First-Time Home Buyer Incentive: Four Points You Must Know
Updated: Sep 10, 2020
Looking at buying your first home? Congratulations! You can look at availing the 'First-Time Home Buyer Incentive' or FTHBI. Here are four points that will help you know all about the FTHBI program.
What is First-Time Home Buyer Incentive?
First-Time Home Buyer Incentive is a program by the federal government which helps Canadians buy their first home by offering them between 5 to 10% amount of the price of the house which can be used as a down payment. This is quite a big financial help for home buyers as their mortgage cost comes down when they make a bigger down payment.
Qualification for First-Time Home Buyer Incentive
First time home buyers must, however, meet certain criteria to be eligible for FTHBI:
You or your partner should be a first-time homebuyer.
Only Canadian citizens, permanent residents or non-permanent residents who have been authorized to work in Canada can apply.
Total annual qualifying income should not exceed $120,000. This includes money from all sources of income such as rental income, investment money, and not just salaried income.
Total borrowing must not be more than 4 times your qualifying income which means the maximum an any eligible buyer can borrow is $480,000 and this includes the mortgage, its insurance, as well as the FTHBI sum.
The minimum down payment pre-requisites must be met using funds such as savings, withdrawal/collapse of a Registered Retirement Savings Plan, or a financial gift from a relative or an immediate family member, and such a gift should be non-repayable. The catch here is that these funds have to be traditional funds as non-traditional funds like unsecured personal loans or lines of credit make one ineligible.
Is the incentive real or are there strings attached?
The FTHBI is an interest-free loan but is also a shared equity mortgage. The loan is given on the basis of the fair market value of the house, and if the property value increases at some point the government gets to share the gains. Though in case there is a decline in the house value, the borrower repays less than the borrowed amount to the government. But the FTHBI loan has to be repaid in 25 years from the date of borrowing or when the house is sold, whichever comes first.
Should you or should you not opt for FTHBI?
If your eligibility criteria are clear and you are willing to take up FTBI, you must also calculate other risks that come with being a homeowner such as interest rates, maintenance costs, etc. You must also be aware of the extra costs born towards taking the FTHBI for legal paperwork, mortgage refinancing fee etc.
Also, when you decide to take up the FTHBI, you must try to pay it off before you make any renovations to your house as that will increase its value, and hence would mean an increased pie for the government. Finally, it is a 25-year risk, the earlier you repay your borrowings the better it is in the long run.
These are just the tip of the iceberg as each borrowing case has its own merits and demerits.