CMHC’s NEW First Time Home Buyer Incentive Program
In an effort to make home ownership more affordable, the federal government announced its plan for a $1.25 billion dollar First Time Home Buyer Incentive Program (FTHBI) as part of the federal budget in March. The initiative could see the Canada Mortgage Housing Corporation contribute up to 10 per cent of the price of a buyer’s first home. The government estimates that the program could help approximately 100,000 families across Canada over the next three years.
Precise details of how the program works won’t come out until later in the fall, but the federal government recently revealed more details of the program which will officially launch in September and begin to accept applications with closing no earlier than November 1st, 2019.
What We Know So Far
To qualify for the FTHBI, you must adhere to the following guidelines:
- Must be a first-time home buyer
- Combined household income must be under $120,000
- Buyers must have a down payment of at least 5{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8} of the total purchase price
- Only insured mortgages will be eligible, meaning this will be restricted to those with a down payment worth less than 20{ea18e790148ddb141722068dfb73f9f74b06205fa18c7d39ece0e7144d0672b8} of the purchase price
- The amount being borrowed must be no more than four times the person’s annual income, therefore the total value of the Mortgage plus the CMHC portion cannot exceed $480,000
- Shared equity must be paid back within 25 years — or if the buyer sells before that — but there’s no financial penalty for buying the CMHC out of its stake, at whatever the fair value of the home is at the time
- Only available for properties worth a maximum of about $565,000, regardless of whether or not they have met the other requirements
If all requirements are met, CMHC may kick in an additional five per cent of the purchase price of a resale home. For a newly built home, the CMHC may contribute up to 10 per cent.
The stakes from CMHC would help to lower monthly mortgage payments and would be interest free, meaning no ongoing cost to pay down, like a mortgage does. However, even though it is interest free, debt is still debt and it will need to be repaid back to the government.
CMHC would also share in the change in property value and be entitled to any corresponding increase in the value of a home when the buyer eventually sells. They would also be on the hook for any share of the loss if the property depreciates.
On a home costing $500,000, if the borrower puts up $25,000 and the CMHC puts up the same amount, the CMHC would then own five per cent of that home. So if, down the line, the house appreciates to $600,000 and the borrower wants to sell, they would have to give the CMHC five per cent of the sale price.
That’s a lot of information to unpack and there are still more details to come. A lot is up in the air regarding how the program will affect Canadians. Economists are also very cautious about the positive and negative effects the program could have on the recently cooled Canadian housing market.
If you’re a first time home buyer looking to tap into the market and want to discuss your options, affordability or the FTHBI program- get in touch with us today and we’d be happy to discuss with you.
