Find Out How First-Time Home Buyer Incentive Can Help You Buy a House in 2024?

“Learn how the First-Time Home Buyer Incentive can assist you in purchasing a house in 2024. Explore the benefits, eligibility criteria, and steps to take advantage of this program to make your dream of homeownership a reality.”

Overcoming the hurdle of a sizable down payment is often the biggest challenge for first-time homebuyers. Fortunately, the First-Time Home Buyer Incentive (FTHBI) could offer the assistance you need.

The FTHBI is a shared equity program enabling you to borrow 5% or 10% of a home’s purchase price from the federal government. As this is a distinctive arrangement, it’s essential to gather thorough information about it before considering an FTHBI loan application.

How the First-Time Home Buyer Incentive works?

Here’s how the First-Time Home Buyer Incentive (FTHBI) operates:

Qualified home buyers under the FTHBI will receive one of the following options:

• 5% of the purchase price for an existing home.
• 5% or 10% of the purchase price for a newly constructed home.
• 5% of the purchase price for a new or previously owned manufactured or mobile home.

First-Time Home Buyer Incentive loans are interest-free and must be fully repaid within 25 years or upon the sale of the house, whichever comes first. However, because the FTHBI is a “shared equity” arrangement, you’ll also owe a percentage of any increase in your home’s value.

On the surface, the First-Time Home Buyer Incentive appears to offer valuable assistance to first-time buyers. By utilizing First-Time Home Buyer Incentive funds to boost their down payment, borrowers increase their equity at the beginning of their mortgage term, reduce the amount they need to borrow, and improve their chances of meeting minimum down payment requirements or securing better terms.

However, it’s crucial to grasp the shared equity aspect and understand the eligibility criteria before determining if the program suits your needs.

First-Time Home Buyer Incentive 2024 Overview

• $4200 Canada Student Grant 2024
• $4000 Extra CPP Payment 2024
• $2600 OAS Pension February 2024
• $2400 OAS Payment Date 2024
• $2400 OAS Benefits February 2024

First-Time Home Buyer Incentive Eligibility requirements:

• Must be a Canadian citizen, permanent resident, or legally authorized to work in Canada.
• Must be a first-time home buyer, meaning you’ve never owned a home before. Those who have experienced a divorce or separation, or have not lived in a home they owned (or that was owned by their spouse or partner) in the last four years, are also eligible.
• Must have sufficient funds for the minimum down payment.
• Must be pre-approved for a mortgage covering more than 80% of the property’s value, and thus covered by mortgage default insurance.

How to Apply for the First-Time Home Buyer Incentive?

Once they’ve located the house they wish to buy and been pre-approved for a mortgage by a mortgage institution, eligible home buyers can apply for the FTHBI.

Two crucial elements will determine whether your FTHBI application is accepted and whether the program is beneficial to you:

Location:
The mortgage amount cannot exceed four times your qualifying income in the majority of the nation. The maximum is four and a half times your income in Toronto, Vancouver, and Victoria.

Earnings
The total income of your household cannot exceed $120,000. The threshold is $150,000 in Victoria, Vancouver, and Toronto.

Here are two brief illustrations of the highest FTHBI borrowing amounts that are feasible under certain circumstances:

Your FTHBI loan will not be granted if your household makes even a single dollar more than those income requirements or if there are no properties for sale within the government-established price ranges.

Once the pre-approval procedure is finished, complete the forms available on the FTHBI website. Your lender will submit the forms on your behalf if you give them to them.

If your application is accepted, you will next need to call 1 (855) 844-4535 to start your incentive with the closing service provider, FNF Canada. Make sure you complete this at least two weeks prior to the closing date of your house purchase, and be ready to give your lawyer’s or notary’s contact details.

Repaying a debt from First-Time Home Buyer Incentive

A shared equity agreement with the government is the FTHBI. In essence, they are the owners of 5% or 10% of any price increases for your house. Thus, when you pay back your FTHBI loan, they will be entitled to a comparable portion of the increase in value of that house. You’ll be expected to repay more of the appreciation on your home.

