On September 2nd, 2019, the Canadian government enacted the First-Time Home Buyer Incentive, also known as the FTHBI Program. While there are several government funding programs that are centered around housing, FTHBI is specifically designed to help Canadian citizens of the middle class who are wanting to complete or in the process of completing their first home purchase. By applying for the FTHBI Program, you can save money on your monthly mortgage payments and free up income for other expenses.

Major Benefits of the FTHBI

The FTHBI Program is a shared equity mortgage incentive sponsored by the Canadian government. The primary benefit of the program is that it increases the down payment first-time buyers are required to make on their new home. By putting more money down at the point of sale, buyers effectively lower their monthly mortgage costs and reduce the amount of stress caused by missed or late payments.

The amount buyers save will vary based on the size of their mortgage, but the few hundred dollars that are no longer going towards frequent debt repayments each month will have a big impact on a household budget.

This program is intended to make homebuying a little easier for first-time Canadian buyers. Sharing the cost of the initial payment with the government means that a first-time home buyer can purchase his or her new home sooner than they may have otherwise been able.

Often, this will save buyers money since real estate typically grows in terms of financial value over time. The longer you wait to purchase a home, the more expensive that home will be and the less value it will likely appreciate will in your ownership.

How the FTHBI Program Works

It’s important to understand that the FTHBI Program is not a grant but is instead a loan created by government funding. The government will loan you 5% of the cost of a resale home or 10% of the cost of a newly constructed home. This loan is a shared equity mortgage, meaning that the payback at the end of the term is based on your home’s value and not on the amount of the initial loan.

In simpler terms, if your home increases in value, you will be required to pay more to the government at the end of the term. Similarly, if there is a decrease in the value of your property, your final payment will also be reduced.

Understanding Your Eligibility

This government program is geared specifically toward middle-class Canadian citizens. Because of this target audience, there are certain limitations on who can apply to be a part of the FTHBI Program.

The first requirement for qualification of the FTHBI Program is that you must be a first-time home buyer. This means that you have never owned a home or have not owned your own home within four years of the application. One exception to this rule is for applicants who have recently gone through a divorce or dissolution of a common-law partnership.

Household income is also a major factor when determining who can apply for the Program and who has the chance to qualify versus who does not. Currently, the household income of applicants must be less than $120,000. This amount not only includes the money you receive from your job but also includes any investment income or rental income you earn.

The price of the house a buyer is looking to purchase is another factor that is taken into consideration during the application process. According to the guidelines of the FTHBI Program, the total amount a person is borrowing to purchase a home must be an amount that is less than four times their current household income. This total includes primary mortgage, FTHBI mortgage and mortgage insurance costs. At current levels, buyers can borrow no more than $480,000 as part of this program.

The final requirement for qualification of the Program is the size of your down payment. You must be able to supply a 5% payment towards the home’s first $500,000 in value. If the home is more expensive than this, you must be able to supply 10% of the remaining value over the first $500,000. In addition, the total amount you pay as an initial payment, including the FTHBI payment, must be less than 20% of the home’s overall value.

Preparing for the Payback

It is critical for a first-time home buyer to understand that the FTHBI Program funding is a loan. Eventually, you will have to pay the government back the money they lend you. You may either make a payment when you sell the home or after you have owned the home for 25 years.

Keep in mind that the amount you pay will appreciate or depreciate along with your home’s value. If you plan to keep your home for a long time, you may want to set some savings aside each year so that the end payment does not come as an unpleasant surprise. Currently, you must pay back the loan in full at the end of the term.

Additional Expenses Associated with the FTHBI

Although the FTHBI is funded by the government, there can be some extra costs associated with the Program. Since your solicitor will be working with two mortgages, there may be additional legal fees when you are applying for the Program. Also, if you are selling your home, you may have to pay for a separate appraisal so that the government can determine the amount of your final payment.

How to Apply for the Program

Applying for the FTHBI Program is a simple matter of filling out two government documents: The Shared Equity Information package and the Attestation and Consent form. Both of these documents can be found and downloaded online on the government website. Once you have read, filled out and signed these two forms, bring them to the financial lender that is handling your primary mortgage. They will then file the application on your behalf and keep you updated on the progress of your status.

If you are approved, you must contact First Canadian Title and let them know the name of the lawyer who is handling your closing at least two weeks before the closing date. If you follow this process, it will activate your FTHBI funding, and you will be a few steps closer to purchasing your new home!