First Time Home Buyers Incentive: The Basics - Karen Mork - St. Catharines Remax Real Estate Agent

October 29, 2019

First Time Home Buyers Incentive: The Basics

As a first-time home buyer, you may find that the First Time Home Buyer's Incentive (FTHBI) seems incredibly appealing. Its goal: to make buying a home more affordable for families who might not otherwise be able to afford a new house. Unfortunately, the program does not come without its disadvantages. Are you considering investing in a St. Catharines home using the First Time Home Buyer's Incentive? If so, there are several things you may want to know about the program. It’s essential to be informed before you make a big decision about buying a home!

1. FTHBI provides assistance with the down payment on your home.

When you qualify for the program, the government will pay 5% or 10% of the value of the home toward the down payment on a newly constructed home or 5% of a resale home - that is, one that has already been lived in by another family. FTHBI will also offer 5% toward the purchase of a mobile home.

Many first-time home buyers find that having this amount taken care of can make buying a new home much more affordable. With an extra 5% on your down payment, you won't have to save as long to meet your preferred down payment, which will often bring home payments down to a more reasonable level or help you get your mortgage paid off faster. As a result, FTHBI is helping many citizens accomplish their goals: getting into their own home sooner. Government estimates suggest that the program could help save an average of $286 each month on a $500,000 house. That could represent a substantial amount of savings - and make a big difference on your budget as you pay back the funds borrowed to pay for your home.

2. Qualifications are strict.

In order to qualify for the FTHBI, you need to meet several clear qualifications. First, you must either:

Never have owned a home before.
Not have lived in a home that you owned for the past four years.
Have recently gone through a divorce or breakup of a common law marriage.

While the initiative is set up so that it does not apply only to buyers who have never purchased a house before, it does put some strict considerations in place. Once you qualify based on those criteria, you must also:

Have a qualifying household income of less than $120,000 per year, including investment income. Qualifying income takes into account the incomes of both you and your spouse, in a two-adult household.
Borrow less than four times your annual income--which, since the maximum income for people qualifying for the program is $120,000, means that you can only take out a loan for up to $480,000.
Put down less than 20% of the home's total purchase price, counting the FTHBI amount, when you're ready to buy.

In some markets, especially where home prices are high and real estate is in high demand, the program might not be as feasible as it is in lower-income areas. There are, however, many homes for sale in St. Catharines that will likely qualify for the program.

3. You still have to save up for the down payment.

While the government will help fund your down payment on the property, it will not pay for the entire down payment--which means you will need to take some time to save up before jumping into home ownership. You will need to have a minimum of 5% of the first $500,000 of the home's value, and 10% for any amount after that, before you can take advantage of the FTHBI.

4. You will have to pay the amount back.

FTHBI is not a gift from the government to first-time home buyers. Rather, it is a loan: one that must be repaid after 25 years or when the home is sold, whichever comes first. Not only that, when the loan is paid, you will owe 5% of the value of your home at the time of repayment, rather than the amount the government offered in the first place. If your property decreases in value over those years, that could mean that you end up paying less than you originally borrowed. On the other hand, if property values increase, you could be left paying substantially more than you originally accepted as part of the loan.

5. You can pay the loan back at any time.

While the idea of having to repay 5% of the existing value of your home after 25 years could be daunting--especially since you could well still be paying on your mortgage at that point--it's important to note that you need not wait until 25 years after purchasing your home to pay back your FTHBI loan. In fact, you can pay back the loan at any time, with no penalty to you. This can prevent you from having to pay quite as much "interest" for your loan, since property values are more likely to increase over time. If you note a "low" in real estate values in your area, that might also be a good time to repay this loan.

6. You should let your real estate agent know you plan to use FTHBI.

FTHBI offers a number of advantages to many first-time home buyers, but it can also have an impact on the home you might be able to purchase. If you plan to use FTHBI, especially if you cannot afford the down payment on a home without it, it's important to fully disclose that to your REALTOR®before you begin your search for the perfect home. In some cases, buyers discover that they can get approved for a larger home without using FTHBI. Payments, however, may be higher than they are for buyers who did not use the loan.