage will now be $382,500 (subtracting $45,000 from $427,500), reducing your monthly mortgage payment.
Do I Qualify For First Time Home Buyer Incentive?
The First Time Home Buyer Incentive is aimed at middle-class home buyers who might need a boost in acquiring their first home.
To qualify for the First Time Home Buyer Incentive, you must meet a few criteria to determine your eligibility.
- You must be a first-time home buyer
- You must be a citizen of Canada, a permanent resident, or a temporary resident with a work permit in Canada
- You are buying a home in Canada, and you will live in it all year round
- You must have a combined family annual income of less than $120,000 ($150,000 for Toronto, Vancouver, and Victoria)
- You have at least 5% of the property’s value for a down payment.
- Your mortgage is a maximum of 4 times your qualifying income (4.5 times for Toronto, Vancouver, and Victoria)
- The mortgage must be greater than 80% of the property’s value i.e your down payment must be less than 20%.
Does My House Qualify for First Time Home Buyer Incentive?
Both newly constructed and resale residential homes are eligible for First Time Home Buyer Incentive. The home can include up to four units.
Other eligible homes include:
- Single-family homes
- Duplex, triplex, and fourplex
- Mobile/manufactured home
- Semi-detached homes
- Condominium units
- Townhouses
The property you plan to buy must be in Canada, suitable, and available for owner-occupied, full-time, and all-year occupancy. The home cannot be used as an investment property but only for residing.
How Do I Apply For First Time Home Buyer Incentive
When you have been pre-approved for a mortgage, found your dream home, and determined that you are eligible for the First Time Home Buyer Incentive, you can apply.
To apply, fill out these two application forms and give them to your lender when completed.
FTHBI – SEM Information Package (PDF)
SEM Attestation and Consent Form (PDF)
Your lender will submit the application for you. You can give the final signed copy to your solicitor to retain on your behalf.
When your application is accepted, and you receive your acceptance, Call FNF Canada to activate your incentive and provide your lawyer’s name.
You can call FNF Canada at 1-(855) 844-4535 at least two weeks prior to your closing date.
How Much Money Can I Get as a First-Time Home Buyer?
There is no fixed amount of money you can receive. The amount you get from the First Time Home Buyer Incentive programs depends on several factors.
Depending on the type of property you are purchasing, you will receive either 5% or 10% of your home purchase price. Your percentage depends on what kind of home you want to buy.
Type of property | Percentage of Incentive |
Newly constructed home | 5% or 10% |
Re-sale (existing) home | 5% |
Mobile/manufactured home (new and re-sale) | 5% |
When Do I Pay It Back?
Since the First Time Home Buyer Incentive is not a grant but a loan, you will need to pay it back. You will pay back the First Time Home Buyer Incentive in full after 25 years or whenever you sell your home, whichever comes first.
However, as an added advantage, you can pay back your First Time Home Buyer Incentive anytime you want without worrying about a prepayment penalty.
If you hit a big chunk of change, like an inheritance, lottery winnings, or a raise, you can pay your incentive in total if you want. Just know that any change in the value of your home will impact the amount you will have to pay back.
Knowing that you will be paying back your incentive to CMHC, not your mortgage lender, is essential.
How Much Do I Pay Back?
When you repay your loan, you will pay back the same percentage you borrowed, not the same amount.
Unlike traditional loans from financial institutions, where you borrow money, and you have to pay back the same amount, plus any interest the money has accrued over time.
With the First Time Home Buyer Incentive, you will only pay back the original percentage (either 5% or 10%) of the fair market value of your home up to a certain maximum.
For example, if you receive 10% for a home you purchased for $400,000, the government gives you a loan of $40,000.
Now that you want to sell your home after 25 years, if the appraised value has gone up to $700,000, you will pay back 10% of the new market value of your home ($700,000) = $70,000
However, if the value of the home has increased astronomically to say $2,000,000, then your loan repayment will be calculated differently such that we first calculate the allowable maximum gain which is calculated at an 8% annual interest rate as follows:
the original incentive loan + an additional maximum gain which is the 25 years accumulated simple interest on the incentive at an 8% annual rate i.e $40,000 + ((40,000*8*25)/100) = $40,000 + $80000 = $120,000.
