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Pros & Cons Of The First Time Home Buyers Incentive

Pros & Cons Of The First Time Home Buyers Incentive

Buying your first home

Buying your first home

Are you dreaming of owning your first home but are struggling to gather that hefty down payment? Well, your dream might be closer than you think, thanks to the First-Time Home Buyer Incentive, or FTHBI. This innovative program offers a helping hand by allowing you to borrow 5% or even 10% of your prospective home’s purchase price from the federal government.

Intrigued? You should be!

Before you dive headfirst into the world of FTHBI loans, let’s explore all the details and benefits this program has to offer. Then, when you’re ready for that big commitment, give me a call and I’ll help get you pre-approved for the mortgage you need while applying for the incentive as well.

How does the First-Time Home Buyer Incentive work?

Let’s break it down into plain and simple terms. Think of it like this: The government steps in to help you out with your mortgage, specifically when it comes to coming up with that hard-to-reach down payment.

Essentially it’s an interest-free loan that you’ll need to pay back either in 25 years or when you decide to sell your home. The cool part is that by increasing your down payment with this loan, you can actually save quite a bit of money over the life span of your mortgage. And, who doesn’t love saving some extra cash, right?

Here’s how it works. The FTHBI operates under a “shared equity” setup. That means you and the government both own a piece of the property and when it’s time to settle up, you’ll repay a proportion of the property’s market value, not just the initial amount you borrowed.

Depending on what type of home you’re looking at, you can get either 5% of the purchase price for an existing home, 5% or 10% for a brand-new one, or 5% for a new or resold modular or mobile home. Sounds like a sweet deal, doesn’t it? Boosting your down payment with FTHBI funds means you’ll start with more equity, borrow less, and have a better shot at meeting that minimum down payment requirement.

HOWEVER…Before you start planning the move into your dream home, there’s a catch—you’ve got to see if you’re eligible. 

How do you know if you’re eligible for the FTHBI?

Eligibility requirements for the First Time Home Buyer Incentive are pretty straightforward.

You must:

  • Be a Canadian citizen, permanent resident or legally authorized to work in Canada.
  • Have never owned a home. If you’ve gone through a divorce or separation, you’re still eligible, or if you haven’t lived in a home you owned for the last four years.
  • Have enough money to make the minimum down payment.
  • Be pre-approved for a mortgage that’s more than 80% of the home’s value which can be covered by mortgage default insurance.
  • Have a household income of less than $120,000

But, with all Government-funded initiatives like this one, there are pros and cons which you shouldn’t overlook. To make you aware I’ve listed a few important ones below.

The Pros

  • You’ll own your own home. By lowering the cost of your mortgage, the FTHBI could get you into a home when no other program can.
  • You’ll be building equity. Sure, there’s a chance you might have to pay back more than you borrowed, but you will also have accumulated equity from your home to draw from.
  • It’s an interest-free loan. At 0% interest, your FTHBI loan is a pretty sweet deal.
  • There are no penalties. You can pay back the loan in full at any time within 25 years, so you can get out of the program before your home increases in value.

The Cons

  • The limits may be too low. The income and home value limits may be too low to help you find housing in your desired area. 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, after the down payment.
  • You have to purchase mortgage insurance. If you have a down payment of less than 20%, you must have mortgage default insurance. This isn’t insurance for you, it protects your lender in case you don’t make your mortgage payments.
  • There may be a big payback. Because it’s a shared equity loan, you could end up paying back the government more than what you originally borrowed (on the other hand, you could end up paying less than you borrowed if your home’s value goes down).
  • You’ll have to pay for an appraisal. If you decide to exit the program before selling your home, you’ll have to pay for a professional appraisal to determine its value at that time.

Not Interested In The First Time Home Buyer Incentive But, Still Need Help With That Down Payment? Other Programs Can Help

Luckily for you, the government has put several programs in place to help first-time home buyers make that big step into home ownership.

The First Home Savings Account (FHSA) is a tax-free savings account to help you save for a down payment.

The Home Buyers’ Plan (HBP) lets first-time homebuyers withdraw up to $35,000 tax-free from their RRSPs to use towards the purchase of a qualifying home.

Are you ready to learn more about all of these incentives so that you can buy your first home? Then, it’s time to reach out to me, Darren Robinson, and together we will find you the best mortgage rates and options available! Feel free to contact me at 705-315-0516 or book an appointment with me online to get started ASAP.

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