First Time Home Buyer’s Program
The First Time Home Buyer’s Program otherwise referred to as the FTHBI is a Canadian Government program, which contributes up to 10% to the down payment for First Time Home Buyers. This is an effort to support borrowers in their first home purchase to reduce their monthly mortgage payments, without contributing to their financial burdens. This program is a “shared equity” mortgage with the government of Canada, where you put 5% down on an existing home and they match your down payment and put another 5% down for you without any out-of-pocket or upfront costs. If you are looking at purchasing a newly constructed home, there are options for down payments from 5-10%.
As one of the Top 3 Rated Mortgage Brokers in Vancouver, we would be more than happy to assist you with understanding the First Time Home Buyer’s Program.
To be eligible for this government incentive program you must:
- Be a first-time homebuyer
- Exception if you have been renting and NOT owned a property for the last 4 years
- Total household income must be under $120,000
- You must have the minimum 5% down payment from your own resources
- This means that the 5% down payment cannot be from a line of credit, loan, or gift.
Some limitations to the program that are non-negotiable are:
- Must be owner-occupied (no rentals)
- Property must be in Canada
- Must be owner-occupied year-round
- Must be an insured mortgage (less than 20% down payment)
- Mortgage can be maximum four times your annual income (or the maximum amount of $480,000 plus down payment)
- Must pay back the “shared-equity” at the time of property sale or within 25 years (whichever comes first)
This program is a popular option in BC with property values coming in at an all-time high and mortgage rates at an all-time low. Although this can be helpful in reducing your monthly mortgage payments, it does come with a few catches. Since the government of Canada will be matching your 5% down payment, they now own 5% equity in YOUR home.
In summary, this means that when you sell your house (or after 25 years) you will be paying 5% of that equity back to the government. This can feel unfair to some people as the value in their home increases, so does the 5% “shared home equity”. If your property is worth more at 25 years (or sells for more than the time of purchase) the “shared home equity” also increases, meaning they could potentially require you to pay back MORE than the original amount they lent to you at the time of purchase.
Let’s have a look at this case study:
- Joe Smith is looking to make his first-time home purchase with his annual income of $85,000. The property he is looking at has a purchase price of $325,000, with his 5% down payment he can put $16,250 down. That brings his requested mortgage amount to $308,750 leaving him with monthly payments of $1,405.
- If Joe Smith decided to use the FTHBI with his annual income of $85,000 to put down $16,250, the government of Canada would chip in the same 5% of $16,250 and now Joe has a down payment of $32,500. Joe’s requested mortgage amount would then be $292,500 leaving him with monthly payments of $1,331.
- If Joe Smith utilized this FTHBI program, he would be saving $22,200 over the life of his mortgage.
FTHBI is a federal government initiative to help first-time homebuyers into the housing market. It is important that you understand the ins and outs of this product and work with a professional Mortgage Broker. Your Mortgage Broker will be able to look at your individual situation and walk you through your options and advise if this product would be of benefit to you.