Shopping for a mortgage in Canada is tough because of sky-high prices. Markets like Vancouver and Toronto frequently see homes going for approximately $1 million. Even smaller cities like Calgary or Halifax can see home prices around $500,000. The reality is that for many young Canadians, homeownership is a dream that is just unaffordable. Couples making decent salaries are still priced out of most markets. While there have been some signs of a slowdown in hot markets like Vancouver, prices are not falling fast enough to make homeownership feasible for young people.
The Canadian government has introduced a program that aims to help young people buy homes. The “First-Time Home Buyer Incentive” program seeks to provide a financial incentive for young Canadians to purchase a home. People looking to purchase their first house would be eligible to receive 5% of the home’s value through a shared investment. This amount rises to 10% of the value of the property if it is new. The government’s idea here is to encourage building more homes to combat the lack of supply. Effectively, the federal government becomes part-owner of your house. In exchange, you get lower monthly payments. Using the government’s example, if you purchased a $400,000 home with 5% down and 10% was kicked in from the Canadian Mortgage and Housing Corporation, your monthly payment would be lowered by as much as $228 per month.
This all sounds great. However, there are some drawbacks. Families that qualify for this program must earn less than $120,000 per year. It doesn’t matter if it’s a single person working or two spouses working, the combined total household income must be lower than $120,000. Furthermore, this program would be capped at 4x household income. So if you were at the top making $120,000 per year, the maximum house that you could buy would be $480,000. Similarly, if your family earned $50,000 per year, you could only get a property for $200,000.
Large markets like Vancouver and Toronto seldom have homes listed at or below $480,000. This means that even if your household income were right at the max of $120,000, you would still likely be unable to find a property that had a sales price under half a million dollars. Suburbs often do have those prices, however. Going even just an hour east of Vancouver into the Langley and Abbotsford region reveals many condos that are under the max amount of $480,000. Similarly, less hot real estate markets like Calgary, have houses and condos that people could purchase for under the cap.
If you’re considering buying a home and you have a household income under $120,000 annually, discuss the First-Time Homebuyers Incentive with your real estate agent. Help with 5%-10% of your home’s value is a big incentive. You will shave a couple hundred dollars or so off your mortgage payment, which leaves cash in your pocket to pay for other essentials. It might not be a perfect program, but it’s definitely a boost for young people looking to buy in an incredibly hot housing market.