Justin Trudeau’s office released their proposed budget, which happens to include a few incentives for first-time home buyers. With the federal election coming this fall, these enticements were well timed. Should the Liberals be reelected we hope to hear more details on what is in store, but here is what we know so far.
Home Buyer Plan (HBP)
Right now if you want to buy a home you have the choice to borrow up to $25,000 from your RRSP, under the condition that you put it back within a specific time period. The proposal stipulates that this limit would be increased to $35,000. With housing prices on the rise, especially in Vancouver and Toronto, this would be a helpful welcome change.
CMHC Home Buyer Incentive
The second proposal in the budget is a loan offered by the Canada Mortgage and Housing Cooperation (CMHC). You would provide the initial 5% down payment and the CMHC would kick in an additional 10% for new builds or 5% for resale homes. Below you’ll see the example provided in the budget.
The hypothetical buyer, Anita, pays her 5% down payment on a new build and the CMHC pitches in another 10%. This pushes down her monthly payment by $228, a savings that might be all she needs in order to afford the cost of a new home. But keep in mind, making a 5% down payment means you’ll have to pay mortgage default insurance, which adds thousands of dollars to your mortgage loan amount.
Limited buying power
The CMHC incentive may work for many potential buyers, but it does have its limits. Firstly, you may only participate if your combined annual household income is $120,000 or less. Secondly, the program dictates that a participant’s insured mortgage and incentive amount cannot be more than 4 times their household annual income. In comparison, typical mortgage owners can qualify for 4.5-4.7 times their annual household income. Buying a home with a CMHC incentive decreases your maximum borrowing limit by 15%.
It is also unclear when exactly the incentive will be paid back to CMHC and how much will be owed. Will it be a dollar for dollar amount, will interest be added, or will it be a percentage of the equity (i.e. if you received a 10% incentive would you have to pay 10% of the equity?) It is assumed answers will come based upon reelection this fall, but until then feel free to contact us or to try our free pre-approval application below to find out how much you could qualify for today!