The First Time Home Buyer Incentive Program – What It Is
The First Time Home Buyer Incentive Program (FTHBI), announced in March 2019, aims to make housing more affordable for first-time Buyers in Canada. 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: This blog was accurate at the time of writing (July 2019). As more details continue to be released and because the program is subject to change, you should confirm the FTHBI details on the government’s website.
Qualifications and Restrictions
- First-time home Buyers (not yet defined)
- Maximum salary of $120,000
- Total value of the mortgage plus the CMHC portion must equal $480,000 or less, which effectively means that it’s only available for properties worth a maximum of $565,000
- 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 Does the First Time Home Buyer Incentive Program Launch?
The program launches September 2, 2019, for homes that close on or after November 1, 2019.
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).
- You buy a $500,000 resale and have a $25,000 (5%) downpayment; that downpayment is matched by CMHC increasing your total downpayment to $50,000 or 10% of the purchase price.
- Because your downpyament is effectively higher, you save $286 a month in mortgage costs every month, over the life of the loan, or $3,430 a year at current interest rates.
- You don’t make any payments to CMHC on their $25,000 contribution and no interest accrues.
- 5 years from now, you sell the home for $600,000 and give CMHC 5% of the sale price ($30,000 in this example). If you were to sell the home at a loss, for example, $400,000, you would give CMHC $20,000 (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 (there no details about any pre-payment penalties yet)
- If the value of the home goes down, you still have to pay a proportionate amount back
- Still TBD: what happens if you re-finance the property and take out any equity
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 times annual income, which effectively limits a first-time buyer’s purchasing power. Standard mortgage stress rules currently allow for borrowing 4.5-4.7 times your income.
- The maximum purchase price of $565,000 means first-time Buyers in many markets (including many Toronto neighbourhoods) won’t be able to participate.
What the First Time Home Buyer Incentive Means for GTA Home Buyers
While the FTHBI program is expected to help 100,000 Canadians looking to buy their first home, it won’t be life-changing for the GTA market. Let’s look at average prices and homes sold under $565,000:
Average Sale Prices – June 2019
- Toronto (the’416′)
- Average price: $941,481
- Average price of a condo: $636,606
- GTA (Toronto+the’burbs)
- Average price: $832,703;
- Average price of a condo: $590,274
- Average price: $750,747;
- Average price of a condo: $471,762
- Durham Region:
- Average price: $620,506
- Average price of a condo: $413,752
Sales Under $565,000 – Jan-June 30, 2019
Good news: it’s not impossible to buy a home in the GTA for under $565,000. Here’s a look at prices in Toronto, Mississauga and Durham region and how many homes under $565,000 have sold in the last six months on the MLS (excluding parking spots and pre-construction sales not recorded in the MLS).
Houses (including vacant land) – sold under $565,000
- Toronto: 81 houses (or about 1% of all sales)
- Mississauga: 8 houses (or about 0.03% of all sales)
- Ajax/Oshawa/Pickering/Whitby: 1,300 (or about 36% of all sales)
Condos – sold under $565,000
- Toronto: 4,916 condos*
- Mississauga: 1,651 condos
- Ajax/Oshawa/Pickering/Whitby: 510 condos
When it comes to sales under $565,000 in the first 6 months of 2019 in Central Toronto (south of Eglinton, eat of the Humber and west of Victoria Park, the numbers are unsurprisingly, even lower:
- 1,260 condos*
- 15 houses
* Note: Many of the condo sales in Toronto under the $565,000 threshold were smaller than 500 sqft and would have required a minimum 20% downpayment in order to qualify for a mortgage…so they likely won’t qualify for the FTHBI program.
So What’s a Toronto Buyer to Do?
If you’re looking to take advantage of the government’s First Time Home Buyer Incentive program, you’ll likely need to increase the boundaries of your search. Think condo. Go west, go east or go north.
We can help.
Related| Other government incentive programs for first-time buyers.