First Time Home Buyer Incentive Program Refresher:
First time home buyers who have less than 20% down payment have the option to borrow an additional 5% down payment for a re-sale property, or up to 10% for a pre-sale property from the government. The maximum loan amount borrower(s) are eligible for must not exceed 4x the overall household income, and the income under this program is capped at $120,000 (if you and your spouse earn over $120,000 combined, you cannot apply).
What are the Advantages?
The government implemented this program for a reason, so let's see how it would help our borrower:
1) Clients pay a lower cost of Mortgage Default Insurance (Saves them approximately 1% of the mortgage amount) By decreasing the loan to value through borrowed down payment from the government, our borrower will save on the insurance premium from CMHC, Canada Guaranty & Genworth. This is one of the biggest advantages of the program.
2) Lowers monthly mortgage payments by around 6% Allowing first time home buyers to put more cash in their pockets month-to-month.
What are some Misconceptions? Confusion about the advantages of the program.
1) Increases affordability - FALSE. The program is intended to help borrowers with cash flow by lowering monthly payments. In fact, using the program will actually decrease your borrowing power, as the mortgage amount is capped at 4x your income. Without using the program, a borrower has the possibility to borrow up to 4.5x their income through regular lending guidelines.
2) No need to repay the government - FALSE. Although the borrowed amount is not interest bearing or requires ongoing repayment, you are required to repay the government back the % you borrowed in a lump sum at any time, in 25 years, or at time of sale of the home (with no penalty) at the market value.
QUICK CALCULATION How to find out what your maximum purchase price is using the First Time Home Buyer's Incentive:
CALCULATION: Annual income x 4 / 0.95 = maximum purchase price allowable if using the first time home buyer's incentive. (Example: $120,000 household income x 4 / 0.95 = $505,263 Purchase Price)
Questions? Contact me at jessica.kuan@cleartrust.ca
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