New First-Time Home Buyer Incentive.. the quick facts.

The First-Time Home Buyer Incentive (FTHBI) program is a Shared Equity plan that came into effect Sept 2nd (just before an election, what coincidence).  The program was created to stimulate new home construction and to fill a lack of housing supply.

Here are the quick facts about the program and how you can actually qualify.  Spoiler alert, this program isn’t for everyone, and actually, it’s going to be more relevant for smaller cities and towns where home prices are below $500k.  Still, it’s worth reviewing to see if you do qualify…

• The federal government is sharing in the equity of the home for up to 10% of the home price (5% for resales and 10% for new construction homes).
• Maximum household income $120k per year. Earning more excludes you.
• Using today’s ‘stress test‘ qualifying rate of 5.19%, that makes your maximum purchase price $500k.
• The Government of Canada will become a part owner of your home for a percentage equal to how much they gave you. If they give you 10%, then they own 10%. If they gave you 5%, they own 5%.
• You are not required to make any regular repayments.  You must repay the loan amount by end of 25 years.  The government shares in the increased value, but also shares in any decrease in value.
• If the home increases in value by 50%, you will owe them 50% on top of what they gave you.  Example: you received $30,000 and in 20 years, your  home goes up by 50%, then you will have to repay the government $30,000 + the 50% increase in the value of your home for a total of $45,000.
• If your home drops in price by 50%, then the government will share in the loss. Using the same scenario as above, a $30,000 government share will see your repayment drop by $15,000 to $15,000.
• The Government of Canada will put a 2nd mortgage on your home as their security or collateral.
• The government grant or loan is repaid once you sell the home or no later than 25 years, whichever comes first.

And by the way, you can always contact me for answers about this and other programs.

IS THIS GOOD OR BAD?

Free money is always good, if you can qualify.  I would definitely recommend that you look into  this if you are looking to buy in the $500k price range or less and your household income is less than $120,000 per year.

Here’s an eligibility calculator to see how much you qualify for http://bit.ly/2ZGDSkZ

To me, the program has politics and election campaign written all over it.  This plan will not address the lack of housing supply and growing housing demand that we are seeing in most urban centres.  It’s great for anyone buying well outside major cities.   But those smaller communities don’t have a supply issue.  I don’t see how this will stimulate developers to build affordable housing in cities where it’s needed.

The program is complicated and will require an army of new government employees to manage.  Is this really the best we can do?   My suggestion would be to bring back the 30 and 35 year amortization mortgages for those with less than a 20% down payment.  Change or eliminate the Stress test.  (Your mortgage payment will only increase by around 32% if your rate doubles… that’s right, DOUBLES… and in 5 years, aren’t our most vulnerable first time buyers earning more income in 5 years? (the answer is YES).  ) This will increase affordability significantly and stimulate new home builds.

Stop trying to control the price of homes, Government of Canada, you  just aren’t good at doing this. Listen to industry experts that are telling you to make the above changes.

Your best interest is my only interest.   I reply to all questions and I welcome your comments.  Like this article?  Share with a friend.

Steve Garganis 416 224 0114 steve@mortgagenow.ca