Is it time for me to be buying my first home?

There are many reasons people consider becoming a home owner for the first time. Maybe you simply need a place to live. Maybe you are getting married or your family is growing. Perhaps you want the financial advantages of owning real estate as you build up your financial assets. Whatever your reasons, there are several first time home buyer programs designed to help Canadians buying their first home.

Home Buyers Plan

The Home Buyers Plan (HBP) allows first time buyers to withdraw up to $35,000 from their RRSP to buy a home. Normally when you cash in your RRSP a significant tax is incurred and withheld. With the Home Buyers Plan no taxes are withheld on the amount withdrawn. As long as you pay it back over a 15 year period no taxes are due on it either.

Who qualifies as a first time buyer under the HBP?

• An actual first time buyer meaning any one that has never owned a home before
• Anyone who has previously owned a home but who hasn’t occupied a home in the past four years that they or their spouse has owned.
• Anyone going through a separation or divorce who needs a mortgage to purchase a new residence

A full description of the requirements of the HBP Program is available on the Government of Canada website here.

First Time Home Buyer Incentive

First Time Home Buyer Incentive (FTHBI) is a program which makes it easier for you to become a first time buyer. The program offers an extra 5% or 10% of the home’s purchase price to your existing down payment. This can make your monthly cost of home-ownership more affordable because you end up with a lower overall mortgage balance.

How does it work?

The incentive is not free money. The incentive is given in exchange for a portion of the equity in your house. This incentive is registered on your home’s title as a shared equity mortgage. For example, if you received $15K for a 5% FTHBI on a $300K house purchase and then sold it later on for $350K, you would have to repay $17,500 (5% of the sale price) to the program.

So basically, if your house is worth more than originally paid for, you will need to repay more than you received. If it is worth less, you have to pay less back. There is no interest or monthly payments associated with this program. You will have to repay it if you ever decide to refinance your mortgage.

How do I know if I qualify for the Incentive?

The program is not for everyone. Your total household annual income cannot exceed $120K ($150K if you live in Toronto, Vancouver or Victoria). You cannot borrow more than 4 times your annual income (4.5 times in Toronto, Vancouver or Victoria). For complete program details, check the official website here. You can use the incentive calculator to quickly find out if you are eligible.

Low Down Payment Options

Insured High Ratio Financing

Mortgage insurers in Canada allow borrowers to put as little as 5% down on an owner-occupied home purchase. Down payments can come from the borrowers own savings or be gifted from an immediate relative. The main mortgage insurers in Canada are CMHC (Canada Mortgage and Housing), Sagan (previously Genworth), and Canada Guaranty. Mortgage insurance is not limited to first time home buyers as any borrower can access these programs repeatedly. The key requirement is that the home is occupied by the owner or a family member of the owner.

Flex Down

Flex Down provides an option for you if you want to borrow the required 5% down payment. If you have access to unsecured credit or a non-family gift this may be an option for you. If you have stable income and an excellent credit rating you could be considered for this program.

For more information about any of these programs or buying your first home please contact our team.