Funds For Home Buyers… Maybe

The Federal election is coming up this fall, which means the current office has released it’s proposed 2019 budget. It’s a long document (which you can read in detail here) but among the pages you’ll find two enticing offers for first time home buyers.

Firstly, the Liberals plan to increase the borrowing power of home buyers using the Home Buyers Plan (HBP). Presently the plan allows buyers to borrow up to $25,000 from their RRSPs. If the Liberals are reelected come the fall, it is proposed that this limit but bumped up to $35,000.

First Time Home Buyers Incentive

Secondly, the budget outlines plans to implement a first-time home buyers incentive through the Canada Mortgage and Housing Cooperation (CMHC). This is in essence a “shared equity mortgage” where the CMHC loans you bulk payment and you pay them back later (presumably upon the sale of the home; the document did not specify.) You are still required to make a 5% down payment on your own, but after that the CMHC will kick in another 10% (for new builds) or 5% (for resale homes).

Here’s what this looks like. This specific example was taken directly from the federal 2019 proposed budget.

The fictional buyer, Anita, puts down 5% for her down payment, the CMHC provides her with another 10% through the First Time Home Buyer Incentive, and Anita saves $228 a month (compared to going without the CHMC incentive.)

Decreased opportunity

Getting an extra 5-10% for your home may sound like a big hand up. But be sure to read all the details. The proposal states that an incentive program participant’s insured mortgage and incentive amount cannot be more than 4 times the participant’s annual household income. According to James Laird, president of CanWise Financial, “The current qualifying criteria, including the stress test, allows a household to qualify for a house that is 4.5-4.7 times their household income.” Plus, the program is only open to participants whose households make $120,000 a year or less. Outside of the program, a family making that kind of money could qualify for a home with a purchase price of $564,000. Within the program that same family could only qualify for a home priced at $480,000. That’s a 15% decrease in borrowing power.

This proposed program is a draw for many potential first-time home buyers, but it leaves us with several questions. When will the incentive have to be paid back? Will you owe exactly what you borrowed? Will there be interest added? Or will you owe 5% or 10% of the equity (depending on what you were given)? Answers to these questions and more will only be given some time after the election, and only if the present office is reelected. Until then, try our free pre-approval application to get an estimate of what you could qualify for in a mortgage!