A new program just launched in Canada with the aim of helping first-time home buyers. Appropriately called the First-Time Home Buyer Incentive, or rather FTHBI, eligible home buyers are offered money towards a down payment of up to 10-percent of a home’s purchase price.
In theory, the program helps make home ownership more affordable because it lowers the mortgage carrying costs. It’s important, though, to know not only if you’re eligible, but how exactly the program works.
Your qualifying household income has to be less than $120,000. That’s income plus any investments and rental income. You also have to have at least the minimum down payment and you must not borrow more than four times your qualifying income.
A first-time homeowner is someone who hasn’t ever owned a home. Those who’ve gone through a divorce or the ending of a common-law partnership may also qualify, as may those who haven’t lived in a home they owned for the past four years.
The FTHBI process
If you’re eligible, you can then apply for the incentive, which is a shared equity mortgage with the Canadian government. The government loans buyers 10-percent of the purchase price of a new home or five-percent of a re-sale home.
You’re not charged interest on the loan, but you will have to repay the incentive when you sell the home or after 25 years. Your repayment is calculated by the home’s fair market value at that time. If your home goes up in value, you owe more than you borrowed. You owe less if your home decreases in value.
Is FTHBI right for you?
For this reason, if you’re considering remodeling your home you may want to pay back the FTHBI first before you add extra value to your home. There’s no penalty for paying early.
You will need to consider all the facts before deciding if FTHBI is right for you, including the price, the timing and the risk. There may even be some extra fees to consider so do your homework.