This Fall we are not only changing seasons but also gaining access to a new incentive program through the Government of Canada for first time home buyers. The First Time Home Buyer Program aims to relieve qualified applicants of some of the financial burden they face after taking on a mortgage. But how does it work?
Simply put, qualifying first time home buyers receive an interest-free 5-10% loan on their mortgage from the government for the opportunity to have a stake in your home’s future equity. The loan acts as a second mortgage on title that would only be paid back when you sell the property or after 25 years.
Brand New Edmonton Homes: receive an additional 10% towards your down payment
Take a $350,000 new home in YEG. You would need to put a minimum downpayment of 5% ($17,500). The government would provide an interest-free loan of an additional 10% ($35,000), bringing your down payment to $52,500. This would translate into a monthly mortgage payment decrease of approx. $190/month or a savings of $2280/year.
Resale Edmonton Homes: receive an additional 5% towards your down payment
Now take a $350,000 resale home. You would still need to put a minimum downpayment of 5% ($17,500). In this case, the government would provide an interest-free loan of an additional 5% ($17,500), bringing your down payment to $35,000. This would translate into a monthly mortgage payment decrease of approx. $100/month or a savings of $1200/year.
How Do You Qualify For The First Time Home Buyer Program?
- At least one of the buyers has to be classified as a first time home buyer, meaning:
- You have never purchased a home
- You are going through a divorce or separation (married or common-law partnership)
- In the last 4 years, you have not lived in a house that you or your spouse have owned
- Your gross income is less than $120,000 per year
- You have the minimum down payment of 5% available
- You are borrowing no more than 4 times the qualifying income. (ex. If you earn $100,000, you could be eligible up to $400,000, plus your down payment)
Just remember, like any loan… you must pay them back eventually. The Government is gambling on the Edmonton real estate market (just like you), and hope that your home benefits from a positive ROI when you sell.
Now, if you plan to stay in your home for more than 25 years (which happens a lot, just ask us how we help many Edmonton seniors who have lived in their homes for 30-40+ years) or if you choose to sell, then you will simply have to pay back the government the percentage borrowed based on the current market value.
So, let’s take the first example of buying a $350,000 home that you live in for 5 years.
New Edmonton Home: Goes up in value to $375,000 (+$25,000)
You will owe the Government of Canada $37,500 (10%) back. During this time, you saved $11,400 which means you kept $8,900 more in your pocket over the course of those 5 years.
Resale Edmonton Home: Goes up in value to $375,000 (+$25,000)
You will owe the Government of Canada $18,750 (5%) back. During this time, you saved $6,000 which means you kept $4,250 more in your pocket over the course of those 5 years.
Now, imagine a scenario in which your home is worth less than what you bought it for?
New Edmonton Home: Goes down in value to $325,000 (-$25,000)
You will only owe the Government of Canada $32,500 (10%) back. During this time, you saved $11,400 meaning you still kept more in your pocket over the course of those 5 years.
Resale Edmonton Home: Goes up in value to $325,000 (-$25,000)
You will only owe the Government of Canada $16,250 (5%) back. During this time, you saved $6,000 meaning you still kept more in your pocket over the course of those 5 years.
Reading this, the First Time Home Buyer Program is a great option for many buyers but won’t be the best option for all. It is important to take time connecting with a YEG real estate agent and mortgage broker to collaborate so they can recommend the best option for your lifestyle and financial goals.
Connect with us today to learn more about the home buying process – we’re here to help!
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