Should you consider the first-time home buyers incentive plan?
First-time home buyer’s incentive plan

You may have heard that a new incentive plan for first-time home buyers is kicking in across the country on September 2nd. These government incentives aren’t always clear (and usually have a catch), so we’re covering everything you need to know before the plan goes into effect.

Who’s eligible for the First-time Home Buyer’s Incentive Plan?

Well… you guessed it, people who are buying their first home. But, that could also mean a couple of things:

  • You’ve never purchased a home before
  • You’re recently divorced, separated or no longer common-law, and are looking to buy a home on your own
  • If, for the past 4 years, you haven’t lived in a home that you or your spouse owned

    There are some extra qualifiers that you should consider when applying, such as citizenship/nationality. Right now, homebuyers eligible for the incentive must have a maximum combined annual income of $120,000. Meaning, if you make more than that, you won’t qualify.

    You’ll also have to be able to pay the minimum down payment, which is 5% of the price of the home. And speaking of the price of the home, it can only cost four times the amount of your annual income. So, as an example, if you make $100,000 a year, you can aim to purchase a home that’s $400,000 with a 5% down payment ($20,000).

    People who can utilize the incentive should be comfortable living in more suburban areas, where there are more listings for $400-$500,000 exist. Homes in areas like Surrey near Vancouver, or Mississauga outside of Toronto, for example. However, you might be able to use the incentive towards a one-bedroom condo in the downtown areas of these cities.

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    How does the incentive work?

    When you purchase the home with the first-time homebuyer’s incentive, you’re buying into a shared equity mortgage with the government. It’s meant to reduce your mortgage payments without increasing the size of your down payment. In the example we used above, you’d be saving just over $100 on your mortgage payment each month. You also might see some savings on your mortgage insurance payment.

    With the shared equity mortgage, the government basically buys into the property value – even if your home appreciates (increases in value) or depreciates (decreases in value). Whether your home increases or declines in value will determine how much you pay the government back. The government’s interest on the property is either 5% or 10% depending on the type of property, and this percentage remains the same (regardless of increases or decreases in the value of the property). If the value of your home increases, the amount owed to the government when the incentive is repaid also increases. The opposite is true if the value decreases.

    “ When do I have to pay the government back? ”

    Great question. Generally, it’s after 25 years, or when you sell the home that the incentive was applied to. Whichever comes first!

    What other incentives are available for Canadian homebuyers?

    But wait, there’s more! If you’re not eligible for the first-time home buyer’s incentive plan, you can look into other government rebates or refunds that work for your situation.

    For example, if you’re purchasing land in Ontario or B.C., you usually have to pay a land transfer tax. First-time homebuyers purchasing land and paying the tax might be eligible for a refund of all or part of the tax!

    There are refunds, tax credits and other incentives at the municipal, provincial and federal level, so do your research when buying your home. The Canada Mortgage and Housing Corporation is a great place to start!

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