Government incentives for home buyers

BY JAY BRIJPAUL

Homes provide shelter and security. They are a scarce commodity. Prices are surging in this turbulent economy. For those who are renting, the dream of homeownership is becoming elusive. The government recognizes that. Canada Mortgage and Housing Corporation (CMHC) air-marked over one billion dollars to assist. The government will lend a portion of the down payment interest free. With bigger down payments, buyers would require smaller mortgages and that would effectively lower their monthly payments.

This is called a shared equity program. CMHC will lend the buyer 5% of the sale price on resale homes and ten percent on new homes. CMHC will have an equivalent percent stake in the home. The loan will be registered as a second mortgage against the property and is for twenty-five years. If the property sells before twenty-five years, CMHC will get an equivalent percentage of the sale price.  If there is a loss, CMHC will absorb their portion as well. Buyers can invest more than the minimum down payment provided that their down payment plus the amount from CMHC is less than twenty percent of the sale price.

To qualify, buyers must satisfy anyone of the three criteria below:

• Be a first-time home buyer
• Anyone who recently experienced a marriage or common law breakdown
• Anyone who has not occupied the home they owned for the last four years

Here is an example of how the program works. Devi wants to buy a new construction that cost $400,000. With the shared equity program, CMHC will contribute 10% of the down payment, which will be $40,000. Devi must also invest a minimum of 5% of her own money, which will be $20,000. With the incentive, Devi’s remaining mortgage amount would be $340,000 instead of $380,000, which will result in a lower monthly payment. If the current interest rate is 2%, then Devi will save $169.54 monthly or $2,034.48 yearly. Over the span of twenty-five years, Devi would save $50,862.00.

Devi must qualify for the mortgage which works out to be, in the GTA, about 4.5 times of her gross income. For example, if Devi’s income is $100,000, then Devi will qualify for $450,000 mortgage. She must have the minimum down payment of 5% plus closing costs. If Devi buys in GTA, Devi’s income must not exceed $150,000 to qualify for this program. If Devi is buying a home with other family members, their combined income must not exceed $150,000 as well. For homes outside of GTA, the combined income must not exceed $120,000 and the amount of mortgage qualified for is capped at four times the gross income. This program is available to Canadian citizens, permanent and non-permanent residents who are on a work permit.

This incentive must be paid in full after twenty-five years or whenever the property sold. For example, if Devi sells the home for $700,000, since CMHC had initially invested 10%, then, Devi must repay 10% of the final sale price to CMHC. In this example, that is $70,000. Homeowners can choose to repay the loan in full at any time before twenty-five years. Partial payment is not acceptable. To do so, the property fair market value must be established and then the equivalent percentage be paid to CMHC.

CMHC can force the owner to repay their portion if:

• The intended use of the property has been changed, for example, converting an owner-occupied home to a rental property
• When a co-borrower wants to buy out his or her partner and need to borrow more insured money
• When a co-borrower wants to remove his or her name from the title of the home
• When a borrower wants to port the mortgage from one property to another

The first step is to get pre-approved for a mortgage. Make sure that you meet all of the above requirements to qualify for the program. Once this is done and you have found a home that matches your criteria, then, you need to complete the necessary applications.

Applications and other important information can be viewed at http://www.placetocallhome.ca/fthbi. Once the application is completed, your lender can submit it on your behalf. CMHC will then review your application and, if approved, you must call FNF Canada, a mortgage transaction management company at 1-855-844-4535 to activate your incentive. They will ask you for your lawyer information. This process must be completed at least two weeks before your closing date. With this incentive, along with the ability to use up to $35,000 from your RRSP towards a down payment and the rebate from land transfer tax, home ownership is possible.

Canada is one of the most desirable places to live according to research using Google search data. Immigration is at an all-time high and housing will always be in demand. Don’t miss this ship… on homeownership.