Thinking About Buying A New Home? The Federal Government Is Offering $1.25 Billion To First Time Home Buyers!
by Paul Ambler
on Wednesday, March 20th, 2019 at 6:42pm.
March in Ottawa was nothing short of tumultuous (confusing...loud...& noisy). Making the water in Ottawa a little more murky, enter the 2019 Federal Budget, just ahead of the federal election in October. The Liberal government released a $22.8 billion dollar budget touching on a number of themes like pharmacare, job skills training, seniors, indigenous programs, electric vehicles to name a few. Perhaps the most intriguing was $1.25 billion dollars in stimulus for First Time Homebuyers in Canada. This is an enticing pitch to new homebuyers that would see the Canada Mortgage Housing Corporation (CMHC) contribute up to 10% of the purchase price in what the government is calling a "shared equity mortgage". The purpose would be to help lower buyers monthly payments while at the same time lowering the bar that a buyer currently needs to qualify under the current stress test which many buyers complain has made qualifying for a home out of reach. If you are a first time home buyer this certainly got your attention (maybe even your vote), but what would a "shared equity mortgage" really look like? The details on the plan are not completely public yet but what we know from the budget release is the following.
In order to qualify, an applicant will need to have a household income of less than $120,000 per year and be able to come up with a five per cent down payment which is the minimum requirement for an insured mortgage with the Canada Mortgage and Housing Corporation (CMHC). The amount of the insured mortgage plus the CMHC incentive would be capped at four times the home buyers’ annual incomes, or up to $480,000. This means the most expensive homes Canadians would be able to buy under this program would be around $500,000 ($480,000 max in insured mortgage and incentive, plus the down payment amount).
Where it gets interesting is where CMHC will offer first time buyers an incentive of 10% for the purchase of new build homes and 5% on existing homes in a non interest bearing loan for the term of the mortgage or until the property is sold. Buyers would have to repay the 5%-10 from profits they net after the future sale of their home creating somewhat of a "partnership" between first time home buyers and the federal government. This isn't totally clear yet, and we won't know exactly how the 5%-10% is to be paid back until fall budget details are released closer to election time. However, the budget document did offer us a working example. Take a $400,000 home purchase, an insured buyer must have 5 per cent (or $20,000) for the down payment. For a new home, a shared-equity mortgage would offer $40,000, lowering the total borrowing costs to $340,000 from $380,000. The incentive would be repaid when the home is sold.
The government also announced changes to how registered retirement savings plans can be used for home purchases. The Home Buyers’ Plan allows first-time buyers to withdraw money from their RRSPs to purchase a home without having to pay tax on the withdrawal. The withdrawal limit is increased to $35,000 from $25,000. This takes effect immediately. This could be a useful tool for those that contribute to their RRSP's.
In Ontario, anyone who has looked into purchasing a home recently will understand that finding a detached home for under $500,000.00 is not an easy task, especially in the GTA where the average home price is over $700,000.00. Developers might also benefit from these new incentives since some of the greatest opportunity in this price range is with new and resale condominiums. Another possible outcome of this stimulus could be to inflate already inflated home prices in various markets but expect to see interest in this program from the mid range condo market with first time buyers. The Government plans to have the program available in September and one thing is for sure, the Federal Liberal Government is hoping for votes from first time home buyers this October, and it might just work.