First-Time Homebuyers Incentive Changes: What You Need to Know
Exciting New Changes to the CMHC First-Time Homebuyers Program
First-time homebuyers, we have great news! As of May 3rd, 2021, new updates to the Canada Mortgage and Housing Corporation (CMHC)’s First-Time Homebuyers Incentive have come into effect. Victoria is now one of the few cities that has been given enhanced eligibility criteria to help you qualify for a lower monthly mortgage payment.
What Is the First-Time Homebuyers Incentive?
The First-Time Buyers Incentive can lower your monthly mortgage payments.
As explained by the National Housing Strategy, the First-Time Home Buyers Incentive is a program that lets you borrow 5% or 10% of the sticker price of a home. When you decide to sell your house (within a 25 year period) you pay back that same percentage of the value of your home.
How Does the First-Time Homebuyers Incentive Work?
The incentive works just like putting a second mortgage on your home.
To qualify for the incentive, your mortgage must be greater than 80% of the value of the property subject to a real estate loan premium. Your mortgage must also be eligible for mortgage insurance through Canada Guaranty, CMHC or Sagen (previously known as Genworth.)
The mortgage insurance premium is based on the loan-to-value ratio of the first mortgage only. So, the first mortgage amount is divided by the purchase price. The good news is you don’t pay mortgage insurance on the incentive, since it’s included with the total down payment.
What Are the Updates to the First-Time Homebuyers Incentive?
First-time homebuyers purchasing in Toronto, Vancouver, or Victoria are now eligible for an increased Qualifying Annual Income of $150,000 instead of $120,000, an increase of $30,000. This can mean the difference between being able to buy a home or having to save up for a larger down payment.
First-time homebuyers are also eligible for an increased total borrowing amount of 4.5 rather than 4.0 times their qualifying income, meaning you can buy that bigger, better home.
Not sure if your preferred neighbourhood is included in Victoria proper? The location maps and tools on www.placetocallhome.ca will help you be sure the home you want is in the right location to qualify for the First Time-Home Homebuyers incentive.
How Does the First-Time Homebuyers Impact My Mortgage?
There are two options, 5% or 10%, depending on what you qualify for as a buyer. Your mortgage lender can explain how the amount of your down payment, purchase price of the home, annual income and more can help influence which incentive you’re eligible for. Here are two scenarios that help to explain what happens when your home’s value increases versus what happens when your home’s value decreases after you get the incentive.
Scenario 1 – You receive a 5% incentive and your home’s value increases
As the buyer, you receive a 5% incentive of the home’s price. If you were purchasing a $200,000 home, you’d receive $10,000. If that home’s value increases to $300,000, your payback will be 5% of the current value (or $15,000.)
Scenario 2 – You receive a 10% incentive and your home’s value decreases
You receive a 10% incentive of the home’s price of $200,000, or $20,000. If your home value decreases to $150,000, your repayment value will be 10% of the present value (or $15,000.)
Am I A First-Time Homebuyer?
You are considered a first-time homebuyer if:
- You have never purchased a home before.
- You didn’t live in a home that you (or your current spouse or common-law partner) owned within the last 4 calendar years. Note: the 4-year period begins on January 1 of the fourth year.
- Your marriage or common-law relationship has recently ended and you’re going through a separation or divorce requiring a division of assets.
Other eligibility requirements for the First-Time Homebuyers Incentive:
When determining whether you are eligible for the First-Time Home Buyer Incentive in Victoria:
- Your total annual qualifying income will not exceed $150,000.
- You’re borrowing no more than 4.5 times your qualifying income.
- You or your spouse / partner are first-time homebuyers.
- You are a Canadian citizen, permanent resident or non-permanent resident authorized to purchase a property in Canada.
- You meet the minimum down payment requirements with traditional funds—this could be savings, withdrawal/collapse of a Registered Retirement Savings Plan (RRSP), or a non-repayable financial gift from a relative/immediate family member.
What else should you know?
If you’re considering applying for the incentive, you should be prepared for some potential additional costs. These can include:
- Additional legal fees- Since you will be closing on two mortgages, your fees may increase.
- Appraisal fees – To repay your incentive, you’ll need to have an appraisal done to work out the fair market price of your home. (Need some pointers? We’ve curated a pre-appraisal checklist just for you.)
- Property insurance premiums – Extra costs may factor in since there is an additional mortgage registered on the property. Talk to your insurance agent or insurance provider for more details on these types of fees and premiums.
- Other fees – Additional documentation or admin fees could also be incurred if you switch your mortgage to a replacement lender or if you refinance the mortgage.
Lastly, the type of home / property that you are looking to purchase is going to play a factor in the incentive amount that you are given. A new construction home may qualify for an incentive amount of 5% or 10%. An existing home or a mobile/manufactured home will be a flat 5%.
Also, any residential property with 1 to 4 units can qualify, which means the options are endless: You are eligible with anything from a single-family home, a semi-detached home, a duplex, triplex, fourplex, townhouse, condominium unit, or a mobile home. The caveat is that this must be your residential property that you live in, year-round. Income properties will not qualify.
Applying for The First-Time Home Buyers Incentive is Simple
Once you’ve been preapproved for a mortgage, you can fill out the two forms found on A Place to Call Home. Under “How Do I Apply” you’ll find these forms.
- The First-Time Home Buyers (FTHBI) SEM Information package
- The SEM (Shared Equity Mortgage) Consent form
These PDFs can be printed and filled out, or filled out digitally. Once they are complete, give them to your lender. They will submit the application for you. If you need any help with the forms, just let your lender know. They’ll be able to help you dot the i’s and cross the t’s.
The final signed copy of the SEM package will go to your lawyer or notary. Once you’re accepted for the Incentive program, you just need to activate your incentive. It’s as easy as a phone call. Just call Fidelity National Financial Canada at 1 (855) 844-4535 and give them the name of your lawyer or notary. The sooner you can do this, the better, since you’ll need to activate your incentive at least 2 weeks before the sale of your home closes.
The First-Time Homebuyers Incentive changes make purchasing a home in Victoria a little bit easier. With this new eligibility criteria now in place, it may just be the perfect time to consider becoming a homeowner. At D. Fritz Appraisals Inc., we can help you with that. Whether you are thinking of buying or selling, or just looking to get that appraisal done, our experienced and professional team of appraisers offer the most accurate and comprehensive residential real estate appraisal service around Victoria, central Vancouver Island, and the Gulf Islands. To order an appraisal, call us at (250) 413-7319. You can also send us an email and we’ll respond as soon as possible.