Updated May 2021
The First Time Home Buyer Incentive Program – What It Is
The First Time Home Buyer Incentive Program (FTHBI) aims to make housing more affordable for first-time Buyers. It’s essentially a shared equity program – where the Canada Mortgage and Housing Corporation (CMHC) contributes part of the downpayment in exchange for sharing in the appreciation (or loss) when the home eventually sells.
For resale homes, CMHC will contribute up to 5% towards the downpayment; for new construction homes and condos, they’ll contribute up to 10%.
Note: As details of the program are subject to change, you should confirm the FTHBI details on the government’s website.
Qualifications and Restrictions for the GTA
- First-time home Buyers, a.k.a. you (or your partner) meet one of the following criteria:
- you have never purchased a home before; or
- you’ve recently experienced a breakdown of a marriage or common-law partnership; or
- in the last 4 years, you did not occupy a home that you or your current spouse or common-law partner owned
- Maximum salary of $150,000
- In the GTA, the total value of the mortgage plus the CMHC portion must equal $675,000 or less, which effectively means that it’s only available for properties worth a maximum of $722,000
- You must come up with a minimum 5% downpayment on your own and qualify for a mortgage
- Resale homes: CMHC will contribute up to an additional 5%
- Newly built homes: CMHC will contribute up to 10%
When Did the First Time Home Buyer Incentive Program Launch?
The FTHBI program initially launched on September 2, 2019, and was updated effective May 3, 2021. The updates increased eligibility by increasing the maximum salary and home price.
The Details – the FTHBI
- For qualifying Buyers of resale homes: the borrower must have at least 5% of the purchase price as a downpayment. Under the FTHBI program, the CMHC kicks in up to 5%.
- For qualifying Buyers of new construction homes: the borrower must have at least 5% of the purchase price as a downpayment and CMHC will contribute up to 10% of the purchase price.
- The money from CMHC is provided interest-free, and because it’s an equity share and not a loan, there aren’t any traditional repayments required.
- Under this program, your monthly mortgage payments are reduced (because your downpayment is higher with CMHC’s contribution), thus making it more affordable to own your first home.
- When it comes time to sell your home, CMHC is repaid via a proportionate % of the price of the home – if they gave you 5% to buy it, they get 5% of the sale price when you sell it (whether prices go up or down).
- The home must be in Canada, suitable for year-round living and must be lived in by you (in other words, it can’t be an investment property)
- You buy a $700,000 resale home and have a $35,000 (5%) downpayment; that downpayment is matched by CMHC increasing your total downpayment to $70,000 or 10% of the purchase price.
- Because your downpyament is effectively higher, your monthly mortgage costs are lower
- You don’t make any payments to CMHC on their $35,000 contribution and no interest accrues.
- 5 years from now, you sell the home for $805,000 and give CMHC 5% of the sale price ($40,250 in this example). If you were to sell the home at a loss, for example, $600,000, you would give CMHC $30,000 (5% of the sale price).
- CMHC gets their share of equity returned to them in 25 years or when you sell the property (whichever comes first)
- You can pay it back at any time based on a proportionate share of fair market value
- If the value of the home goes down, you still have to pay a proportionate amount back
- If you refinance the property, CMHC will want their share of equity right away
What’s the Catch?
It’s a government program, so there’s always a catch.
- It’s not free money – it’s shared equity. CMHC participates “in the upside and downside of the change in the property value” – so while it’s interest-free money that doesn’t need to be paid back in a traditional sense, when you sell the home, CMHC will get a proportionate amount of the equity. If they contributed 5% of the purchase price when it was purchased, they get 5% of the purchase price when it sells.
- They’ve limited the amount that can be borrowed to 4.5 times annual income, which effectively limits a first-time buyer’s purchasing power.
- The maximum purchase price of $722,000 which means in the GTA, where house prices average more than that, you may be looking at a condo or living further west, east or both than the downtown core.
If you’re looking to take advantage of the government’s First Time Home Buyer Incentive program, talk to your mortgage broker or REALTOR.
Related| Other government incentive programs for first-time buyers.