Your payback amount consists of two parts in the event that the value of your home rises:

• the initial loan sum.
• The initial loan percentage (either 5% or 10%) was adjusted for the home’s increase in value.

The initial loan percentage will be applied to the depreciation and deducted from the original loan amount if your home loses value.

Additionally, the amount you might spend for the appreciation is capped. The cap is equivalent to the initial loan amount plus 8% (non-compounding) annually.

Let’s examine this in more detail. Let’s say you use a 5% FTHBI loan worth $30,000 to buy a $600,000 house. You sell it for $1,000,000 in ten years. Here’s how to figure out how much you have to pay back:

• The initial amount of your loan is $30,000.
• The house gained a whopping $400,000. That is $20,000. Five percent of that. This is less than the $24,000 ceiling ($30,000 * 8% * 10 years).
• $50,000 would be the total of the two payments that you would have to reimburse.

Repaying your FTHBI loan as soon as you can is one method to prevent having to pay back more than you originally borrowed. Repayment is flexible and comes with no penalties or need to sell your house. The amount you repay will depend on the home’s market value at the time, which will be assessed by a qualified assessor.

Can the First-Time Home Buyer Incentive benefit you When buying a house?

The FTHBI should be helpful if saving for a down payment is proving to be challenging. Because it generates a higher down payment, a smaller mortgage application is made, which should result in lower interest rates, smaller monthly payments, and more affordability.

You might also save money with the FTHBI. The findings of a few samples we ran through the FTHBI calculator of the Government of Canada were encouraging, if not overwhelming:

• You would save about $264.11 a month on your mortgage with a 5% FTHBI loan on a $725,000 Toronto home, a $80,000 down payment, and a 25-year mortgage at a 5.5% interest rate.
• Your monthly savings would be $183.14 if you were to purchase a $500,000 property in Calgary with a 5% FTHBI loan, a $30,000 down payment, and the same mortgage terms as mentioned above.

Let’s now assess the difference between those funds and the possible repayment amount in five years.

• Assume your Toronto house brings $950,000 at auction. The government is owed $47,500, or 5% of the sale price. Although that’s $11,250 more than you originally borrowed five years ago, your mortgage payments were reduced by $15,846 at that time. You now have over $4,000 in savings and a home of your own.
• 5% of the sale price, or $30,000, or $5,000 more than you initially borrowed, would be received if the Calgary property sells for $600,000. However, in this instance, you have collected nearly $6,000 in mortgage savings because you have saved $10,988 in mortgage payments.

Pros and cons of the First-Time Home Buyer Incentive

Pros:

1. Assistance with Down Payment: The FTHBI provides financial support for first-time homebuyers by offering a shared equity loan, helping to bridge the gap in saving for a down payment.
2. Reduced Mortgage Payments: By increasing the down payment, borrowers can potentially secure a smaller mortgage, leading to lower monthly mortgage payments and increased affordability.
3. Savings on Interest Charges: With a smaller mortgage, borrowers may pay less in interest charges over the term of their mortgage, resulting in long-term savings.
4. Potential Savings: The FTHBI can save homeowners money in the short term by reducing monthly mortgage payments, allowing them to allocate funds to other expenses or savings goals.

Cons:

1. Shared Equity: Borrowers must repay the shared equity loan when the home is sold or after a specified period, potentially owing a portion of the property’s appreciated value to the government.
2. Complexity: The FTHBI involves intricate calculations and considerations, including shared equity repayment calculations and eligibility criteria, which may be challenging for some borrowers to navigate.
3. Limited Eligibility: The FTHBI is available only to first-time homebuyers who meet specific income and eligibility requirements, limiting access to certain individuals or households.
4. Potential for Loss: If the value of the home decreases, borrowers may still owe a percentage of the initial loan amount to the government, regardless of the property’s current value.

