Info for first-time buyers

Last week, I sat in on a webinar hosted by CMHC that covered more information about the First-Time Home Buyer Incentive Program.

The intent of the plan is to help makes mortgages more affordable for qualified first-time home buyers.

The federal government will help with your down payment in exchange for an equity share in your home. You need to have the minimum down payment of five per cent from traditional sources, which can include a gift from immediate family or savings.

The program will provide five per cent toward your down payment, or if you are buying a newly constructed home the program will provide either five or ten per cent.

How does this help you as a first-time buyer?

The additional down payment helps reduce your mortgage insurance premium, which can result in significant savings over the life of your mortgage.

The additional down payment and subsequent lower insurance premium means your monthly mortgage payments will be slightly lower

Who qualifies to use the First-Time Home Buyer Incentive program?

  • At least one purchaser must be a first-time home buyer
  • Must not have owned a home during the last four years
  • People who have gone through a marital breakdown or separation (even if they have owned a home within the last four years)
  • Household income cannot exceed $120,000 per year
  • Canadian citizens, permanent residents, or non-permanent residents who are legally authorized to work in Canada
  • The maximum mortgage amount can be up to four times the amount of your annual income. If your income is $100,000, the maximum mortgage amount will be $400,000 so your purchase price will be $400,000 plus your down payment.

If you have $20,000 saved and the program kicks in $20,000, your purchase price would be $440,000.

As the maximum allowable income under the program is capped at $120,000 this means the maximum mortgage amount will be $480,000 (plus the related CMHC premium) plus your down payment.

This puts the maximum purchase price under the program at $530,000, or $542,500 slightly higher for a brand new home).

Something to consider is that if you choose not to use the program, with the same income of $120,000 your maximum purchase price would be higher. Allowing for property taxes and heat, your purchase price would be approximately $575,000.

The federal government’s new plan is slated to roll out today. Mortgages approved under the program can close Nov. 1 or later.

The program’s information page contains a qualifier stating that these dates may change due to unforeseen circumstances.

The government’s contribution is non-interest bearing and must be repaid when you sell your home or after 25 years.

Instead of charging interest, the government has structured this as an equity share in your home.

What this means is that when you sell your home, you will repay the government the same percentage of the sale value of your home (or current value of the home if you still own it at the 25-year mark) as their original contribution.

As an example, you buy a home priced at $300,000. The government kicks in $15,000. Ten years later, you sell your home for $400,000. Your repayment to the program is $20,000 (five per cent of $400,000).

If the market crashed and your home sold for $200,000, your repayment would be five per cent of $200,000 so in this case $10,000.

Using the example of the $300,000 purchase price, having the additional $15,000 toward your down payment would reduce your monthly payment by about $75. You would pay about $4,500 less over the first five-year term.

If you sold at the end of five years for $400,000 your repayment of the equity share would be $20,000 – five per cent of the sale price of your home. Doing the math, you paid $4,500 less in payments but it cost you $5,000.

Say you sell your home at the 10-year mark. For years six to 10 of your mortgage, assuming a similar interest rate and no extra principal payments, with the reducing balance your payments are about $60 less per month less. So you pay $8,100 less over the ten years ($4,500 + $3,600).

By taking advantage of the program, your mortgage insurance premium would be $3,030 less than if you decided to only use your own funds for down payment.

At the end of the 10 years you sell your home for $500,000. Your repayment to the program would be $25,000. The government’s initial contribution was $15,000.

This equity share has now cost you $10,000  less the $3,030 reduced insurance premium which was added to the mortgage upfront. Factor in that your payments were $8,100 lower, so you have benefited by $1,130 having used the additional down payment.

There are a few additional costs that you will incur by using the program.

For example, there will be an additional charge at the lawyer’s for registering the equity share against the title of your home. You will need to get a quote from your specific legal representative, but with the BC program two years ago it cost my clients between $150 and $200 extra.

When it comes time to repay the equity share, an appraisal will be required to determine the current value of your home, so there will be the cost of the appraisal to cover.

The information released so far indicates that the government’s contribution to your down payment will be registered as a second mortgage against your home.

Repayment of the government’s share is triggered by either the sale of your home or when you hit the twenty-five year mark. The program guidelines say that the contribution does not have to be paid back if you refinance your home.

However, in the case of a refinance the government’s equity share would stay as a priority ahead of any new funds that might be issued by your lender. At this time, most lenders would require that the charge be removed so their mortgage has first priority.

As with any new program or policy change there may be a work-around developed, but I feel it is important to understand that you will likely have to repay the equity share if you are looking to refinance your home.

Ideally, you would pay off the government’s contribution as soon as possible, as the repayment amount is based on the value of the home at the time you pay it off, but in the event of a refinance this reduces the amount available to you (trade off being you have repaid the equity share sooner rather than later).

It may not sound like much, but by reducing your monthly mortgage payment by even $75 frees up those funds for daily essentials, or maybe even a savings account for future repairs to your home.

In our market, there are still many housing options available within the mortgage cap of the program. The key take-away is that if you are considering taking advantage of the plan, make sure you have a solid understanding of both the pros and cons.

