Disclaimer: The First-Time Home Buyer Incentive is no longer open to new applications as of March 21, 2024 at midnight Eastern Time. Check the program web page for updates.

One of the biggest hurdles first-time home buyers face is saving up for a down payment, as most mortgages require you to put down 5% – 20% of a home’s purchase price upfront. To make homeownership more accessible, the Government of Canada introduced the First-Time Home Buyer Incentive (FTHBI), a program that provided down payment assistance to eligible home buyers.

This article provides an in-depth look at the now-discontinued First-Time Home Buyer Incentive. If you already received FTHBI funding, you’ll find useful information below related to repayment and shared equity. If you missed your chance to apply, keep reading to find information on other home buyer programs to consider.

What Is The First-Time Home Buyer Incentive?

The FTHBI is a shared-equity program sponsored by the Canadian government and run through the Canada Mortgage and Housing Corporation (CMHC). Before the program stopped accepting applications, qualified home buyers were eligible to receive funds equal to 5% – 10% of their prospective home’s purchase price to be used as part of their down payment. 

How much borrowers received depended on what type of home they were planning to buy. Specifically, the FTHBI offered eligible home buyers:

  • 5% toward an existing home (resale)
  • 5% toward a new or existing manufactured home
  • 5% – 10% toward a newly constructed home

With these additional funds, approved buyers didn’t have to save as much for a down payment and were able to put more down than they could have otherwise. A bigger down payment meant the potential for having lower monthly mortgage payments.

What Recipients Of FTHBI Funding Need To Know

If you received FTHBI funding, here’s what you need to know about repayment of funding and the government’s shared equity in your home.

Repayment

An FTHBI loan is considered a second mortgage since it’s repaid separately from your primary mortgage. Your FTHBI funds must be repaid after 25 years, or when you sell the home if doing so before the 25-year mark. There are other triggers for repayment – for example, porting the mortgage to a new home, so be sure to review the fine print.

This repayment is interest-free. However, the amount due depends on the home’s market value at the time of repayment. This means that whether a home’s value goes up or down during that time, homeowners must repay 5% – 10% of that new value, not the purchase price when they received their FTHBI funds.

For example, let’s say you purchased a home for $500,000 with the FTHBI contributing 5% – or $25,000 – to your down payment. You live in the home for 10 years and then sell it for $900,000, a $400,000 appreciation. 5% of 900,000 is 45,000, so you’d owe $45,000 by the time you sell the home.

Early repayments will not lead to prepayment penalties. If your home’s value is on the rise, repaying FTHBI funds early may save you some money, because you’re taking action before the home appreciates further.

Shared Equity

As we mentioned earlier, the FTHBI is a shared-equity mortgage, meaning that the Government of Canada shares in your home’s potential growth or loss in value. Whether your home appreciates or depreciates, the government will share in the home’s change in value, with a maximum gain or loss of 8%.

Using the example from before (where your $500,000 home rose $400,000 in value), note that 5% of that appreciation is $20,000. When you multiply your $25,000 from the FTHBI by 8% and how long you lived in the home ($25,000 x .08 x 10) then you also get $20,000, so the Government’s FTHBI equity was raised by exactly 8%. In this instance, $20,000 is the highest amount you would’ve had to repay, even if the home had appreciated more.

FTHBI Qualification, Requirements And Costs

In order to qualify for FTHBI funds, applicants had to meet certain requirements set by the Government of Canada:

  • They had to be a first-time buyer. Those in the market to purchase their first home met this requirement. Other applicants could also be considered a first-time home buyer if they’d recently divorced or ended a common-law partnership – or if they hadn’t occupied a home owned by themself, their common-law partner or spouse within the last four years.
  • They had to be a Canadian citizen, permanent resident or permitted to work in Canada.
  • Their mortgage had to be for more than 80% of the prospective home’s value.
  • The property in question had to be an existing house, manufactured home or new construction.
  • Their intention had to be to occupy the home. FTHBI funds could not be used to help finance an investment property.
  • They had enough funds to cover a minimum down payment. These included traditional funds, savings, Registered Retirement Savings Plan (RRSP) withdrawals and non-repayable gift funds.
  • Their total annual income could not be over $120,000. For homes in Toronto, Vancouver or Victoria, their income could not exceed $150,000. 
  • Their total borrowed funds – including the FTHBI – could not exceed 4 times their annual income. If the new home was in Toronto, Vancouver or Victoria, the maximum was 4.5 times their income.

