New Federal Program To Help Reduce Mortgage Costs For First-time Buyers

How would you like to tell first-time home buyers the federal government could match or double their minimum down payment on a mortgage and reduce their monthly payments by up to $286, without adding fees or interest? Now you can!

Through the new First-Time Home Buyer Incentive (FTHBI) program, up to $1.25 billion in government funds will be available over three years to help first-time home buyers get into the real estate market. Applications for the funds will be accepted by the Canada Mortgage and Housing Corporation (CMHC) starting on September 2 for closings beginning on November 1, 2019. The government expects an estimated 100,000 families across Canada to be helped by the new program, which is available on a first come, first served basis.

The FTHBI was announced in the 2019 Federal Budget and the start date was reconfirmed by the Honourable Jean-Yves Duclos, Minister of Families, Children and Social Development and minister responsible for housing policy on June 17.

Continue reading for an overview of the program and questions asked by Realtors across Canada and answered by Minister Duclos.

How will the program work?

Your client would need to have the minimum down payment (5 to 9.99%) for a CMHC, Genworth or Canada Guaranty-insured mortgage on a home costing less than four times their maximum qualified household income of up to $120,000 – that’s a home valued at up to $480,000. The federal government acknowledges that in higher priced real estate markets such as Metro Vancouver or Greater Toronto, virtually no-one would be able to buy a brand new, single family home at this price. However, the program is geared towards young, middle class families and those looking for a starter home.

The federal government is offering qualified first-time buyers an additional incentive to buy a home as follows:

Incentive (%)	Property type
5% or 10% down payment	new construction
5% down payment	existing home
5% down payment	new or resale mobile/manufactured home

Note: The home must be located in Canada and suitable and available for full-time, year round occupancy.

A first-time home buyer’s own minimum down payment can come from their own sources, such as:

savings
withdrawal/collapse of an RRSP
non-repayable financial gift from a relative

Note: Unsecured personal loans or unsecured lines of credit used to satisfy minimum down payment requirements are not eligible for the FTHBI.

Additional details clients may want to know:

The mortgage must be eligible for loan insurance and greater than 80% of the value of the property’s fair market value.
The FBTHI will be considered a second mortgage on the title of the property.

Who qualifies for the program?

A Canadian citizen, permanent resident or non-permanent resident who is legally authorized to work in Canada.
Qualifying household incomes of up to $120,000.
A first-time home buyer as defined by the Canada Revenue Agency is one or more of the following:

they have never purchased a home before
they have gone through a breakdown of a marriage or common-law partnership (even if they don’t meet the first-time home buyer requirements)
in the last four years, they did not occupy a home that they or their current spouse or common law partner owned (it is possible that they or their spouse or common law partner qualifies for the first-time homebuyer incentive if they previously owned a home in the last four years)

For more details on the four-year requirement, click here.

How will qualifiers pay the government back?

The incentive from the government is like a loan or grant. It must be paid back within 25 years of a home purchase or when the home is sold. However, your clients will not need to pay interest or adopt an ongoing repayment plan (unlike RRSPs withdrawn for a home purchase).

When the property is sold:

The FTHBI has an equity-like payout, where the government would share in the upside and downside of the property value. If the value of the home appreciates when it is sold, your client would need to pay the government back the 5 or 10% incentive they initially received, based on the home’s fair market value when it is sold. If the value of the home goes down when the property is sold, the same 5 or 10% is calculated on the home’s reduced value.

FTHBI	Purchase price	Sale price	FTHBI payment back to the government
5% ($10,000)	$200,000	$300,000	$15,000
10% ($20,000)	$200,000	$150,000	$15,000

What about increases in value due to renovations and expansions?

If your clients want to significantly renovate or expand their home and don’t want to return more money to the federal government (if their home appreciates in value) they can repay the government back before the renovations. In fact, they can repay the government at any time within 25 years of their home purchase (not only when the property is sold) and they won’t be charged a pre-payment penalty (unlike some mortgages).

