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How Does The First Time Home Buyer Incentive Work?

The First Time Home Buyer Incentive is a Federal Government shared-equity program available to Canadians, who meet the criteria of a first time home buyer. You can be considered a first time buyer if you meet one of the following criteria:

  • you have never purchased a home before
  • you’ve recently experienced a breakdown of a marriage or common-law partnership
  • in the last 4 years, you did not occupy a home that you or your current spouse or common-law partner owned

Please note,  this isn’t free money. You will need to pay back the incentive amount once you decide to sell your house or after 25 years. Once your property is sold, you’ll have to repay the incentive by an amount equal to 5% of your monthly mortgage payments on your existing home or 10% of your mortgage payments if you are building new.

The incentive enables first-time homebuyers to reduce their monthly mortgage payment without increasing their down payment. The incentive is not interest bearing and does not require ongoing repayments.   This incentive came into effect on September 2019, with a focus on allowing Canadians to buy their first home in smaller cities with a little more affordability.

The Rules

There are a few regulations with the First Time Home Buyer Incentive that could restrict some potential first time home buyers. If you’re considering taking part in this incentive, there are a few requirements you must take into account.

1. Minimum Down Payment

There are minimum down payment requirements when applying for the First Time Home Buyer Incentive. The minimum down payment is 5% of the first $500,000 of the lending value and 10% of the above $500,000 lending value.

The minimum down payment must come from traditional sources. If you’re using unsecured personal loans or unsecured lines of credit, you won’t qualify for the incentive.

2. Household Income & Property Value

Unfortunately, this incentive doesn’t benefit those who live in expensive markets. Those who possess a combined household annual income of over $120,000 (before taxes) don’t qualify for the incentive. Also, the maximum property value for this incentive is $560,000.  The total borrowing is limited to 4 times the qualifying income.

3. Default Insurance

You only qualify for the First Time Home Buyer Incentive if you have default insurance. This compensates the Government for losses as a result of the default for the mortgage.