As a first-time homebuyer, you’re up against two big obstacles.
First, you need cash available for your down payment. And then you need to be prepared to handle your monthly mortgage payments.
Normally, you can put down as little as 5% on a house with a purchase price of $500,000 or less. Above that, you need 10% for the amount up to $999,999. (We won’t even talk about going beyond that!)
Let’s say you have your eye on a house you can get for $530,000. You’d need $25,000 (5% of $500,000) plus $3,000 (10% of $30,000) – a grand total of $28,000. That leaves you with a mortgage of $502,000.
Free up cash and lower your monthly mortgage payments with this government program
What if there was a way you could decrease your down payment AND reduce the amount of your mortgage – reducing your monthly payments?
Enter the First Time Home Buyer Incentive (FTHBI).
If you qualify, you only need to put down 5% of the TOTAL: so $26,500. Then the Canadian Mortgage and Housing Corporation (CMHC) matches that with another $26,500 for a total downpayment of $53,000.
You’ve saved $1500 on your down payment. And your mortgage is a lot less at $478,000 – as are your monthly payments! Better yet, you don’t make regular payments to the government for that $26,500, and you don’t pay any interest on it.
What’s the catch?
First Time Home Buyer Incentive Government Mortgage Program – the fine print
If this sounds too good to be true, understand that it’s not free money. The CMHC downpayment is a “shared-equity mortgage”. That means that while you don’t pay front-loaded interest, as you do on your regular mortgage, when you sell your house (or in 25 years, whichever comes first), CMHC takes proportionate amount of the selling price or the home’s value. If they contributed 5% for the downpayment, they get 5% of purchase price when you sell. (They cap the repayment based on an 8% increase or decrease on your home’s value per year.)
If you sell the house a few years down the road for $600,000, $30,000 goes to the CMHC. (If the market dips and you have to sell for less, the government still gets 5%, though in this case it would be less than the original loan.)
Beyond this, the First Time Home Buyer Incentive limits the amount of the regular mortgage to four times your income. And you’re only eligible for this incentive if your household income is $120,000 or less (thus the price we came up with for the house in our illustration.)
Finally, the purchase price of the house can’t be more than $722,000. (In this scenario, you’d obviously need to put down more than 5% yourself to keep the mortgage within the limits.)
The income and loan max are based on buying outside of Toronto – in beautiful Oxford County. But while $722,000 won’t get you much in the city, it’s a whole different story in Woodstock, Ingersoll, Tillsonburg, Thamesford, and other communities in our area.
I’d love to help you discover how the First Time Home Buyer Incentive can help you into your own first home in Oxford County more quickly – and a lot more affordably.
Don’t forget to download your free First Time Homebuyers Guide.
Image by Freepik