THE FIRST-TIME HOME BUYER INCENTIVE PLAN
THE FIRST-TIME HOME BUYER INCENTIVE PLAN
If you had the chance to make a bigger down payment on a house, would you take it?
That is the question we are going to answer today as theFirst-Time Home Buyer Incentive Plan(FTHBI) started taking program applications yesterday.
The allure for program applicants is the opportunity to make a bigger down payment than they could save for, thereby reducing their monthly mortgage payments. The following scenario assumes youre buying a newly constructed $400,000 home with the minimum five percent down payment. The monthly payment works to $1,973. With the FTHBI plan contributing an additional $40,000, the monthly payment is reduced to $1,745; a monthly of savings of $228.*
We covered the First-Time Home Buyer Incentive Plan in our previousblog post.
But, with all things that look great on paper, theres more to the program than simple monthly savings.
ARE YOU ELIGIBLE FOR THE FIRST-TIME HOME BUYER PROGRAM?
The Canada Mortgage and Housing Corporation (CMHC), one of three Canadian mortgage insurance companies, has dedicated $1.25 billion over three years to the FTHBI plan. The primary criteria for the program are:
You are a first-time homebuyer;
You must live in the residence youre purchasing, no investment properties;
Your down payment is less than ten percent and can only come from traditional sources;
Your mortgage must be insured;
Your maximum household qualifying income is $120,000 per year;
The maximum first mortgage is four times annual income, maxed out at $480,000;
The amount will be repaid at the sale or at the end of the mortgage based on the current market value of the home.
Before you start packing your bags, lets unpack these requirements.
What is a First Time Home Buyer?
The program has defineda first-time homebuyer as:
Someone who has never purchased a home before;
Someone who has gone through a breakdown of a marriage or common-law partnership;
Someone who in the last four years, did not occupy a home that was occupied by the homeowner or their spouse.
Single-family homes, semi-detached homes, duplexes, triplexes, fourplexes, townhouses, mobile homes, and condominium units are all eligible for the program. The incentive amount will vary based on the age and type of residence. Five percent of the purchase price will be given for existing homes and new and existing mobile homes. Five or ten percent of the purchase price will be given for newly constructed homes.
Repaying the Incentive
The incentive amount is interest-free and can be repaid at any time without penalty. If you sell your home or reach the end of the amortization period (25 years), you are required to pay back the incentive.
The repayment amount is based on the homes current market value. If the value of your home increased, possibly because of renovations or property values, you will have to repay the five or ten percent of the current value.
If your home has increased in value, youll pay more, taking from the profit of the sale after any appraisal and realtor fees. If your homes value decreased, youll pay less but you may not be able to make the repayment after all other fees are accounted.
This leaves lingering questions. How do you repay the loan if you stay in your home for the 25 years? Or will you have to refinance your home to pay out your government partner?
Were also worried that theres not much clarity as to how the government will approve the sale of your home if you choose to move. Will they have the right to refuse a discounted sale of your home because you need to sell quickly?
OTHER CONSIDERATIONS ABOUT THE FTHBIP
One thing we want to be really clear on; the FTHBI plan is just one avenue that first-time homebuyers should examine before purchasing a home. As with any mortgage option, the Incentive plan has its pros and cons.
Entering a Shared Equity Mortgage
A large consideration for us is that applicants enter into a shared equity mortgage (SEM) with the Canadian government. In this case, there are two mortgages on the property; one for you, and one for the government. This could create issues for getting a line of credit, buying out a spouse, or arguing about what your house is worth later on.
Qualifying for a Smaller Purchase
With the maximum qualifying amount of $480,000 on your mortgage, you will have to adjust your desire to get a bigger home.
In hot markets like Toronto or Vancouver finding a single-detached home under the maximum amount wont happen. While the prices have fallen in the last two years, theaverage cost in Torontofor a single-detached home is $875,000 while Greater Vancouver is $995,200, according to theCanadian Real Estate Association(CREA). First time home buyers through this program will have to look outside of these areas or downsize to a condo or townhouse.
In Calgary or Edmonton, finding a single-detached home around or under this maximum amount is possible. In Calgary, the average for a single-detached home is $488,400, according toCalgary Real Estate Board(CREB) and $429,717 in Edmonton, according toCREA.
IS THE FIRST TIME HOME BUYERS PLAN WORTH IT?
Are you ready for our favourite answer? It depends.