For more information about the specifics of the program, check out the link to the government site on the Resources section of our webpage.


Summer mortgage success

Happy news on the mortgage front. Rates are continuing to drop. 

If you are looking to buy a home over the summer, my suggestion is to think carefully about your timing. 

Understanding that life happens, writing an offer on a home when you have holiday travel plans can add a whole level of stress to the process. 

In case your dream home comes on the market while you are heading out of town, there are ways that you can be prepared.

First off, make sure your mortgage broker, realtor, and lawyer (your home buying team) are all aware of your schedule. 

Before you write an offer, it’s important to understand what you need to take care of and when:

  • arranging your mortgage financing
  • dealing with the home inspection and home insurance
  • signing mortgage documents

With the technology available today, you are able to sign your offer to purchase on a home electronically. If you are tech savvy, the documents you will need for your mortgage application can be submitted electronically as well. Most lenders now accept the initial mortgage documents signed electronically.

The first key date to think about is your subject removal date. Ideally, you have been working with a mortgage professional and have your ducks in a row.

Having your documents organized and sent to your mortgage professional ahead of time will help. Lenders will often ask for clarification or additional documentation, so being as organized as possible with your paperwork can save you last minute pressure.

Ideally you will be available to attend your home inspection in person. Your home inspector will walk you through the house and go over any potential issues. Although you can have someone else attend on your behalf, some of the information may be lost in translation.

Final mortgage documents must be signed in person, in Canada. If you write an offer, make sure you are available in Canada to sign documents prior to your closing date. Ideally, plan to be back at least a week early to deal with any potential issues.

Take a minute to check the timing of your closing date with the lawyer or notary that you will be working with. Over the summer they may be taking time off as well, so you need to make sure they (or someone covering for them) will be available and have the capacity to help you with your purchase.

Most importantly, keep your home buying team up to date with your schedule and availability in case you are needed to make a decision or provide more documents.

Hope you are enjoying the smoke-free summer so far!

Say yes to what you want

"In order to say yes to your priorities you have to be willing to say no to something else.”

I saw this quote on Facebook and felt it summed up a few conversations I’ve had with clients over the last few weeks. With respect to mortgages and home ownership, this applies several ways.

Most of us will move heaven and earth to accomplish something that truly motivates us. Hot holiday coming up? All of a sudden, the pressure is on to eat well and hit the gym.

Burning desire to buy a home? People will re-evaluate their spending and savings habits and find the money for a down payment.

What about some of the other decisions you need to make?

I’ve been working with a couple for almost 1 1/2 years as they have saved to buy their first home. They’ve made some major changes and are on the home stretch, likely in the position to buy just before Christmas.

The engine in one of their vehicles blew up last week.

They called to see what would happen if they financed a new vehicle.

We played with their application, and in their case (based on the vehicle they were looking at), it would mean their maximum purchase price would drop by almost $100,000.

After a conversation about options, they decided to operate with one vehicle until they are into a house of their own. They are hoping to have a little extra cash to pay for a used vehicle once they are in a home.

Another family I’ve been working with was concerned about finding the absolute lowest rate that they possibly could (most people are of course). We explored several options for them and found a package that seemed to fit the bill.

The home they found was in a great neighbourhood, close to the school their children attended, and had great bones. It was super clean, but very dated inside.

We talked about a Purchase Plus Improvements mortgage. With this option, they would be able to renovate the kitchen and bathrooms, as well as replace most of the flooring.

It turned out that the lender offering the lowest rates did not offer a Purchase Plus Improvements mortgage. The lender that we chose to work with did, and their rate was only .05 per cent higher.

When we ran calculations showing the difference between the two rates, the clients were happy to have the option to be able to renovate the home upfront as opposed to picking away at it over time.

Recently, I told one couple the mortgage amount that they are pre-qualified to borrow. I also told them that the monthly payment would be about $3,500. We had a thorough conversation around what their priorities are.

Being committed to a mortgage payment of that size would seriously affect their lifestyle.

In their case, after they identified their wish list they decided to shop for a home in a price range that was about $200,000 less than what the figures said they could borrow.

They would rather live more modestly and have money to travel.

When I work with clients who are starting to hunt for a new home, one of the things we talk about is identifying their priorities. Having a price range in mind is important, but equally so is knowing what features are most important in the home you plan to buy.

If you are starting to think about buying a home, I suggest putting pen to paper and making a list of your “must haves” and “nice to haves” so that you can narrow down your search.

If you think you would like to be in a particular neighbourhood, it’s a great idea to drive through and around the area at different times of the day to see how you feel.

Think about not just now, but a little further down the road. If you are planning to start a family, are you looking at neighbourhoods with schools and daycares?

If you are looking for a more urban lifestyle, do you have easy access to city transit? Do you have older children that need some space?

Being clear about what you need helps your realtor find homes for you to look at it as they come on the market.

Your realtor can take the features you’ve said are important:

  • number of bedrooms
  • number of bathrooms
  • extra parking for an RV
  • a suite for extra income

Then, the realtor can set up a notification that is emailed to you to show you homes that meet your criteria as they are listed for sale.

