New First Time Home Buyer Incentive
I was talking with a Mortgage Agent recently about the new government incentive set to come into force in September. My understanding of the program up until that point had been that this new incentive would allow first time homebuyers to get a loan from the government to help with buying a home. The loan would have to be paid back but not only would it help people qualify for a higher mortgage but it’d also lower their monthly payments. I was quite shocked to hear this isn’t the case.
The news from the insurers that is going out to Mortgage Brokers is this:
- It is not “free money”, the funds must be paid back upon the sale of the home OR in 25 years, whichever is first.
- It is not a loan, it is an equity stake. In exchange for the larger down payment they will be taking a portion of equity from your home. When it comes time to pay it back you will owe that portion of equity, not the exact money they put in. Let’s say you buy a $200,000 fixer upper in 2019, you put 5% down payment ($10,000) and the government matches with another 5% ($10,000). You then do a whole bunch of work and sell the property for $300,000 4 years later. At the time of sale you do not pay the government $10,000 rather 5% of the sale price ($300,000) so $15,000.
- It does not increase your qualifying amount. Usually the bigger the down payment the better the percentages are for qualifying. With this new program you are only qualifying on the down payment you bring to the table. The extra government money is not factored in at all.
- The program is targeting a certain group of people within a certain income range. They want a maximum combined household income of $120,000. If you make more it looks like you won’t be eligible for the program.
- The point of the program is to help with cash flow by reducing monthly payments. So let’s take the example above with the $200,000 house. If you were not using the government program your monthly mortgage payment would be $908.97 (using today’s rates). With the government program your new monthly payment would be $861.13. So it would reduce the monthly cost by $47.84 in this example.
Like the rest of you I am still waiting for full details to be released but this is what we know so far. To read all the details click this link: https://www.placetocallhome.ca/fthbi/first-time-homebuyer-incentive?utm_source=vanity&utm_medium=redirect&utm_campaign=fthbi
As always for all your home buying questions I am here to help.