Feds adapt First-Time Home Buyer Incentive to Victoria's housing prices; raise purchase max to nearly $850,000
MIKE KOZAKOWSKI, CITIFIED.CA
Published December 1, 2020
First-time homebuyers in Victoria are now eligible to receive downpayment assistance from the federal government for purchases valued as high as $844,000.
As part of a Fall Economic Statement released on November 30th, the federal government has introduced changes to its First-Time Home Buyer Incentive program that specifically target Victoria, Vancouver and Toronto, a trio of markets considered among the most challenging for first-time home purchasers to break into.
Building on the initiative first introduced in the fall of 2019, homebuyers in the three markets wishing to use the incentive can now earn a maximum household income of $150,000, up from $120,000, and the maximum mortgaged amount has increased from 4x annual income to 4.5x.
By the numbers, this means the maximum purchase price of a home has risen from approximately $600,000 to just below $850,000, provided a purchaser earns $150,000 per year and can produce a downpayment of 9.9% of the purchase price of a pre-sale property, to which the federal government will add an additional 10% for a downpayment in exchange for 10% equity in the home. If the purchase is a re-sale (a formerly lived-in home) the purchaser would be required to provide a 14.9% downpayment to receive a 5% top-up from government in exchange for 5% equity, provided the purchase price is also nearing $850,000.
By the numbers, a $500,000 pre-sale (newly-built, never lived in) condominium will qualify for $50,000 in federal support, provided the purchaser can add to the government’s 10% downpayment with at least 5% more, or enough of a downpayment under which the mortgage servicing obligation set out by the bank is met while remaining below 20% (in order to qualify for mandated CMHC insurance).
For a re-sale property, the government’s contribution would be 5% of the purchase price, or $25,000 towards a $500,000 purchase, with a downpayment contribution from the buyer allowing for a total just below 20%.
Purchasers remain limited in their buying power by how large of a mortgage obligation they are able to service based on their annual earnings. In order to qualify for a $500,000 home purchase with a 15% total downpayment, the applicant must earn at least $94,444 per year, or a quarter of 4.5x their total mortgage debt obligation of $425,000 ($500,000 minus a 15% downpayment). In other words, a purchaser earning only $60,000 per year in household income will qualify for a maximum $270,000 mortgage (meaning their purchase price may not exceed $337,000).
The loans, or equity stake, will be made available at no interest. However, at the time of sale the government’s stake of 5% or 10% will be returned, plus a share of the appreciation reflective of the 5% or 10% stake. In other words, selling a home purchased at $500,000 for $550,000 (a 10% uplift) would require repaying the government $55,000 for the initial 10%, or $50,000, equity stake in the home.
Losses incurred at the time of sale would also be incurred by the government, whereby the amount returned would be lower by the percentage of depreciation. C
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