This plan really only addresses one aspect of the buying process; the down payment. It doesnt outline the actual mortgage agreement, such as the type of interest rate, penalties, and more.
The tricky part for many Canadians will still be saving the required minimum five percent down payment, especially since these funds can only come from traditional methods such as savings, RRSPs, funds borrowed against assets, or a non-repayable gift from a relative.
With the maximum qualifying amount, buyers are also restricted with their purchasing power. Other options are available to you to qualify for a larger home without the FTHBI.
But, heres the bottom line. Jumping into the real estate market is the best way to increase your wealth. If youre ready to buy your first home, then this program could be the right way to do it. And thats where we come in. We love looking for the best solution that confidently gets you into your first (or second!) home, so please dont hesitate to reach out to me at 780-999-8798 or email@example.com to discuss whats best for you and your goals!
Original blog post posted on Quantus Mortgage Solutions
Canadian home sales rise again in May 2019
Home sales recorded via Canadian MLS Systems rose by 1.9% in May 2019. Together with monthly gains in March and April, activity in May reached the highest level since January 2018. While sales stood 8.9% above the six-year low reached in February 2019, this latest increase has only just returned levels to their historical average.
While May sales were only up in half of all local markets, that list included almost all large markets, led by gains in both the Greater Vancouver (GVA) and Greater Toronto (GTA) areas.
Actual (not seasonally adjusted) sales activity was up 6.7% compared to May 2018, marking the largest y-o-y gain recorded since the summer of 2016. The increase returned sales in line with the 10-year average for the month of May. While about two-thirds of local markets posted y-o-y gains for the month, the national increase was dominated by improving sales trends in the GTA, which accounted for close to half of the overall increase.
Home price trends and market balance continues to differ significantly among Canadian housing markets, said Jason Stephen, CREAs President. All real estate is local. No matter where you are, a professional REALTOR is your best source for information and guidance in negotiations to purchase or sell a home during these changing times, said Stephen.
The mortgage stress-test continues to present challenges for home buyers in housing markets where they have plenty of homes to choose from but are forced by the test to save up a bigger down payment, said Gregory Klump, CREAs Chief Economist. Hopefully the stress-test can be fine tuned to enable home buyers to qualify for mortgage financing sooner without causing prices to shoot up.
Ownership of Residential Property by Non-individuals
New data released today from the Canadian Housing Statistics Program provide information on ownership of residential properties by non-individuals in Nova Scotia, Ontario and British Columbia. The Canada Mortgage and Housing Corporation published a report using these new data,Residential Property in British Columbia, Ontario and Nova Scotia: An Overview of Non-individual Ownership, which also includes analysis of the ownership structure of vacant land across the three provinces.
The data tables include information on non-individual entities, referring to firms and governments. For the purpose of this release, they are classified into the following categories: corporations, governments, and sole proprietorships and partnerships. Information on selected sectors in which those entities operate, following sector groupings from the North American Industry Classification System (NAICS), is also included in this release.
Among firms and governments, corporations own the majority of residential properties
Across the three provinces, corporations are the most common legal type of non-individual owners of residential properties, followed by governments. Corporations include businesses and non-profit organizations, while governments include federal, provincial, territorial and municipal governments. In terms ofNAICSsectors, entities belonging to the real estate and rental and leasing sector, the public administration sector and the construction sector are the most common non-individual owners of residential properties.
In Ontario, three-quarters of non-individual owned properties are held by corporations, compared with68.9% in Nova Scotia and57.3% in British Columbia. The share of non-individual owned properties held by governments is highest in British Columbia (39.0%), followed by Nova Scotia (22.9%) and Ontario (20.1%).
In Nova Scotia,28.8% of residential properties held by corporations are owned by the construction sector, compared with22.5% in Ontario and21.4% in British Columbia. Among the residential properties owned by corporations, the real estate and rental and leasing sector accounts for the largest share in Ontario (31.1%) and in British Columbia (23.4%), while in Nova Scotia it represents about one-quarter of the properties held by corporations.
The average assessment value of a residential property owned by corporations is highest in British Columbia at $1.3million, compared with $630,000in Ontario and $330,000in Nova Scotia. In British Columbia, corporations account for84.7% of the total assessment value of non-individual owned properties, while in Ontario and Nova Scotia this share is closer to80%. Residential properties owned by governments represent around10% of the total assessment value of properties owned by non-individuals in each province.