Changes to the First Time Home Buyers Incentive for those in Toronto
The Federal Government announced that the eligibility criteria for the First Time Home Buyer Incentive would be expanded in our most expensive markets, including Toronto, Vancouver, and Victoria.
Before we jump into the changes, a little review of what the program actually is:
The First-Time Home Buyer Incentive theoretically makes it easier for you to buy a home and lower your monthly mortgage payments. This program is a shared equity mortgage. This means that the government shares in the upside and downside of the property value. It allows you to borrow 5 or 10% of the purchase price of a home. You pay back the same percentage of the value of your home when you sell it or within a 25-year window. The homebuyer can also repay the Incentive in full any time before, without a pre-payment penalty.
The government is essentially incentivizing first-time buyers to take on less debt and to reduce their monthly payments, but the tradeoff is reduced purchasing capacity (as your down payment must be less than 20% and CMHC insured to qualify) and government co-ownership.
For example:
You receive a 5% incentive of the home’s purchase price of $200,000, or $10,000. If your home value increases to $300,000 your payback would be 5% of the current value or $15,000.
You receive a 10% incentive of the home’s purchase price of $200,000, or $20,000 and your home value decreases to $150,000, your repayment value will be 10% of the current value or $15,000.
In the past, to qualify:
- your total annual qualifying income could not exceed $120,000
- your total borrowing would be no more than 4 times your qualifying income
- you or your partner are a first-time homebuyer
- you are a Canadian citizen, permanent resident or non-permanent resident authorized to work in Canada
- you meet the minimum down payment requirements with traditional funds (savings, withdrawal/collapse of a Registered Retirement Savings Plan (RRSP), or a non-repayable financial gift from a relative/immediate family member)
Now for those of us in Toronto, qualifying based on those rules often priced us out of taking advantage of the Incentive.
Some Good news:
First time home buyers purchasing a home in the Toronto, Vancouver, or Victoria Census Metropolitan Areas are now eligible for an increased Qualifying Annual Income of $150,000 instead of $120,000, and an increased total borrowing amount of 4.5 instead of 4.0 times their qualifying income.
The increase in the maximum household income and borrowing limit means first-time buyers wanting to participate in the program can now theoretically qualify for a purchase price up to $722,000, up from roughly $505,000 for those under the original requirements.
Does this actually help our first time homebuyers here in Toronto? Considering that the average condo price in Toronto as of April 2021 was $727,137, the incentive doesn’t allow or a lit of wiggle room. A one bedroom condo might be all they can afford under these new qualifying conditions.
As for which areas are included in the “Toronto” catchment area, they are:
- Brampton
- King
- Markham
- Mississauga
- Pickering
- Toronto
- Vaughan