Buying your first home is a significant milestone, filled with excitement, decisions, and a fair bit of complexity. One aspect that can ease this journey is the First Time Home Buyer Incentive (FTHBI). This article delves into the FTHBI, how it works, how it can benefit you, and what home insurance coverage you would need as a first-time home buyer in Ontario.
Housing Prices Are on the Rise in Canada Yet Again
The average home price in Canada in 2024 is expected to climb once again, as CREA forecasts a 10.4% increase in residential property sales to 489,661 units this year, up from 2023, with the national average home price rising 2.3% to $694,173. As more and more Canadians find themselves struggling to afford their very first house, the government comes up with ways to support them, one of which is the First Time Home Buyer Incentive.
What is the First Time Home Buyer Incentive?
Launched in September 2019, the FTHBI, an initiative launched by the Canadian government, supports first-time home purchasers. It’s an interest-free loan that helps reduce the mortgage burden, making homeownership more accessible and affordable. The incentive offers:
- 5% or 10% for buying a newly built home.
- 5% assistance is provided for purchasing an existing (resale) home.
- 5% support is available for first-time buyers acquiring a new or resale mobile/manufactured home.
The homebuyer must repay the incentive within 25 years or upon the sale of the property, whichever occurs first. Additionally, the homebuyer can fully repay the incentive at any point earlier without incurring a prepayment fee.
Eligibility Criteria for the First-Time Home Buyer Incentive
To qualify for the FTHBI, you must:
- Be a first-time home buyer.
- Ensure a down payment of at least 5% for the first $500,000 of the home’s price and 10% for any exceeding amount.
- Your household income should not exceed $120,000.
- The total borrowing is limited to four times the qualifying income.
- Eligible properties include single homes, semi-detached houses, mobile homes, condos, apartments, or shares in cooperative housing corporations.
- Necessary documentation for the property must be provided.
- The home must be occupied within a year of purchase.
- The home must be purchased and registered in your or your spouse’s name.
- Neither you nor your spouse should have owned or lived in a home owned by either of you in the previous four years.
Advantages of the FTHBI
- Reduced Monthly Payments: By increasing your down payment, the FTHBI lowers your monthly mortgage payments, easing your financial burden.
- Interest-Free Loan: The incentive is interest-free, making it a cost-effective option compared to traditional loans.
- Flexibility in Repayment: You can repay the incentive anytime without a prepayment penalty.
- Lower Down Payment: The program lowers the initial down payment, aiding first-time buyers in affordability and saving for other important costs.
- More Housing Choices: Expands the range of affordable properties, allowing access to homes previously beyond budget.
- Equity Building with Security: Enables building home equity with no immediate repayment obligation.
How to Apply for the FTHBI
Applying for the FTHBI involves several steps:
- Eligibility Check: Ensure you meet all the criteria.
- Mortgage Pre-Approval: Get pre-approved for a mortgage.
- Enroll in the Program: Contact a participating lender or mortgage professional.
- Find Your Home: Once approved, you can start house hunting within your budget.
How Does the First-Time Home Buyer Incentive Work in Ontario?
In Ontario, the FTHBI is particularly beneficial due to the province’s high real estate prices. In 2022, house prices in Ontario significantly surpassed those in other Canadian provinces, exceeding 900,000 Canadian dollars, compared to less than 500,000 in other regions. The program helps mitigate some financial challenges first-time buyers face in cities like Toronto and Ottawa.
What Is The Cost of Home Insurance for First-time Buyers?
The average home insurance cost for first-time buyers varies, typically around $50 per month, depending on the property and its specific needs. Lenders often require full insurance coverage for the property’s total replacement cost to ensure it can be rebuilt if destroyed. Location may also dictate certain coverage requirements from insurers. Additionally, consider extra coverage like overland flood damage protection, which is not included in basic policies, and compare different market offerings.
Additional Programs and Rebates For First-Time Home Buyers
- Land Transfer Tax Rebate offers a rebate on the land transfer tax for first-time home buyers, which can result in significant savings.
- RRSP Home Buyers’ Plan allows tax-free withdrawal of up to $35,000 from your RRSPs for purchasing or constructing an eligible home.
- First-Time Home Buyers’ Tax Credit helps with expenses like legal fees and land transfer taxes.
- GST/HST New Housing Rebate allows Canadians to recover GST/HST paid on new home purchases, significant renovations, or rebuilding after a fire. It’s available to all eligible Canadians, not just first-time buyers, and applies to the federal part of the tax.
Tips for First-Time Home Buyers
- Budget Wisely: Factor in all costs, including closing costs, moving expenses, and home insurance.
- Research the Market: Research the property market in your desired area.
- Seek Professional Advice: Seek advice from real estate agents, mortgage brokers, and financial advisors.
The Bottom Line
The First Time Home Buyer Incentive is a valuable tool for those stepping into the real estate market for the first time. By understanding and utilizing this incentive and other available programs, you can make your dream of homeownership in Ontario a reality.