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2019 Federal Budget Adds More Help For First-Time Home Buyers

2019 Federal Budget Canada

With rising housing costs across the country, the federal government has been pressured to do something to help younger first-time home buyers who have been priced out of the higher priced areas such as Toronto and Vancouver. The federal budget for 2019 has been released and there are two main additions regarding real estate and first-time home buyers.

CMHC First-Time Home Buyer Incentive

The budget introduced the Canadian Mortgage and Housing Corporation (CMHC) First-Time Home Buyer Incentive. This allows prospective buyers who have the minimum down payment for a home to apply to finance between 5% and 10% of their mortgage via a shared equity program. Buyers can get up to 10% on newly constructed homes while 5% applies to existing homes. This would lower the mortgage amount borrowed and would help first-time home buyers qualify for a higher mortgage, even with the mortgage stress test, while also lowering their monthly mortgage payments.

This incentive would only apply to insured mortgages and the buyer would still have to come up with the minimum 5% down payment. Applicants must have a maximum household income of no more than $120,000 and the purchase price of the home can only be 4 times their household income. So, for a family of first-time home buyers with an annual household income of $80,000 the total mortgage size would be $320,000.

The budget document states “For example, if a borrower purchases a new $400,000 home with a 5% down payment and a 10% CMHC shared equity mortgage ($40,000), the borrower’s total mortgage size would be reduced from $380,000 to $340,000, reducing the borrower’s monthly mortgage costs by as much as $228 per month.”

Buyers will still have to repay the loan, although it is unclear at this point what the terms would be. Applicants still must qualify under the federal stress test, which ensures that borrowers will be able to keep up with their payments if their interest rates were to increase. However, the lower mortgage means the borrower would only need to qualify for the lower mortgage amount.

The finance department is hoping the new program will pass in time for a September, 2019 launch.

First-Time Home Buyer Incentive

Home Buyers’ Plan (HBP) Gets An Increase

The amount a borrower can withdraw from their RRSP for a down payment using the Home Buyers’ Plan (HBP) has been increased for the first time in 10 years. With increasing home values the federal government has increased the amount you can withdraw from your RRSP account from $25,000 to $35,000, or $70,000 per couple. The new limit will apply to withdrawals made after March 19, 2019, making it effective immediately.

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Government Funding Programs

Government Funding Programs

There are a number of government funding programs for home buyers and current homeowners to help with the costs of buying or updating a home in Canada. Although each of the provinces have their own provincial programs, there are a few federal programs as well. Below is a list of the Federal programs as well as provincial programs for Newfoundland and Labrador.

Down Payment Assistance
Federal Funding Programs

Federal Programs

First-Time Home Buyers’ Tax Credit
A $5,000 non-refundable income tax credit on a qualifying home. The credit provides up to $750 in tax relief to assist first-time home buyers with their purchase costs.

Home Buyers’ Plan
A one-time withdrawal up to $25,000 from a Registered Retirement Savings Plan (RRSP) by first-time home buyers to help purchase or build a home. Generally you have to repay all withdrawals from your RRSP within 15 years.

CMHC Green Home Program
When you use CMHC-insured financing to buy or build an energy-efficient home or make energy-saving renovations, you may qualify for a premium refund of 10% on your mortgage default insurance and a premium refund for a longer amortization period (if applicable)

Down Payment Assistance
Provincial Funding Programs

Provincial Programs

Downpayment Assistance Program (DAP)
Applicants must be first-time home buyers who live in the province and meet the requirements. This program will assist approximately 100-125 applicants annually. The program will provide eligible households a repayable loan of up to 5% for down payment on a new or existing home (purchase price must be less than $200,000 in Clarenville, Gander, Grand Falls-Windsor, Corner Brook and Stephenville and all communities within a 30 km radius). The amount of the loan will be based on a sliding scale that takes into consideration the applicant’s household income level and the cost of the home being purchased. Typically household income levels must be under $75,000 to qualify and the interest rates on the loans vary but will not exceed the prime lending rate minus 1%.

Home Energy Savings Program (HESP)
Available as of July 4, 2017. It is a provincial initiative designed to assist low-income households with electrically heated homes which consume 15,000+ kWh of electricity annually. The program will provide non-repayable grants of up to $5,000 to help these households make energy efficiency upgrades to their homes.

Home Modification Program (HMP)
This program is designed to provide funding to assist homeowners with low-to-moderate income who require accessibility changes to their residences, which can help promote independence, self-reliance, assist with a better quality of life, and enable individuals to remain in their own homes for a longer period. The program is available to homeowners with low-to-moderate income requiring accessibility modifications to their homes (an Occupational Therapist’s report is required clearly indicating whether modifications are urgent or non-urgent). Applicants must have an income of $46,500 or less. Newfoundland and Labrador Housing Corporation provides funding to eligible homeowners in the form of forgivable grants and repayable loans. Funding is limited to the costs associated with repairs. Persons with accessibility needs may receive a forgivable loan of up to $7,500. Repairs exceeding these levels may be addressed under a repayable loan of up to $10,000

Provincial Home Repair Program (PHRP)
This program is designed to assist homeowners with low income who require repairs to their homes, or to bring dwellings up to minimum fire and life safety standards, with improvements in basic heating, electrical and plumbing services. To be eligible for this program homeowners must have an income of $32,500 or less, and must have owned the home for at least 5 years (except in the case of an emergency). There is a lifetime assistance cap of $12,500 and an application for a second project can be submitted after 7 years. Newfoundland and Labrador Housing Corporation provides funding to eligible homeowners in the form of forgivable and repayable loans. Funding is limited to the costs associated with repairs. Forgivable loan funding is available for homeowners up to a maximum of $5,000 ($6,500 in Labrador). Repairs exceeding these levels may be addressed under a repayable loan of up to $12,500 ($15,000 in Labrador).