Buying your First Home in Canada? You may just get 5-10% of your downpayment paid for. Take a look at the First-Time Home Buyer Incentive that was just introduced by the Liberal Government.
Since hiking interest rates and introducing the mortgage stress test in 2017, the federal government has been facing increased pressure from both the real estate industry as well as residents looking to buy a home. Such an intervention has made it difficult for people to afford buying a house in Toronto as home buyers are struggling to pass the mortgage stress test.
As a result, in their final pre-election budget on Tuesday, March 18, titled “Investing in the Middle Class”, the federal government have introduced the “First Time Home Buyer Incentive” in an attempt to make homeownership more affordable for first-time buyers. Details regarding the implementation have not been released yet but here is a quick overview.
What Is The First Time Home Buyer Incentive?
The “First Time Home Buyer Incentive” is a mortgage equity sharing program by which Canada Mortgage and Housing Corporation (CMHC) provides first time home buyers with mortgage loans up to 10% for newly built homes, and up to 5% for existing units, with no interest.
The CMHC then retains it’s equity percentage of the home until the loan is paid back. As such, the purpose of this initiative is to simply ease the entry of first time homebuyers into the housing market.
It is also worthy to note that the government have reportedly allocated $1.25 billion for this program to be spent over the course of the next three years.
Who Is Eligible To Participate In This Initiative?
In order to be eligible to participate in this program, you must be a first-time buyer with a household income of $120,000 or less, and be able to pay at least a 5% down payment (and a maximum of 20%) for the home. Furthermore, the mortgage value cannot exceed four times your household income, adding up to a maximum of $480,000. As such, this initiative mainly targets the “middle class” residents.
How Do First Time Buyers Benefit From This Initiative?
Quite simply, when you pay less for mortgage up front (since CMHC pays a part of your mortgage), your monthly payments will be less. Subsequently, this initiative makes it easier for you to pass the mortgage stress test, hence afford to buy a home.
Other Measures To Assist First Time Buyers
In addition to introducing the “First Time Home Buyer Incentive”, the government also proposed to adjust the withdrawal limit of the “Home Buyers Plan”. According to the Government of Canada, the Home Buyer’s Plan is a “program that allows you to withdraw up to $25,000 in a calendar year from your registered retirement savings plans (RRSPs) to buy or build a qualifying home for yourself”. The withdrawal limit has now been raised to $35,000 in an attempt to further assist first time home buyers enter the housing market.
Overall, it is safe to say that the government have responded to the increased pressure faced by the real estate industry as well as first time home buyers by adopting the “First Time Home Buyers Incentive” and by adjusting the withdrawal limit on the “Home Buyers Plan”.
The Liberal Government seems intent on easing the entry of first time buyers into the housing market, however, we shall wait and see how effective their efforts will prove to be.
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