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  • Writer's pictureReda Chebli

Guide on the First-Time Home Buyer Incentive in Canada

Homeownership is a major goal for many Canadians. To facilitate this process, the Canadian government has implemented the First-Time Home Buyer Incentive (FTHBI), an initiative aimed at helping first-time buyers overcome financial challenges. This program offers an interest-free loan to increase the down payment and reduce mortgage payments. Let's examine this program in detail, its benefits, eligibility criteria, how it works, and its impact on the real estate market.


1. What is the First-Time Home Buyer Incentive?


The FTHBI is a government program that offers first-time home buyers an interest-free loan as a form of equity participation, representing 5% or 10% of the purchase price. The goal is to reduce monthly mortgage payments, making the purchase more affordable.


  1. Benefits of the FTHBI

  • Reduced Monthly Payments: The FTHBI loan decreases the principal amount of the mortgage, thus reducing monthly payments.

  • No Interest: Buyers only pay back the initial amount borrowed, without interest.

  • Flexible Repayment: Repayment is not required until the property is sold or after 25 years.

  1. Eligibility Criteria

  • First-Time Home Buyer Status: The program is intended for those who have never owned a home or haven’t been homeowners in the last four years.

  • Annual Income: The household income must not exceed $120,000.

  • Debt-to-Income Ratio: The total amount borrowed should not exceed four times the annual income.

2. Eligible Property Types


The FTHBI covers various types of residential properties, including:


  • Single-family homes

  • Semi-detached homes

  • Duplexes, triplexes, quadruplexes

  • Townhouses

  • Condominium units

  • Mobile homes

These properties must be located in Canada, be habitable, and accessible year-round, serving as the primary residence.


3. Financial Considerations and Associated Costs


  • Legal and Appraisal Fees: Managing two mortgages might lead to increased legal and appraisal fees.

  • Other Costs: Additional costs may accrue as long as the Incentive is not repaid, such as during a mortgage transfer or refinancing.

  • Home Insurance: Costs may increase due to the additional mortgage.

4. Practical Example


Anita wants to buy a new home costing $400,000. She has saved the minimum required down payment of $20,000 (5% of the purchase price).


Anita can apply for the Incentive. Under the program, she is eligible for a $40,000 shared equity mortgage (10% of the cost of a new home). This reduces the amount Anita needs to borrow and her monthly expenses.


Anita’s mortgage payment is thus reduced by $228 per month or $2,736 per year.


5. Application Process and Repayment Terms for the First-Time Home Buyer Incentive


Key Steps for Applying for the FTHBI


Once you have obtained a mortgage pre-approval, selected your future home, and confirmed your eligibility for the Incentive, it's time to move to the next step: the official application. Here's how to proceed:


  • Filling Out Application Forms: Two essential documents must be completed:

  • FTHBI Information Kit - PHP: This document provides crucial details about the program.

  • FTHBI - Attestation and Consent: This form is necessary to formalize your application.

  • Submission of Forms: Once filled out, these forms must be submitted to your financial institution. Your lender will then submit your application.

  • Managing the Shared Equity Mortgage File: The final signed version of this file must be entrusted to your lawyer or notary, who will keep it for you.

  • Activating the Incentive: After receiving approval, contact FNF Canada at 1-(855) 844-4535 to activate the Incentive. It is advisable to do this at least two weeks before the closing date. You will also need to provide the contact details of your lawyer or notary.

Repayment Terms of the FTHBI


Repaying the First-Time Home Buyer Incentive is a crucial aspect to understand:


  • Repayment Period: The FTHBI must be repaid in full after 25 years or upon the sale of the property, without the possibility of partial repayment.

  • Scenarios for Early Repayment:

  • Separation and Buyout: If you separate and wish to buy out your co-borrower's share, requiring additional insured funds, full repayment of the FTHBI is required.

  • Mortgage Transfer: Any transfer of your mortgage also involves the repayment of the FTHBI.

  • Partial Release of Mortgage Security: If a partial release is made, it is considered a sale and triggers the repayment of the FTHBI.

6. Tips for First-Time Home Buyers


  • Financial Assessment: Ensure you can afford the mortgage payments and other associated costs.

  • Long-Term Value: Consider the location, construction quality, and potential for property value growth.

  • Professional Consultation: As a real estate broker, I recommend consulting a professional to navigate the buying process and understand all the implications of the FTHBI.


Conclusion


Understanding the application process and repayment terms of the First-Time Home Buyer Incentive is essential for first-time buyers. These steps ensure a smooth transition to homeownership while effectively managing financial aspects. As a real estate broker, I am here to guide you through each step of this process and ensure you fully benefit from this program.


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