Can the FTHBI be combined with the Home Buyers’ Plan changes?

Yes! The First-Time Home Buyer Incentive program complements other initiatives in the 2019 Federal Budget.

The maximum withdrawal amount under the HBP was recently increased to $35,000 from $25,000 and access to the program was extended to people experiencing a breakdown in their marriage or common law partnership, even if they don’t meet the first-time buyer requirement. Both of these changes are related to recommendations Realtors have been discussing with federal MPs during CREA’s annual Political Action Committee Days conferences in Ottawa. Your Board’s officers and government relations volunteers are regular participants in these events.

Q&As from a Virtual Town Hall with the federal minister responsible for housing:

CREA arranged a virtual town hall session on June 18, 2019 for government relations volunteers and staff across Canada to address questions about the FTHBI to Minister Duclos. Here are some of the key questions and answers which may be helpful to you or your clients.

Q: How long will it take for applications to be approved for the FTHBI?

A: Applications will be accepted by CMHC on September 2 for closings starting on November 1. When offers are being made to purchase property, they can be conditional upon obtaining an insured mortgage and a FTHBI incentive from CMHC.

Q: Does the government have any plans to do something different in metropolitan areas (e. g. Vancouver or Toronto) where home prices are out of the range of the FTHBI?

A: Even in higher priced markets, there are homes available for less than $500,000; starter homes which are suitable for first-time buyers. Not every home will be affordable for first-time buyers.

Q: Will the $1.25 billion be distributed evenly over three years?

A: After the first year, the federal government will evaluate the program’s progress in distributing funds.

Q: What if a homeowner makes renovations? Would CMHC require a share of the related increase in property value?

A: The incentive can be repaid anytime up to 25 years after the home purchase without a pre-payment penalty or interest. If the property is later sold at a higher price than the original price paid by the first-time buyer, the percentage of the incentive must be returned to the CMHC. If someone is making a significant expansion to their home, they can choose to prepay their incentive back to the government before they start their renovations.

Q: Is there a maximum limit to the amount repaid to the government due to an increase in the property’s value when it is sold?

A: No. The government is only asking for 5% or 10% back as part of the FTHBI.

Q: If the incentive is repaid early, would the CMHC still have equity in the home?

A: No.

Q: How is first-time home buyer defined in the FTHBI?

A: The definition being used is the definition the Canada Revenue Agency uses.

Q: Why is there a choice of 5% or 10% incentive for the purchase of new homes?

A: It’s up to a first-time buyer to determine which percentage they prefer.

Q: Will there be higher CMHC fees for homes purchased with an incentive?

A: A mortgage insurance premium still applies, however there will not be any added fees or interest if someone applies for the incentive.

Q: A cap of $120,000 household income will exclude a lot of people working in Fort McMurray. Will this limit be reviewed?

A: The limit is designed for those who need the most help. As the program unfolds, the government will review it to see if any changes are needed.

Q: Does the federal government have any plans to increase the amortization rate for mortgages to 30 years from 25 years or review the stress test?

A: CREA and its members have been very engaged and bold in speaking to government about housing and we thank you for that. The federal government looks at two factors when reviewing housing policy – ability and stability. We need to address both, especially in big markets like Vancouver and Toronto and we will review policies from time to time.

Q: If a first-time buyer puts in a 10% down payment and CMHC puts in another 10% for a home purchase, how can the mortgage still be insured under CMHC?

A: That’s correct. A home purchase under the FTHBI would need to have an insured mortgage. Therefore, the buyer would need to put in a 9.99% down payment or put in 10% and then request a 5% incentive from CMHC.

Q: A lot of developers for new construction are expecting 20-25% down payment from a buyer – making it difficult for first-time buyers to get into the market. How would the FTHBI help them?

A: You’re right, the program wouldn’t necessarily help those buyers. However, if a developer is willing to accept less down payment, CMHC could work with the development and banking industries in terms of timing when the incentive is available.

Q: Did the federal government consult with the provinces before introducing the FTHBI?

A: Yes

Need more information?