What is the First-Time Home Buyer Incentive?

The First-Time Home Buyer Incentive (FTHBI) is a form of shared equity mortgage with the Government of Canada whereby the government lends eligible home buyers either 5% or 10% of a home’s purchase price to put toward a down payment. The loan is tax-free and must be repaid within 25 years or when the house is sold.

The program is designed to make homeownership more affordable by reducing the amount new home buyers need to borrow, which will lower their monthly mortgage payments.

How the First-Time Home Buyer Incentive works

Eligible home buyers can apply for the FTHBI once they’ve been pre-approved for a mortgage from their first mortgage lender (the FTHBI is a second charge on your property’s title, similar to a second mortgage although with no monthly payments) and found a home they want to buy.

» MORE: How does a mortgage work?

The value of the home can’t exceed four (or 4.5, see below) times your qualifying income. You then fill out an application form and give it to your lender who will submit the application on your behalf.

Successful applicants will receive

• 5% of the purchase price of an existing home
• 5% or 10% of the purchase price for new constructions
• 5% of the purchase price for a new or resold manufactured or mobile home

You don’t have to make any payments on the FTHBI and the loan is interest free. After 25 years, or when you sell the home, whichever comes first, you must pay the FTHBI back in full — but it’s not a direct dollar-for-dollar repayment.

Because the FTHBI is a shared equity mortgage, the federal government has a 5% or 10% stake in your home (though you retain exclusive access to the property) and will share in your losses or gains when you eventually sell the home or when the loan is due after 25 years.

» MORE: What is home equity?

If you sell, the government will receive 5% or 10% of the sell price. If you hit the 25-year mark, you must pay for an appraisal of the house to determine the fair market value of the property. Once appraised, you would then pay back 5% or 10% of the appraised value.

You can also elect to pay back the FTHBI at any time without selling your home and without penalty. Your repayment would be based on 5% or 10% of the value of the home at the time, which would be determined by a professional appraisal.

Who is eligible for the First-Time Home Buyer Incentive?

To be eligible for the First-Time Home Buyer Incentive, you must:

• Be a Canadian citizen, permanent resident or legally authorized to work in Canada.
• Be a first-time home buyer, meaning you have never owned a home. Homeowners who have gone through a divorce or breakdown of a common-law partnership are also eligible, as are those who have not lived in a home that they owned (or that was owned by their spouse or common-law partner) for the last four years.
• Have a total annual qualifying income (including passive earnings, such as investment or rental income) below $120,000 (or below $150,000 for those buying homes in Toronto, Vancouver, or Victoria)
• Borrow no more than four times your qualifying income in total (or 4.5 times your qualifying income, if the home you are purchasing is in Toronto, Vancouver or Victoria).
• Have enough funds to make the minimum down payment.
• Be pre-approved for a mortgage that is more than 80% of the property’s value, and thus will be covered by mortgage loan insurance.

How to apply for the First-Time Home Buyer Incentive

After getting pre-approved for a mortgage and selecting a home, you fill in the forms found on the FTHBI website. You then give the forms to your lender who will submit them on your behalf. If your application is successful, you then phone the closing service provider, FNF Canada, at 1 (855) 844-4535 to initiate your Incentive at least two weeks prior to the closing date of your home purchase, by giving them the contact information for your lawyer/notary.

What is the expanded First-Time Home Buyer Incentive?

After its creation in 2019, the FTHBI was criticized for not setting realistic income and mortgage limits for those living in some of Canada’s most expensive cities.

In response, in May 2021, the government implemented new criteria for those purchasing homes in the census metropolitan areas of Toronto, Vancouver or Victoria. Applicants in those metropolitan areas have an increased qualifying annual income of $150,000 (up from $120,000) and an increased mortgage amount of 4.5 (rather than 4 times) of their qualifying income.

If you are thinking of purchasing a home near one of these major centers, you can check the FTHBI website to see if your city qualifies as part of the metropolitan area.

Is the First-Time Home Buyer Incentive worth it?

The FTHBI is interest free and there are no payments until you either sell the home or hit the 25-year benchmark, so it could certainly put homeownership within reach for some who would not otherwise qualify. Monthly mortgage payments are also lower, which makes them more manageable over the long term.

However, there are significant downsides with the FTHBI that should be considered by potential applicants:

• You could pay back more than you originally borrowed. Your repayment of the FTHBI is not a set amount but rather depends on the market value of your home either when you sell it or 25 years after purchase. If your home is worth several hundreds of thousands of dollars more than when you first bought it (a likely scenario in booming cities like Vancouver and Toronto), the government’s 5% or 10% share of your home’s fair market value could be a major windfall for the government and could mean you end up paying much more than you originally borrowed. Clearly, the government is aware of this potential drawback and even suggests homeowners may want to pay the FTHBI back before they do major renovations that could significantly affect the value of the property.
• Finding an eligible property might be difficult. Despite the new qualification rules for homes in major cities, average home prices in Toronto, Vancouver and Victoria are so high that it would be difficult to find a property that would qualify for the program.
• Extra costs. Homeowners must cover the cost of a home appraisal, if needed, and other closing costs. However, the First-Time Homebuyer Tax Credit, valued at $750, can help offset some of those fees and costs.

» MORE: How the Home Buyers’ Plan can help you withdraw from your Registered Retirement Savings Plan (RRSP)