With housing affordability a key issue for Canadians, the government is launching a program to help qualified first-time home buyers reduce their debt burden and borrowing cost. This program begins September 2, 2019 and is available for purchases closing on or after November 1, 2019.

The First-Time Home Buyer Incentive program is a shared equity program. The government will provide 5% for the purchase of a resale home and 5% or 10% for the purchase of a new home. In return for this contribution the government will take an equity stake in the home equal to their contribution (5% or 10%). The contribution is non-interest bearing and there are no monthly payments. The equity must be repaid within 25 years or when the house is sold (and possibly when the mortgage is refinanced).

To qualify the buyer must meet the following criteria:
• At least one purchaser must be a first-time home buyer
• Household income can not exceed $120,000 a year
• Canadian citizens, permanent residents, or non-permanent residents who are legally authorized to work in Canada
• Have at least 5% of their own resources as a down payment
• Total borrowing is limited to 4 times the qualifying income. The combined mortgage and Incentive amount cannot exceed four times the total qualifying income.

A first-time home buyer is defined as:
• Someone who has never purchased a home before
• Someone who has gone through a breakdown of a marriage or common-law partnership (even if they don’t meet the other first-time home buyer requirements).
• Someone who, in the last 4 years, did not occupy a home that they or their current spouse or common-law partner owned

In today’s current mortgage market, a household with a combined annual income of $100,000 that puts a 5% down payment qualifies for a purchase price of $479,888. The mortgage amount in this case is $474,129 after down payment and the CMHC insurance premium. So in this scenario the buyers qualify for a mortgage of 4.74 times their income.

If this same family were to buy a home and use the First-Time Home Buyers Incentive, they would only qualify for a maximum purchase price of $404,858 because it is the most they can afford while keeping the total between their mortgage and the government incentive below 4 times their income or $400,000.

This means that a buyer’s purchasing power and what they qualify for is reduced as part of this program. And in most of the real estate markets in Canada the problem is qualifying, not affordability.

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