First Time Buyers Programs: Q&A with Stephen Jackman from ThinkMortgages

We reached out to one of our mortgage brokers with ThinkMortgages to open up a Q&A regarding several new tips for First Time Home Buyers Programs.

Stephen Jackman helped shed light on the various options available to those wishing to make the step towards purchasing. Take a look at Stephen’s thoughts on what we can expect from these programs.

What are the details regarding the First-Time Home Buyer’s incentive?

Eligible applicants who are applying for a high-ratio mortgage with a total down payment of less than 20% of the purchase price can receive a matching 5% down payment from the government to combine with their existing funds. eg. You save 5% down payment and the government will match it, therefore you have a 10% down payment. The offer goes up to 10%  for a brand new never occupied property AKA a presale. 

This is an interest-free, payment-free loan from the Government that is due to be repaid upon sale of the home or once 25 years elapse. In other words, this is a shared equity program without monthly penalties, fees or payments. 

Key Details: The program has established larger lending limits for purchases within the Vancouver and Victoria census districts. 

Household income cannot exceed $150,000 before taxes ($120,000 outside the Vancouver and Victoria census districts) 

Total borrowing including the incentive cannot exceed 4.5 times the household income. (cannot exceed 4 times the household income outside the Vancouver and Victoria census districts) 

The total borrowing in Vancouver and Victoria census districts cannot exceed $675,000 ($480,000 outside these districts). Total borrowing includes the primary mortgage and the 5% shared equity loan from the Government. 

Therefore the max purchase price in the Vancouver and Victoria census districts is $710,000 and $505,000 is the max price outside Vancouver and Victoria. 

What are the benefits of using the First Time Home Buyer’s Program?

The benefits of the FTHBI are savings! Lower total mortgage size = lower monthly costs and a lower mortgage balance upon completion of your term. Using the maximum purchase example in Vancouver and Victoria the average applicant would save approximately $150 per month on payments. $1800 difference in the first year. Over a 5-year mortgage term, this would be equal to $9000 in savings. $45,000 difference in payments over the 25-year lifespan of the mortgage loan. 

What is the First Home’s Savings Account?

A new savings account was created by the federal government to help prospective homeowners towards their down payment goals. You can make tax-deductible deposits of up to $8,000 per year for a total of $40,000 over 5 years and withdraw this money tax-free as part of a down payment for a home in Canada. This account functions exactly like a TFSA in that you can invest the monies inside the account into GICs, bonds and mutual funds. The FHSA can be opened at any major bank in Canada and can be customized and operated within your existing online banking system login. 

What is the Home Buyer’s Plan?

The home buyers plan allows prospective first-time home buyers to withdraw up to $35,000 from their RRSP to put towards the down payment on their first home purchase. You are given 15 years to repay the withdrawn money back into your RRSP during regular contribution time using an equal payment instalment plan. The program is accessed by directly contacting the institution which holds your RRSP. You can manage your own Home Buyers Plan and view the balance and payment plan using the MY CRA tax website.

 Are there any other prerequisites needed to qualify for the FHSA or the HBP?

You must be a resident of Canada and qualify as a “first-time home buyer” which by definition in Canada is having never owned a home before or lived in a home owned by your spouse or common-law partner. 

Please note there is a rare reset of this eligibility if you have owned a home in the past BUT have not owned or lived in a home owned by your spouse for the past 48 consecutive months. Eg. you owned a home, sold it and rented for 4 years- or lived in another country for 4 years, technically you are a first-time home buyer again according to the Canadian Federal Government.