Ideally, you will be able to find exactly the home what you want, where you want, at a price you are comfortable with. If that is not the case, you may have to decide what is truly most important.

You might find that to find the home you want in your price range you may have to consider different areas. You may have to downsize your wish list to stay in the area you want.

Being clear about your priorities will help. Being willing to compromise on less important features will help you feel more confident about finding a home that suits your family.

In order to say yes to your priorities you have to be willing to say no to something else.


Your home-buying team

Buying a home can be both exciting and overwhelming. One of the best things you can do is to surround yourself with professionals you trust. 

Key members of your team will likely include: a mortgage professional, a realtor, a home inspector, and a lawyer or notary. In some situations, you may also need an appraiser.

Professionals working in the real estate industry are often able to recommend highly qualified experts that they have worked with in the past.

You can search out members of your team by talking to friends and family about who they have worked with when purchasing their homes, and by doing your research online.

It is important that you feel comfortable with the members of your team. Working through the process can feel intimidating, so you need to be able to ask questions as you move forward.

Don’t ever be afraid to ask if you are unclear about something – it is far better to clearly understand than to guess and potentially make a decision you may regret later.

Here are the key members of your team:


Also known as specialists, consultants, brokers or sub-brokers, a mortgage professional might work with only one financial institution or may have access to multiple financial institutions.

A significant advantage to working with an independent mortgage professional (not tied to one financial institution) is that they are able to shop for the best rates and features for you.

If for some reason a lender does not approve your application, independent mortgage professionals can then submit your application to other lenders who may have different criteria for assessing borrowers.

Many mortgage professionals work flexible hours and are available to meet with you evenings or weekends. For standard residential home purchases, there is usually no fee or cost to you for this service.


You will work closely with a realtor to find your home. Realtors are knowledgeable about the features and characteristics of your community.

They will help you identify your list of must haves and nice to haves to help narrow down your search for the right home.

Your realtor will arrange for you to view several homes, and once you have decided on a property will guide you through the process of making an offer.

Like the other professionals involved in your home buying journey, much of the work that realtors do happens behind the scenes. An amazing realtor can help a purchase come together by negotiating on your behalf.

From time to time, clients ask my opinion about listing their homes privately or making an offer on a private listing. Their feeling is they may save money by cutting out the realtor.

Last summer, I worked with a client buying a home that was a private listing. I suggested she hire a realtor to write up her offer and negotiate on her behalf. She didn’t want to pay any fees and rather had her lawyer draw up the contract.

There were multiple changes to the agreement, and by the time her purchase was finalized her legal bill was over $4,000. There was a fair bit of stress for both buyer and seller that (I feel) could have been reduced had they been working with a great realtor.

On the flip side, I’ve worked with clients who listed their homes privately. In one case, their home sat for months in a hot market while others around were selling like hotcakes.

Listing with a realtor helps your home get maximum exposure to potential home buyers.

Maybe most importantly, I’ve seen many situations where clients have been successful in multiple offer situations due to the expertise of their realtor.

Your realtor will support you until the keys have changed hands. Realtors work on a commission basis, and as a purchaser there is usually no charge for their service.


A lawyer or notary (legal rep) will work on your behalf to ensure that your legal rights are protected. Your legal rep will take care of all the paperwork required to complete the sale and transfer ownership of your new home to you.

It is a good idea to connect with your legal rep as soon as you have an accepted offer. Ask for a written quote so that you are able to add this expense to your budget for closing costs.

Have your legal rep review your purchase contract before you remove your financing subjects. Some will provide a written report to help explain any potential issues with the title of the home, easements registered against the property, etc.


Your home inspector will go through the home you are hoping to buy with a fine-tooth comb. He / she looks at everything from the life expectancy of your roof to any potential hidden issues like mould.

Most will prepare a written report for you, then go over it point by point to make you aware of any potential issues in the home. Ideally they will also make recommendations about upcoming maintenance that you need to be prepared for.

Even if you are buying a brand-new home, its important to have an inspection done.


Once you have decided on a mortgage professional to work with, call and set up an appointment.

Explain that you will be looking to purchase a home and would like to find out how much you are qualified to borrow https://www.okanaganmortgages.com/mortgage-pre-approval-know-what-you-can-afford/.

Sometimes, this conversation may be more of an education session so that you know what you need to do to be ready to purchase your own home.

Ideally, reach out to arrange your mortgage financing several months before you are wanting to start shopping.

More The Mortgage Gal articles

About the Author

Tracy Head and Laurie Baird help busy families find mortgage solutions. Together they have more than 45 years of experience in the mortgage industry.

With today’s increasingly complicated mortgage rules, Tracy and Laurie spend time getting to know the people they work with and help them to better understand the mortgage process. They support their clients before, during, and after their mortgage is in place.

Tracy and Laurie work closely with their clients, offering advice and options. With access to more than 40 different lenders, Tracy and Laurie are able to assist with residential, commercial, and reverse mortgages in order to match the needs of their clients with the right mortgage package.

They work closely with their clients to find the right fit, and are around to provide support for years down the road!

Contact them at 250-862-1806 or visit http://www.okanaganmortgages.com

Visit their blog at https://www.okanaganmortgages.com/blog


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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