First Time Home Buyer Incentive Explained: Everything You Need To Know

Buying the first property is one of the most exciting times in a person’s life. Unfortunately, Canada’s housing market has grown pricier, with a 20% price increase over the past 12 months alone. The First-Time Home Buyer Incentive (FTHBI) is one of several schemes launched by the federal government to help applicants finally get on the ladder.

This quick guide to the program will cover everything you need to know, from how to apply for first-time home buyer incentive loans to how much it can help you save. If you’re looking to buy your first home in one of Canada’s most desired locations, it’s essential information.

What Is the First-Time Home Buyer Incentive?

The First-Time Home Buyer Incentive, often referred to as FTHBI, was first introduced in September 2019 by the government of Canada as a tool to help prospective buyers purchase a home in an increasingly difficult marketplace. It was subsequently amended in May 2021 to reflect changing criteria in Toronto, Vancouver and Victoria. 

The Canada Mortgage and Housing Corporation (CMHC) offers a shared equity mortgage on a percentage of the property. In short, it means that the government will purchase a small part of the property, which homeowners can buy back later.

The government will buy 5% of any resale property or prefabricated home. Meanwhile, prospective homebuyers looking to purchase a new build can use the program for up to 10% of the property value. With average property prices standing at over $800,000, it can significantly impact applicants.

The scheme is primarily aimed at helping Canadians buy their first homes without increasing their down payment or monthly repayments while simultaneously avoiding the threat of taking on a property that is more than they can afford.

Who Can Apply To Use the First Home Buyer Incentives?

Government incentives enable first-time buyers to secure a no-interest shared equity mortgage on the part of their purchase. They can be used by anyone who has not previously owned property or lived in one owned by their spouse in the last four years. Alternatively, anyone who has completed a divorce from their marriage or common-law partnership and is looking to buy their first property will be accepted.

Full eligibility criteria can be found by contacting the government before formal application. However, both solo and joint applicants can be accepted if they:

• Can make a downpayment that is equivalent to 5% of the property value
• Do not boast household earnings of over $120,000
• Will apply for a mortgage no greater than 4x the household income
• Will take out a mortgage for at least 80% of the property value
• Have Canadian citizenship, residency, or permission to work in the country
• Intend to live at the property full-time

The first-time home buyer incentive criteria in Toronto, Victoria and Vancouver, are slightly different. The household income is raised to $150,000, while the mortgage can be 4.5x this figure.

When applying to first-time home buyer programs, you’re eligible to purchase a detached house, semi-detached house, condo apartment or townhouse, prefab mobile home, freehold townhouse, duplex, triplex, or fourplex.

FTHBI Pros and FTHBI Cons

Before taking advantage of any first-home buyer incentives, it’s vital you weigh up the positives and negatives. Firstly, you should probably take it if you can afford to buy a property outright or through a mortgage without shared equity. 

Furthermore, you should be aware of the following restrictions:

• The FTHBI is a shared equity loan, meaning you’ll need to pay back the percentage borrowed at the new value when you decide to sell your property. While it would reduce your payment if the property value falls, the truth is that the property's value will probably increase. If you borrowed 10% of a $400,000 property that sells for $500,000 in 10 years, your initial $40,000 loan would cost $50,000 to repay.
• You must repay the FTHBI loan when you sell or after 25 years, whichever comes first. So, if you do not sell the property, you will be required to find 10% of the property value (it will need to be revalued) as you hit the 25-year mark. In the above example, that means finding a $50,000 sum. This could prove difficult, causing you to seek a new loan or consider selling when you don’t want to.
• The program may prevent you from using any other first-time buyer’s grant or incentives like the RRSP home buyer plan or first-time home buyer tax credit. Additionally, your mortgage solicitor can charge you an extra fee on this “second” mortgage agreement.

However, there are plenty of positive factors to consider too. Primarily, it is an incentive first-time home buyers can use to purchase the property they actually want. 

First-time buyers tend to save healthy deposits, with the average just under $160,000 in British Columbia. Including the $120,000 income at a 4x multiplication rate, it provides a rough estimate of $480,000 plus the deposit to secure a property worth $640,000. However, with the 5% or 10% interest-free loan, this adds an extra $32,000 or $64,000 respectively.

Of course, the first-time home buyer incentive calculator determines a different amount in the most expensive areas, as the $150,000 annual income and 4.5x multiplier bring the equation to $675,000.

Additional reasons to consider the FTHBI first-time buyer’s grant include:

• It saves you from having to increase your monthly repayments, which is very useful when first starting your mortgage repayment.
• You won’t be additionally charged for repaying the loan earlier, allowing you to pay it back before the property valuation grows further.
• If your repayment does increase, it’s only because the rest of your property has increased in value too.

Is the FTHBI Program Actually Helping?

Ever since the FTHBI launch in 2019, there have been some concerts, many of which worsened due to the rapid increase in property prices. Of course, the pandemic’s impact on Canada’s job market has made many people readjust their goals.

The biggest issue is whether this incentive enables people to buy suitable homes. Given the average prices of properties, even prospective buyers that have saved a sizable down payment may struggle to find a home. Meanwhile, joint applicants will only be eligible if their incomes are roughly above the national average.

Figures showed that halfway through what originally was imagined as a three-year program, only 14% of funds had been allocated. While the changing criteria opened the door to a bigger audience, the government program still falls short of its $1.25 billion investment. 

Final Thoughts

Now that you’ve had the first-time home buyer incentive explained, it should be clear that several limitations exist. Suppose you’re not eligible or want to purchase a property that falls outside the criteria. In that case, looking at alternative opportunities provided by the HomeAssist network in Canada may be better.

Still, if you pass the assessment criteria and find the right property, this incentive could be the key to making your dream of becoming a homeowner a reality.