Overall, while the FTHBI offers valuable assistance to first-time homebuyers, it also presents certain complexities and risks that borrowers should carefully consider before participating in the program.

How the First-Time Home Buyer Incentive Can Help You Buy a House?

The First-Time Home Buyer Incentive (FTHBI) is a program implemented by the Canadian government to assist first-time homebuyers in purchasing their first home. Here’s how it can help you buy a house:

• Shared Equity Mortgage:
  The FTHBI provides eligible first-time homebuyers with a shared equity mortgage (SEM). Under this arrangement, the government contributes a portion of the home’s purchase price, reducing the amount of the mortgage loan required from a traditional lender. This can help lower your monthly mortgage payments and decrease the amount of interest paid over the life of the loan.
• Lower Monthly Payments:
  By reducing the amount of the mortgage loan required, the shared equity mortgage can result in lower monthly mortgage payments, making homeownership more affordable for first-time buyers.
• Reduced Down Payment Requirement:
  With the FTHBI, eligible homebuyers can apply for a down payment assistance program, which provides additional financial support to cover a portion of the down payment required to purchase a home. This can help buyers who may struggle to save for a large down payment.
• No Ongoing Payments on the Equity Loan:
  The shared equity mortgage provided through the FTHBI does not require ongoing payments like a traditional loan. Instead, the government’s equity stake in the home is repaid when the property is sold or after 25 years, whichever comes first.
• Flexibility and Options:
  The FTHBI allows homebuyers to choose from a variety of property types, including new construction, resale homes, and mobile/manufactured homes. This provides flexibility for buyers to find a property that meets their needs and preferences.
• Potential for Home Equity Growth:
  While the government shares in the equity of the home, homebuyers still benefit from any increase in the property’s value over time. As the value of the home appreciates, the homeowner’s equity stake increases, providing potential financial benefits in the future.

Overall, the First-Time Home Buyer Incentive aims to make homeownership more accessible and affordable for first-time buyers by providing financial assistance and reducing the financial burden associated with purchasing a home. However, it’s essential to carefully consider the terms and conditions of the program and consult with a financial advisor or mortgage specialist to determine if it’s the right option for your specific circumstances.

Other first-time home buyer aid programs

Although the First-Time Home Buyer Incentive has a distinctive design, first-time buyers seeking assistance have access to other programs as well.

The Home Buyers’ Plan, which enables you to apply your RRSP savings toward a home purchase without incurring any early withdrawal penalties, can be something to think about if boosting your down payment is your main objective.

The First-Time Home Buyers’ Tax Credit, which can reduce your tax liability by up to $1,500, and a number of “green home” incentives are also available to help homeowners save money on energy-efficient improvements to their properties.

First-time homebuyers can also take advantage of provincial and local grants and incentives. These initiatives can be particularly beneficial if you intend to purchase your first house in a pricey real estate region, such as British Columbia or Ontario.

First-Time Home Buyer Incentive (FTHBI) Link

Summary

The First-Time Home Buyer Incentive (FTHBI) in Canada is a shared equity program aimed at assisting first-time home buyers by providing a portion of the home’s purchase price as a loan from the federal government. This loan can be 5% or 10% of the home’s price for various types of properties. The FTHBI loan is interest-free but must be repaid within 25 years or upon the sale of the home, with the government entitled to a percentage of any increase in the home’s value.

Eligibility criteria include being a Canadian citizen or permanent resident, being a first-time home buyer, having sufficient funds for the minimum down payment, and obtaining pre-approval for a mortgage covering more than 80% of the property’s value. While the program can assist in lowering mortgage costs and increasing affordability, potential borrowers should carefully consider the shared equity aspect and eligibility requirements before applying.

• $2400 Federal Benefits 2024
• $2400 Workers Benefit Payment 2024
• $2100 CPP Benefits Payment Dates February 2024
• $1800 per Month GIS Direct Deposit Feb 2024
• $1580 OAS Payment Date 2024

FAQs on First-Time Home Buyer Incentive