In the 2019 federal budget, the First Time Home Buyer Incentive was announced. How does it work? Can it really make a home affordable to first time home buyers? In this episode, we discuss the key elements of the First Time Home Buyer Incentive, impact on the mortgage stress test and who can qualify.
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Hi everyone, Karl here and welcome to another Homebuyer's School video, a where you get the latest strategies, tactics and tips from home buying experts. And remember if this is your first time on this channel and you want to get the latest [00:00:30] strategies from the experts, hit the subscription button below. Hit the little notification below so you don't miss anything.
Today I'm talking with Mujtaba Syed, Mortgage Specialist with the Bank of Montreal, used to be TD Canada Trust.
Mujtaba Syed: Used to be TD, yes that's right.
Today the really popular topic that we're gonna talk about is the First-Time Home Buyer Incentive that the federal government just launched.
Mo, I know this program is just announced in the federal budget and so can you give me a brief overview, knowing [00:01:00] that they haven't fully provided all the information on the program?
Yeah, absolutely Karl.
We don't have a lot of information about it, the stuff that we have found out it seems like a great program.
Increased RRSP Contribution Limit
Based on government calculations it should help bring in 100,000 new first-time home buyers into the market which is great.
The way it does, the first part of the program is to have actually increased the RRSP contribution limit for first-time home buyers from 25,000 to 35,000, which definitely helps in today's day and age when house prices are a lot higher than they [00:01:30] used to be.
First Time Home Buyer Incentive
The second program is called the First-Time Home Buyer Incentive Program.
The way it works is that traditionally if you were buying a home for example for 400,000, you would need to come up with a minimum of 5% down which is 20,000 which would then give you a mortgage amount to be about 380,000.
Based on the new incentive program, you're buying a house for $400,000 you still have to come up with your 5% down of 20,000 but then CMHC (Canada Housing Mortgage Corporation) will take an equity stake in your home.
Meaning they'll give you the 10% of the purchase price, [00:02:00] which could equate to $40,000 in this scenario.
Your mortgage would actually drop to $340,000 and you actually qualify on that $340K compared to $380K based on the previous scenario.
That's a monthly savings of over $222 and that for some people is just enough for them to beat the stress test to get into their perfect home.
Impact on the Mortgage Stress Test
Mo just to clarify, because I always thought when you took the stress test you took it on the full $400,000[00:02:30] .
Let's say you're buying a $400,000 home but what you're saying is first of all from a stress test perspective, the stress test only applies to the mortgage amount. Even if you put 5% down which is $20,000, the stress test qualifies you for, the stress is applied to $380.
Mujtaba Syed: That's correct.
Karl Yeh: But now with a 10% stake that CMHC is putting in, that will be 15%.
That was a total of 15% so it drops down the mortgage amount to 340 and now the stress test is being on $340, which is $40,000 less.
For a lot of first-time [00:03:00] home buyers that's just enough for them to get in which is great.
Remember if you wanna know more about the mortgage stress test, you can watch our video up here and in the description below.
Mo in terms of when they obviously say, "First-Time Home Buyer Incentive." how did they calculate
Who qualifies as a first-time home buyer according to this program?
Yeah, so to qualify for the first-time home buyers, you can't have bought a home before or if you've owned a home for less than four years [00:03:30] and then you're buying it again than you would not be considered to be a first-time home buyer.
And for this incentive program it's very specific, you need to have a household income of around, no more than $120,000 and your mortgage amount with CHMC can't be more than $480,000.
There is a limit, you can't go out and buy a $700K, $800,000 house with this program. It is specifically designed for first-time home buyers.
It is because they are the market that we really wanna [00:04:00] focus on and we really wanna increase.
Can you tell me a little bit about the pros and the cons in your opinion, of this program?
I think it's a great program in my opinion.
There's not too much known about it right now but I definitely see the pros outweighing the cons.
The pros are once again the government's thinking, 100,000 first-time new home buyers that can be brought into the market because of this program which is great.
Home ownership has always been a dream for a lot of Canadians, this would really help them get there.
\What it does is that [00:04:30] it helps clients and buyers deal with the stress test so they can actually get in sooner, right?
The cons just could be we just don't know enough about it at the moment right now but it seemed like a great program.
Karl Yeh: Cool. You touched on missing information.
What are we still missing that we're looking forward to over the next couple of months?
Yeah, the interesting thing is that since this is considered to be an equity shared stake with CMHC, so CMHC when they give you that 10%, there actually [00:05:00] is a 10% equity stake that they have taken into the property.
Technically you could be the 90% owner and CHMC is the 10% owner.
We just don't know how repayments are gonna look like, we don't know if repayment is going to be right away at the time that you sell.
If the property appreciates in value would they get an appreciated amount, would it be the same amount as what they've given you?
Are they gonna charge an interest rate or anything like that, to give this incentive? [00:05:30] While the information will be rolled out in the next few months, a lot of people do have a lot of questions.
As soon as we find out more we can discuss it for sure.
Karl Yeh: Perfect. Moe, do you have anything else to add?
Yeah, I will say it's a program, there's a lot of information that's still missing. I would say definitely subscribe to the site, stayed tuned.
As we get more information rolled out in the next few months, we'll definitely get it over to you guys as soon as possible. I did forget to mention one thing.
The way it works with the CMHC incentive program, so it's 10% of a brand [00:06:00] new built home.
For example if you're buying with Brookfield, it's a brand new home newly constructed, it would be 10%.
If you buy an existing home, then CMHC would do an increased stake of 5%, so there is a difference there.
As soon as we find out more why that difference is there, we'll definitely get that information out to you as well.
Perfect. The question of the day I have for you is:
Will you be using the First-Time Home Buyer Incentive? Will it actually make you more likely to buy a home this year or in the future?
Let us know in the comment section [00:06:30] below. Thank you very much for watching and remember, if you enjoyed this video or found it helpful, make sure to hit the like button, leave a comment and subscribe.
Thank you and we'll catch you next time.
Let us know if you have additional mortgage or financing related questions that we can answer by submitting them in the comments section below.
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About Mujtaba Syed:
Mujtaba is an experienced mobile mortgage specialist with a demonstrated history of working in the banking industry. Skilled in Negotiation, Commercial Lending, Banking, Sales, and Credit Analysis. Strong product management professional.