Feds unveil details of first-time homebuyer assistance program for properties valued up to $600,000
MIKE KOZAKOWSKI, CITIFIED.CA
Published June 17, 2019
Starting this September, first-time homebuyers may qualify for downpayment assistance from the federal government on property purchases valued at approximately $600,000.
The Canada Mortgage and Housing Corporation (CMHC) has rolled out new details pertaining to its First Time Home Buyer Incentive Program unveiled earlier in the year for individuals earning a maximum of $120,000 per annum.
Should the plan come into effect, and by all accounts it appears to be headed that way, eligible would-be home purchasers will be able to bank on government assistance to provide them with upwards of 5% of a downpayment towards a re-sale property purchase (an already lived-in home placed on the market) and up to 10% towards a pre-sale or newly-built home purchase.
By the numbers, a $400,000 pre-sale condominium will qualify for $40,000 in federal support, provided the purchaser can meet the government’s 10% downpayment component with at least 5% more, or enough of a downpayment under which the mortgage servicing obligation set out by the bank is met.
For a re-sale property the CMHC will contribute 5%, or $20,000 towards that $400,000 purchase.
Mortgages must be insured, meaning the downpayment must remain below 20% to qualify.
Purchasers are also limited by how much of a mortgage obligation they are able to service based on their annual earnings. In order to qualify for a $400,000 home purchase with a 15% total downpayment, the applicant must earn at least $85,000 per year, or one-quarter of their total mortgage debt obligation of $340,000 ($400,000 minus a 15% downpayment). In other words, a purchaser earning only $60,000 per year will qualify for a maximum $240,000 mortgage (meaning the most their purchase may cost is approximately $286,000).
The loans will be made available at zero 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 $400,000 for $440,000 (a 10% uplift) would require repaying the government $44,000 for its initial 10% stake in the home (10% of $440,000).
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.
The program, barring unforeseen circumstances, is expected to launch on September 2nd with the first mortgage closings scheduled for November 1st.
An example of a typical re-sale property purchase scenario:
Bill earns $55,000 per year. Under the program, Bill may carry a mortgage no higher than $220,000 (four times his annual earnings).
A $220,000 mortgage would yield a re-sale home purchase price of approximately $245,000 to $270,000, depending on the size of Bill’s downpayment in addition to the government’s 5% contribution. Both down payments must not surpass 20%.
An example of a typical pre-sale or new-build purchase scenario:
Susan earns $75,000 per year. Under the program, Susan may carry a mortgage no higher than $300,000 (four times her annual earnings).
A $300,000 mortgage would yield a pre-sale or new-build home purchase valued at approximately $350,000 with a 15% downpayment (10% from the government and 5% from Susan). Susan has the option of increasing her downpayment to just below 10%, which would allow Susan to purchase a home valued at approximately $370,000. C
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