Mortgage Insurance

All FTHBI loans are subject to mortgage insurance premiums, and borrowers paying less than 20% for a down payment may have had to purchase mortgage default insurance. Insurance premiums were based on the loan-to-value (LTV) ratio of the primary mortgage and did not apply to the FTHBI amount.

The applicant’s mortgage had to be eligible through the insurance providers CMHC, Canada Guaranty or Sagen to qualify.

Additional Costs 

Buying a house with the FTHBI had the potential to result in additional fees, including:

  • Higher legal fees for an attorney closing two mortgages
  • Appraisal fees for repayment time to get the home’s current value appraised
  • Higher premiums on home insurance to account for a second mortgage

FTHBI Application 

Application for the Incentive required completing the mortgage process up to the point just before the actual application. After getting preapproved, finding a home to purchase, and determining eligibility for the FTHBI, applicants were required to fill out two applications found on the CMHC’s website:

Applicants would give both forms to the lender when submitting their full mortgage application. The lender would then pass the forms along to be reviewed. Those who were approved for both a mortgage and the Incentive would then have what they needed to purchase their desired home.

Other First-Time Buyer Incentives And Programs

Didn’t get your FTHBI application in before the deadline? There are other down payment assistance programs and incentives available in Canada, including the options below.

Home Buyers’ Plan

The Home Buyers’ Plan, or HBP, allows home buyers to withdraw up to $35,000 from their RRSP to put toward buying their first home. These funds are tax-free if repaid within 15 years. 

To be eligible for the HBP, borrowers must meet the following criteria:

  • Be first-time home buyers
  • Be Canadian residents from when they make their first withdrawal to when they buy or build a house
  • Reside in the home within 1 year of the purchase or construction

First Home Savings Account 

A First Home Savings Account (FHSA) can allow you to save up to $40,000 in tax-free funds that you can put toward a home’s down payment. Canadian residents between the ages of 18 and 71 who are first-time home buyers can open an FHSA with a bank, credit union or other financial institution.

Once you’ve opened a FHSA, you can contribute up to $8,000 a year until you reach the lifetime maximum of $40,000.

First-Time Home Buyers’ Tax Credit

Buying a qualifying home as a first-time buyer could earn you a tax credit of up to $1,500. Currently, the amount of your Home Buyers’ Tax Credit (HBTC) is calculated by multiplying $10,000 by the lowest personal income rate. The HBTC may also be called the Home Buyers’ amount.

Qualifying homes include single-family or semi-detached houses, townhouses, manufactured homes, condominiums and apartments. This home must be your primary residence.

GST/HST New Housing Rebate

This rebate allows qualifying home buyers the chance to reclaim portions of the goods and services tax (GST) and harmonized sales tax (HST) that were put toward buying the home. The GST/HST New Housing Rebate applies to newly constructed or renovated homes.

This rebate is also only eligible for individuals – not partnerships or corporations – and the home must be their primary residence. It’s not exclusive to first-time home buyers.

The Bottom Line

The biggest challenge for first-time home buyers is often saving up for the down payment. The First-Time Home Buyer Incentive was an attempt to make buying a home a little easier for prospective buyers. If you weren’t able to take advantage of the FTHBI, you might consider other programs and incentives.

Ready to start your homeownership journey? Explore your mortgage options with Rocket Mortgage Canada, UL (Rocket Mortgage™) today.