With the new year quickly approaching, the goal of buying a home may be on many people’s lists of resolutions for 2020. However, given the ever-increasing housing prices in the Greater Toronto Area, this goal can seem unattainable for many. While Ontario has long provided a Land Transfer Tax exemption for first-time homebuyers, a new federal incentive may provide greater assistance to those who qualify as first time home buyers. In 2019, the federal government implemented the First Time Home Buyer Incentive in order to assist new homeowners with entering the housing market at a time when escalating housing costs can act as a barrier for new buyers. However, the incentive is complex. Below, we provide an overview of how the plan works, who is eligible to participate, and what you need to know if you’re considering taking part.
What is the First Time Home Buyer Incentive?
The Incentive aims to assist qualifying buyers by providing a long-term interest-free loan for the purchase of a home that will help to reduce their monthly carrying costs for the first twenty-five years of homeownership. Depending on the type of home, the buyer would qualify for a shared equity mortgage from the federal government totalling either 5% or 10% of the purchase price of the home, which would be added to the buyer’s down payment. This would, in turn, help to lower their monthly mortgage payments.
The Incentive can be used for both resale and new construction homes. Buyers of resale homes can qualify for a loan of 5% of the total purchase price, whereas buyers of new construction homes may qualify for either 5% or 10% of the value of the home. The increased value of the loan for new homes is intended to encourage new construction in an effort to address the current housing shortages affecting Canada’s larger cities.
What is Meant by ‘Shared Equity’?
Shared equity means that the federal government is investing in the value of the home itself. Under the Incentive, when the loan becomes due, the homeowner is not obliged to pay back the original amount they borrowed. Instead, they will be expected to pay the percentage of the original loan as it applies to the value of the home at the time of repayment. For example, if a homeowner qualified for an initial loan of 5% of the purchase price of a $350,000 home, this would amount to a loan of $17,500.00. If the home has increased in value by 25% at the time the loan is due, the homeowner would then owe 5% of $437,500. This would mean that the repayment amount would be $21,875.00. On the other hand, if the value of the home decreased over the loan period, the repayment amount would be less than the initial value of the loan.
What Are the Eligibility Requirements?
There are a number of factors that will determine eligibility relating to both the buyer and the property. In order to qualify for the Incentive, buyers must satisfy the following:
- At least one purchaser must be a first time home buyer, which is anyone who:
- has never purchased a home before;
- has gone through the breakdown of a marriage or common-law partnership; OR
- in the last four years has not occupied a home that was owned by themselves or their current spouse or common-law partner.
- Purchasers must be Canadian citizens, permanent residents or non-permanent residents who are legally eligible to work in Canada
- The total income of the homebuyer or buyers must not exceed $120,000 per year
In addition to the buyer’s eligibility, there are certain restrictions relating to the property itself. For example, the property must be intended for occupancy by the purchasers. Investment or secondary properties would not qualify. Further, the value of the property is important. The total borrowed amount may not exceed four times the amount of the buyer(s) total annual income.
What Are the Requirements Around Repayment?
The loan must be repaid after twenty-five years, or when the buyer sells the home, whichever comes first. As mentioned above, the repayment amount will be the same percentage that was borrowed, as applied to the value of the home at the time of repayment. Anyone considering taking advantage of the Incentive should be careful to keep this in mind given the rate of increase in property values in the GTA in recent years.
Seek the advice of an Experienced Real Estate Lawyer If You Are Considering the First Time Home Buyer Incentive
Before you apply, you should be aware of all of the obligations under the Incentive so that you can decide if it’s right for you. The real estate lawyers at GLG LLP in Toronto assist clients with a full range of residential real estate services, including purchases and sales, financing and even litigation if necessary. The firm offers exceptional client service as well as a Bay St. experience with more reasonable rates. Call 416-272-7557 or complete the online form to arrange a consultation.