Friday Morning Mortgage Minute

Posted by Louise Mason on Friday, September 30, 2022 at 10:01 AM By Louise Mason / September 30, 2022 Comment

Here is a 2-minute review of the basics that we should all know!

WHAT IS IT?

Provided by the Government of Canada to make home ownership for our newbies more accessible and affordable, The First-Time Home Buyer Incentive helps people across Canada purchase their first home. The program offers 5 or 10% of the home’s purchase price to put toward a down payment. This addition to their down payment lowers both the principal and interest amounts, making homeownership more affordable. The Incentive is like a second mortgage on your client's home.

The first mortgage must be greater than 80% of the value of the property and is subject to a mortgage loan insurance premium. It also must be eligible through one of our three mortgage insurers in Canada. The insurance premium is based on the loan-to-value ratio of the first mortgage only. That is, the first mortgage amount divided by the purchase price. You don’t pay mortgage insurance on the incentive – it is included with the total down payment.

HOW DOES IT WORK?

Buyer's get an extra 5% or 10% of the down payment of their home and then repay the Government either 5% or 10% of the property’s market value at the time of repayment, up to a maximum repayment amount equal to:

• In the case of appreciation, the Incentive amount plus a maximum gain to the Government of 8% per year

• In the case of a depreciation, the Incentive amount minus a maximum loss to the Government of 8% per year

Just as the name implies, this incentive is for first-time homebuyers. You’re considered a first-time homebuyer if:

• you have never purchased a home before

• you did not occupy a home that you or your current spouse or common-law partner owned in the last 4 years

• you have recently experienced the breakdown of a marriage or common-law partnership (even if you don’t meet the other first-time home buyer requirements)

WHAT IS IT NOT?

I added this section 'what it's NOT' because there is sometimes confusion between this program and the First-Time home buyers Plan. Why do they have to make the names so similar!? This one is a program that allows Canadians to take up to $35,000 out of their RRSPs tax-free to buy a home.

I will focus on that program in the coming weeks, but here is more info on their website if you are asking about this one .

WHO IS ELIGIBLE?

Just as the name implies, this incentive is for first-time homebuyers. You’re considered a first-time homebuyer if:

• you have never purchased a home before

• you did not occupy a home that you or your current spouse or common-law partner owned in the last 4 years (the 4-year period begins on January 1 of the fourth year before the Incentive is funded and ends 31 days before the date the Incentive is funded)

• you have recently experienced the breakdown of a marriage or common-law partnership (even if you don’t meet the other first-time home buyer requirements)

Your clients must meet these requirements to apply:

• Their total annual qualifying income doesn’t exceed $120,000 ($150,000 if the home is in Toronto, Vancouver, or Victoria)

• Their total borrowing is no more than 4 times the qualifying income (4.5 times if the home is in Toronto, Vancouver or Victoria )

• They are a first-time homebuyer (no home owned in the past 4 years)

• they are a Canadian citizen, permanent resident or non-permanent resident authorized to work in Canada

• They meet the minimum down payment requirements with traditional funds (savings, RRSP, or a gift from a family member)

• It must be owner-occupied, no rentals.

HOW MUCH COULD YOU GET?

The type of home plays a factor in what your client's are eligible for. The table shows the type of home that qualifies for the incentive and how much for each type:

PROPERTY TYPE INCENTIVE AMOUNT (%)

New Construction 5% or 10%

Existing Home 5%

New and existing mobile/manufactured home 5%

NOTE: First-time homebuyers purchasing a home in the Toronto, Vancouver, or Victoria Census Metropolitan Areas are now eligible for an increased Qualifying Annual Income of $150,000 instead of $120,000, and an increased total borrowing amount of 4.5 instead of 4.0 times their qualifying income. You can check here to see if your clients property is in the census area of your city.

HOW DO YOU APPLY?

It's VERY easy! The client needs a Pre-Approval, (I've got them covered if you need help with this!), they need an accepted offer on the home, and they need to meet the requirements of eligibility noted above. At this stage, the clients just need to let me know of their intention to apply and I will include the forms in their mortgage application process.

p.s - What happened with those fixed-rate increases we were expecting? Yes, bonds went up enough to push fixed-rates up from 4.55% to 4.84%. Thanks inflation! Variable is still the way to go.

Reach out to me for more info!

Louise Mason

Mortgage Broker, Mortgage Pal

587-999-9768 | [email protected]