What is the First-Time Homebuyer Incentive?
The Government of Canada offers a shared equity mortgage (loan) as a first-time home buyer incentive. There are no ongoing payments or interest paid on the incentive, but the loan must be paid back within 25 years or when the property is sold, whichever occurs first.
How does the Incentive work?
The incentives vary depending on whether it is a purchase of a preowned house, or a presale/new construction house. The following are the benefits of the first-time home buyer incentive:
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- A first-time buyer can receive as an incentive, 5% on the purchase of a preowned house, or
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- A first-time buyer can receive as an incentive, 5% or 10% on the purchase of a new house.
Since this is a shared equity mortgage, the incentive sum to be repaid is determined by the property’s market value at the time of repayment. More will need to be repaid if the value of the property has risen at the time of repayment, and less money will need to be repaid if the property value has decreased at the time of repayment.
For instance, if you paid $435,000 for a house, but it is worth $500,000 when sold, the 5 or 10% incentive repayment is based on the $500,000.
The Government of Canada will limit its share in the appreciation of the property: homeowners will pay back up to a maximum gain of 8% per annum (not compounded) on the incentive amount, from the date of advance to the time of repayment (retroactive to September 2, 2019).
The Government of Canada also limits its share in the depreciation of a property at the time of repayment, up to a maximum loss of 8% per annum (not compounded) on the incentive amount from the date of advance to the time of repayment (on or after June 1, 2022).
There is no pre-payment penalty, no ongoing repayment requirement, and no interest charged on the incentive.
Who is Eligible for the Incentive?
The following requirements must be met to be eligible for the incentive:
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- Your maximum qualified income cannot exceed $120,000 (except if you live in Toronto, Vancouver or Victoria, in which case the maximum qualifying income is $150,000).
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- The home must be your principal residence.
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- You or your partner must be a first time homebuyer.
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- To qualify, you must adhere to the minimum 5% down payment requirements (and 10% for the lending value above $500,000), with traditional funds as the downpayment source.
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- The maximum amount you may borrow overall is four times your eligible income (except if you live in Toronto, Vancouver or Victoria, in which case the maximum amount you can borrow overall is 4.5 times your qualifying income).
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- You must be a Canadian citizen, a permanent resident, or have legal authorization to work in Canada if you are a non-permanent resident.
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- Your first mortgage must be greater than 80% of the value of the property and subject to a mortgage loan insurance premium (e.g. CMHC).
You must be buying the property to live in it to qualify for the incentive; it is not made available to people who are buying for investment purposes.
Who Qualifies as a First-Time Home Buyer?
If you fit one of the following criteria, you qualify as a first-time homebuyer:
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- You’ve never bought a house before.
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- In the last four years, you did not live in a house that you, your spouse at the time, or your common-law partner owned.
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- You experienced the dissolution of your marriage or common-law partnership (even if you don’t meet the other prerequisites for first-time homebuyers).
Please Note: If you are married or in a common-law relationship, you may be eligible for the First-Time Home Buyer Incentive with the 4-year clause even if you have previously owned a property.
To begin the home-buying process, call The Auxilium Team at 250-590-6520 (toll-free 1-855-590-6520) for a free consultation. During regular business hours, you can also stop by 307 Goldstream Avenue to see us. We can also schedule an appointment with you during or after regular office hours.
This post reflects the best available information at the time of writing/last update. In order to ensure that you have the most up-to-date information, contact us to confirm the details for your specific situation.