Would you be able to benefit from the new First Time Buyer Incentive?
Saturday Mar 30th, 2019
If you’re thinking about becoming a new homeowner in the Mississauga area, you may be excited about the First Time Home Buyer Incentive unveiled in the 2019 federal budget. Given how difficult it has become to purchase a home, especially after the implementation of the mortgage stress test, any news about a program that makes it easier to purchase a home is quite welcome.
Under this new program, home buyers will be able to increase the maximum price of a home they could purchase, as well as lower their monthly mortgage payment. But as with any government program, in order to qualify, you must meet a number of requirements.
How does the First Time Buyer Incentive work?
The First Time Buyer Incentive works by helping buyers that are required to pay mortgage insurance (those that can’t afford to make a down payment of at least 20%) lower their monthly mortgage payments. It does so by helping them make a larger down payment than they otherwise could.
The First Time Home Buyer Incentive will be managed by the Canada Mortgage and Housing Corporation (CMHC), the same crown corporation in charge of managing mortgage insurance. To qualify, home buyers need to have a household income of less than $120,000 per year, and needs to be able to pony up at least a 5% down payment on their property (which is the minimum amount required for a CMHC insured mortgage).
If the buyer is looking to purchase a used home, the incentive program would provide up to 5% of the property’s value. But if the buyer wants to purchase a new home, the incentive could provide up to 10%. But just like the upper limit for a CMHC-insured mortgage is a home valued at $1 million, the home buyers incentive also has an upper limit. The total value of the mortgage plus the CMHC incentive can not exceed four times the applicant’s household yearly income, up to $480,000. In other words, to qualify, a buyer’s household income must lower or equal to $120,000 a year.
This means that under the most favourable circumstances, in which a family has a household income of $120,000, puts down a down payment of around 8.3%, and it’s trying to purchase a new home, the most expensive home this family could could purchase would be $600,000. Of course, this program isn’t free money. Its beneficiaries are required to eventually pay back the CMHC. The good news is that there isn’t a specific deadline for that repayment. It can take place either after re-selling the property, or at any point before then, if the home owners wishes to do so.
How does this affect Mississauga residents?
According to Statistics Canada, Mississauga's median household income is $83,018, meaning that a family making $80,000 would only be able to purchase a property where the mortgage value plus the CMHC loan doesn’t exceed $320,000. As of late March 2019, the average sold prices for a detached, 3 bedroom home, a 3 bedroom townhouse, and a 3 bedroom condo were $905,000, $520,000, and $450,000 respectively. If we consider that the absolute maximum home price under the most favourable circumstances allowed by this incentive program is $600,000, we can safely say that the majority of Mississauga homes for sale would not qualify for it.
Although this program will definitely help a large number of first time buyers across Canada, due to its upper limit of $480,000, it won’t be nearly as effective to those living in the 2 most expensive real estate markets in the country, the Greater Vancouver Area, and the Greater Toronto Area. But for those few ones that will be able to take advantage of this program, it just may be enough to help them meet their home ownership dreams.
Photo by Yanalya