Did you know that almost half (46 percent) of Canadian millennials think that becoming homeowners in the near future is “a pipe dream,” according to a poll conducted by global accountant KPMG in 2019. During the pandemic, the financial hardships may have just made homeownership seem impossible for many first-time home buyers.
Even before COVID-19, millennials struggled to afford a home despite being employed with well-paid jobs due to the soaring house prices and rising personal debt. According to a 2016 StatsCan report, just over one-third of Canadians ages 20-34 lived with at least one parent and 42.1 percent of young adults in Ontario lived with their parents, representing the most significant percentage out of all the provinces and territories. Thanks to the increasingly unaffordable cost of living in cities- Toronto and Vancouver. In September 2019, the federal government introduced the First Time Home Buyer Incentive (FTHBI) Program to help first time home buyers to lower their monthly mortgage payment and more easily afford a home. It is a shared-equity mortgage with the Government of Canada. As a result, the government shares in both the upside and downside of the property value.
What did the FTHBI program offer in 2019?
- 5% or 10% for a first-time buyer’s purchase of a newly constructed home
- 5% for a first-time buyer’s purchase of a resale (existing) home
- 5% for a first-time buyer’s purchase of a new or resale mobile/manufactured home
- The homebuyer will have to repay the incentive based on the property’s fair market value at the time of repayment. If a homebuyer received a 5% incentive, they would repay 5% of the home’s value at repayment. If a homebuyer received a 10% Incentive, they would repay 10% of the home’s value at repayment.
- The homebuyer must repay the incentive after 25 years or when the property is sold, whichever comes first. The homebuyer can also repay the incentive in full any time before, without a pre-payment penalty.
Is it helping Canadians to become homeowners?
The program was touted as a way to help 100,000 Canadians over three years. However, only 4,414 Canadians applied to the shared-equity program for first-time homebuyers between Sept. 1, 2019, and Feb. 1, 2020. Of those, just 2,061 have been approved and received funds through the shared-equity mortgage.
The program also caps out at home prices of roughly $500,000 to $600,000 — a price nearly impossible to find in many major markets. In Vancouver, the average price of a home is $1,195,92 and $883,520 in 2019. If you want to buy a home that’s more expensive than the cap, then it might not be for you. Even in areas where the prices are less astronomical, both said the government’s underlying concern about owning equity in a person’s home remains a significant concern.
What were the eligibility criteria for the FTHBI program (2019)?
- The borrower must be a first-time homebuyer
- The borrower must have a household income of less than $120,000
- The mortgage is capped at four times the maximum household income of $120,000, or $480,000. This means the average price of a home would be $500,000 to $600,000, depending on the down payment.
What has changed for the FTHBI program in 2020?
Spring 2021 onwards first time buyers can qualify if:
- The borrower is having a household income of $150,000 or less than earlier $120,000.
- Ability to purchase a home up to 4.5 times their household income
- The new rules will apply to borrowers in greater Toronto, Vancouver and Victoria only.
- You have the minimum down payment amount in savings.
The new rules will reduce borrowers’ debt ratios and the monthly payment, interest expense, and default insurance premium. A borrower must default-insure their mortgage through Sagen (previously known as Genworth) or Canada Guaranty to enjoy maximum buying power.
Dominion Lending Centres NasaKasa
Is the FTHBI program right for you? Are you eligible? Should you opt for the program or explore other mortgage financing options? Get all your questions answered by consulting experienced mortgage professionals at Dominion Lending Centres NasaKasa. You can reach us at 905.997.7001 or email us at firstname.lastname@example.org to check if you will be eligible for the program.