You’d likely have difficulty find even a few adults across Canada who haven’t been aware of the affordable housing crisis in the country. There’s no debating the fact that young people are having difficulty entering the market like never before, and emphatically so at that. Even though the markets in Vancouver and Toronto are not as hot as they were, it’s still a situation where the average entry-level house cost is simply beyond the means of a lot of people and despite the fact they’re gainfully employed.
Combine this with the new mortgage stress test regulations and there’s fewer first-time homebuyers out there. That’s not ideal for realtors of course, and here at Real Estate Leads our online real estate lead generation system is designed to give new realtors a little more clout when it comes to prospecting effectively in what’s essentially a smaller pool of prospective clients.
The Liberal Governments First Time Homebuyer Incentive (FTBHI) program is designed to help these people out, and from a realtor’s perspective that is of course going to be good news as it will mean more actually qualifying first-time homebuyers being out there to begin with.
However, it is always important for realtors to be responsible to their clients’ long-term best interests and as such it may be necessary for you to be something of the voice of reason for people – clients or otherwise – who are perhaps a little too uninformed about exactly how this assistance plan will work for homebuyers who tend to only see it as ‘my means of getting into home ownership.’
So for today’s blog here are 6 things you should know about the FTHBI Program:
- Shared Equity
The FTHBI I run by the country’ federal housing agency, and the first thing people should know is that this is a shared-equity mortgage program. Be very aware that the government IS going to share in the gains (or losses) of the home’s value as it fluctuates over time. The 10 per cent offered toward the down payment for a new home – or five per cent for resale homes, is interest-free but make your potential clients aware that the gains in equity on the property will also be payable at 10% anytime they sell the home in the future.
- Limited Numbers of First-Time Buyers Will Qualify
First-time homebuyers that have a household income of $120,000 along with the minimum five-per-cent down payment requirement are eligible to apply. However, the price of the mortgage plus the incentive amount must not exceed more than four times your clients’ household income.
The obvious correlation for this is that this means that the program isn’t going to be practical for folks who want – or need – to live in perennially-popular housing markets like Vancouver and Toronto. The median price of homes here is simply too high to make this equation work.
The consensus is that, theoretically, the maximum purchase price of a home under this plan would be $565,000. Needless to say, you won’t even find a condo for that price in these cities, and a detached home will be at least twice that. Most first-timer buyers will qualify for far less under this program, and if you’re a realtor working in a major urban centre then this program may not be the good news that both you and your would-be clients may have been hoping for.
- It Won’t be ‘Doable’ for Buyers in Every Market
This is related to the second point above, but it can’t be stated strongly enough that buyers in some markets may find it challenging to find a home selling for a price that qualifies for the program. A recent report that analyzed average home prices from July 2019 in 25 markets across the country found that buyers with the maximum qualifying income and the required five-per-cent down payment would qualify in 19 of those cities.
Where are they? Eastern Canada, Quebec, the Prairies, along with smaller urban centres in Ontario. And the 6 markets where the average home buyer would fail to qualify for the FTHBI include Toronto and several markets elsewhere in the Greater Golden Horseshoe along with Greater Vancouver and neighbouring Victoria and Fraser Valley out west.
Again, no surprises here. One of the things realtors may have to do it they work in these areas is but brutally honest with prospective clients and explain that buying a home here is not in their best interest. Being ‘house poor’ is a very real condition and majorly problematic for far too many people in these locales.
- They’ll Be Paying It Back – Guaranteed
A common misconception that’s already been attached to this program is that the monies will be paid back only when the home is sold. Not true – borrowers must pay the CMHC back after 25 years or once the home sells. Borrowers can also pay back the loan early without penalty. The amount borrowers owe may vary depending on how the value of the home changes over time.
Should the home’s assessed value rise, the loan repayment will increase concurrently with that number. The same will occur if the home has lost value by the time it is sold or the mortgage matures. The loss-sharing end of this equation should not be comforting to would-be buyers, however.
For ones with little equity, selling after a big price correction and covering costs like realtor fees, paying out the mortgage, and assuming closing costs can be very challenging. Finance experts specializing in mortgage lending say it is fairly unlikely the government will actually absorb part of a buyer’s losses if home prices take a dive.
- $ Savings Can Extend Beyond Mortgage Payments
Now for some better news; the government estimates the program could save buyers as much as $286 per month, or in excess of $3,430 per year, in mortgage payments on a $500,000 house. Depending on when the home is sold, those savings can be even greater. Selling before their five-year mortgage term is up will likely save money with the FTHBI, as the interest and default insurance premium savings will likely outweigh what’s surrendered in equity.
- How Well is the Program to Be Received?
The Feds say the program is expected to help 100,000 families purchase their first home over the next 3 years, but we have to imagine that the extent to which it’s utilized may be less than that given many different factors and some of the risks that buyers are likely becoming more aware of.
Should the program not be as enthusiastically received as expected, it’s possible that it may not have the shelf life some would expect it to. To conclude here, it’s not wise for prospective homebuyers to assume this program is guaranteed to be there even a few years down the road.
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