• First-Time Home Buyer Incentive (FTHBI): Why It’s Useless

    January 28, 2021
  • First-Time Home Buyer IncentiveFirst-Time Home Buyer Incentive: Why It’s Useless

    We have served hundreds, if not thousands of clients since the inception of the Canadian Government’s First-Time Home Buyer Incentive, and not once has this program helped our clients. And even if it did, it still should be avoided if possible. Why you ask?

    What is the First-Time Home Buyer Incentive?

    If you’re purchasing an existing home, the government will match your 5% down with an interest-free loan, bringing your total down payment to 10%. The idea is that if you borrow less, you will qualify to purchase a more expensive home.

    Who might benefit from this program?

    Good Income, Lacking Down Payment Scenario

    People who have good income and credit but haven’t saved up a down payment may look to this program for help. It won’t help. Because you need to save up 5% regardless, and if you make good money, you don’t need an extra 5%. You can just put it in the mortgage. Next!

    Lacking Income, Good Down Payment  Scenario

    People who have saved up 5% down but are lacking income, may look to this program to help them qualify. They can borrow 5% less than they would have otherwise needed to. Let’s look at an example: what does lacking income mean nowadays? $50K? $70K maybe?

    Let’s say $70K to be generous. You can afford a mortgage of about $300K. If you’re putting 5% down, that gets you a $316K home.

    Now let’s apply the FTHBI. They will lend you $15K so now you’re putting $30K down representing 10%. So now that gets you into a $300K home. We went backwards. Next!

    Higher Income Scenario

    Ok let’s say you make $120K/year. You can probably afford a mortgage of $520K. That puts you into a $550K home. Enter the First-Time Home Buyer Incentive. This program sets a maximum on the purchase price of 4x your salary so $480K. Again, we went backwards. Next!

    Lower Income Scenario

    Let’s say you make $40K/yr and you want to use the program to afford more. The maximum purchase price is 4x your salary so the maximum purchase price would be $160K. Good luck finding a home for $160K nowadays.

    Why you probably wouldn’t want it anyway even if it did work?

    1. The government owns 5% of your home. When you pay back this “interest-free loan”, you will owe the government 5% of the value of the home at the time of repayment. So if you borrow $15K and your home doubles in value, you will owe the government $30K. Seems like interest to me!
    2. So you repay them quickly before the home has a chance to appreciate too much. Let’s stick with the example of $15K. You bought the home for $300K, you’ve saved up $20K and you believe the home is worth $400K so you’re ready to pay out the government. Not so fast! They require a professional appraisal PAID BY YOU to prove that the home is worth $400K. So you do so, and the home appraises at $500K. That means you actually owe the government $25K. So you save up another $5K over the next 2 months and you’re ready to pay them out again. Oops! You need a new appraisal because the last one has expired. So you pay AGAIN and this time the home appraises at $550K. Good thing you saved up $27,500 this time because that’s how much you owe them now. Oh and by the way, those 2 appraisals cost you $800.

    Robert Floris has been in the mortgage industry for 30 years, including working as a Sales Manager for a major chartered bank. Over his career, he has personally lent over 1 billion dollars and proudly continues to advise and tutor his valuable clients.

    Robert Floris is a Mortgage Broker. His office is located at 651 Fennell Avenue East in Hamilton, Ontario. If you would like to speak with Robert, he can be reached at 905-574-9200 #215. Alternatively, you can contact Robert here.

    If you would like to apply for a mortgage online, please followthis link.

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