The allowable maximum is $120,000, therefore, you will pay $120,000 back instead of $200,000 (i.e 10% of $2,000,000)
The same rule applies when the fair market value of your home decreases. For example, if the appraised value after 25 years goes down to $200,000, you will repay $20,000 (10% of $200,000) instead of the $40,000 you borrowed.
However, let’s say just after 2 years of taking the loan, you sell the house, and the fair market value of your home is 200,000 then instead of paying back $20,000, you would pay back the allowable maximum loss: $40,000 – ((40,000*8*2)/100) = $40,000 – $6,400 = $33,600.
In all, if your home goes up in value, you will pay more than you received from the government, and if your home value goes down, you will pay less.
Benefits of First Time Home Buyer Incentive
Interest-free borrowing: The First Time Home Buyer Incentive lends you money at a 0% interest rate. The loan doesn’t add any pressure on your monthly finances.
Flexibility: You can pay the loan in full any time, even before the 25-year window elapses. This allows you to exit the program before the value of your house appreciates.
Actually buying a home: The First Time Home Buyer Incentive gets you into your dream home quicker than any other program by lowering the cost of your mortgage.
Downsides of First Time Home Buyer Incentive
The big payback: The shared-equity feature of the First Time Home Buyer Incentive makes you pay back far more than you originally borrowed from the government.
Appraisal costs: if you want to sell your house while you are still in the program, you will need to pay a professional appraisal to determine the current market value of your home.
Alternatives to First Time Home Buyer Incentive
While the First Time Home Buyer Incentive is unique in its structure, other programs are available for first-time home buyers looking for a boost.
There are other grants and assistance programs designed with first-time home buyers and their needs in mind, especially if you want to buy your first home in Canada’s most expensive real estate markets- Ontario and British Columbia.
The First Time Home Buyer Incentive program is one of many other programs for first-time home buyers. Others include the RRSP home buyer plan, the First Time Homebuyer Tax Credit, and the GST New Housing Rebate.
Also, the Canada Greener Home grants program is available for homeowners who want to make their homes energy efficient.
While these programs may not help you qualify for a mortgage, they would help reduce the overall cost of home ownership.
Final Thoughts on First Time Home Buyer Incentive
If you are eligible for the First Time Home Buyer Incentive, buying your first home might be more accessible and affordable than you imagined.
The First Time Home Buyer Incentive is designed to lower your mortgage payment without increasing your down payment.
While the incentive program is interest-free, remember that the amount you will pay back will fluctuate with your home’s market value, and you might have to pay more than you originally borrowed.
FAQs on First Time Home Buyer Incentive
What is the minimum down payment for a first-time home buyer in Ontario?
The minimum down payment for a first-time home buyer in Ontario and across Canada is 5%.
How much money should I save before buying a house in Canada?
Before buying a home in Canada, save at least 5% for your down payment and around 3% of your home’s purchase price to cover closing costs, property appraisal fees, notary fees, title insurance, and more.
How does the first-time home buyer incentive program work in Canada?
The First-Time Home Buyer Incentive helps Canadians to purchase their first home. The incentive program offers 5 or 10% of the purchase price of their dream home to put toward a down payment. This money added to their down payment lowers the mortgage carrying costs, making homeownership more affordable for many Canadians.
Who qualifies for first-time home buyer Canada?
To qualify, you have to be a citizen of Canada, a permanent resident, or a temporary resident with a work permit in Canada. You must earn less than $120,000 and have the minimum qualifying down payment.
What is the first-time home buyer incentive in Ontario?
The First-Time Home Buyer Incentive in Ontario is a shared-equity mortgage with the Government of Canada, which offers citizens of Canada, 5% or 10% for a first-time buyer’s purchase of a newly constructed home and 5% for a first-time buyer’s purchase of a resale home.
Hi, I'm Adeola Adegoke. I am a licensed Insurance Broker in Manitoba, and I hold a master’s degree in Mathematical Sciences (with a major in Financial Modeling) from the African Institute for Mathematical Sciences (AIMS), Tanzania.
Also, I have a second master's degree in Statistics from the University of Regina, and I am currently pursuing my Ph.D. in Statistics at the University of Manitoba.
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