I am cautiously optimistic that the National First Time Home Buyers incentive will help some people to get into the market where they would not have been able to before.

How Does the FTHBI Work?

The FTHBI will provide shared equity loans of 5% toward the down payment of a resale home, and 5% or 10% for newly-built homes. By providing a larger down payment on an eligible home the owner will see reduced mortgage payments. 

Overall this looks like a promising program but there are a few caveats I think people should be aware of.

  • in BC with our high-end market - the maximum value of loan allowable for this program is limited to 480k (4 times the max household income of up to 120K). This doesn't buy much in the lower mainland except for condos or townhouses. This will have more benefit for people wishing to purchase detached homes in the more rural l areas in BC.
  • The Government of Canada will be on title and will, therefore, have some say in any refinancing that may be required down the line.
  • If you sell your home or reach 25 years you will need to pay back the incentive. The government will share in the profit on the incentive if the value of the property increased - for example if you received a 5% incentive of the current value of your house - you will pay back the 5% value of the house at the time of sale or at 25 years. If the value of the property goes down then you still pay back the original incentive amount. The incentive can be repaid in full at any time without penalties (repayment must be in a lump sum of the current % valuation of the home.

While this program will not be suitable for everone it will be a viable option for those who can't get into the market any other way.

For More information on the First Time Home Buyers Incentive please view the following articles

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Has the Stress test for Mortgages kept you out of the housing market?  Great news... For the first time since 2016 we are seeing a decline in the interest rate that has been used for this test. Get in touch with your mortgage specialist to see these changes make a difference. 

"The interest rate used by the federally regulated banks in mortgage stress tests has declined for the first time since 2016, making it a bit easier to get a mortgage. This is particularly important for first-time homeowners who have been struggling to pass the B-20 stress test." 

According to Rate Spy, for a borrower buying a home with 5% down, today’s drop in the stress-test rate means:

  • Someone making $50,000 a year can afford $2,800 (1.3%) more home
  • Someone making $100,000 a year can afford $5,900 (1.3%) more home
    (Assumes no other debts and a 25-year amortization. Figures are rounded and approximate.)

For a borrower buying a home with 20% down, today’s drop in the stress-test rate means:

  • Someone making $50,000 a year can afford $4,000 (1.4%) more home
  • Someone making $100,000 a year can afford $8,300 (1.4%) more home
    (Assumes no other debts and a 30-year amortization. Figures are rounded and approximate.)

Click here to read the full article 

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As renting rooms AirBNB and other short-term rental sites are becoming more popular we thought we would share some information on the repercussions this might have on your capital gains assessment when you go to sell your house.  

This REW article Principal Residence + Short-Term Rentals + Resale = Capital Gains Tax by Kara Kuryllowicz outlines the potential impact of using your house for short-term rentals could have on the amount of capital Gains tax you are assessed when you sell your house. 

"Like so many homeowners that rent through AirBnB and comparable websites, Steve, Barbara and Jody consider them their principal residences because they live there more than they live in any other location.

Most Canadians know they’ll pay capital gains tax to the Canada Revenue Agency when they sell an asset, such as their home, or investment for more than they paid. They also know and appreciate the fact their principal residence is exempt.

However not every homeowner that rents part-time realizes their homes’ principal residence status could change because it’s being used differently and that 50% of the gain may be taxable as part of their regular income."

and perhaps most importantly

“When you’re ready to sell your principal residence, the CRA’s perspective on its status is the only one that matters and they assess each situation individually – it’s incredibly complex and subject to interpretation.”

Read Full  Article - https://www.rew.ca/news/principal-residence-short-term-rentals-resale-capital-gains-tax

Points to Consider 

Before you rent or use your principal residence for business consult with your accountant.

CRA may consider that your principal residence status may change if all or part of your home is used for rental or business purposes depending on if your rental or business use of the property is relatively small in relation to its use as your principal residence.

When it comes time to sell 50% of the gain in value of your home may be taxable as part of your regular income.

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This article by Kara Kuryllowicz explains the ins and outs of the proposed First Time Home Buyers Incentive which is expected to become available in or around September 2019. 

"The FTHBI is a program that will help qualified first-time home buyers without adding financial burden. As there are no monthly payments, it will free up income to pay for other everyday expenses.  Unlike some of the other assistance programs tried in the past, the FTHBI will also require borrowers to meet minimum insured mortgage down payment requirements, ensuring they are invested in their purchase."

Read the full article here

My Take away  - on the proposed new First-Time Home Buyers Incentive

"The  FTHBI is limited to households with a maximum combined income of $120,000. In addition, the program caps out at four times the applicant's annual income, which means it can only help homeowners looking to buy properties where the mortgage value including the CMHC loan doesn’t exceed $480,000."

This WILL give the opportunity for millennials and other 1st time home buyers living in the Lower Mainland an opportunity to get into the real estate market. With a great selection of condo's and townhouses available in this price range there will be lots to choose from that would meet the criteria for using the First Time Home Buyers Incentive. We will be waiting for more details to be released to know exactly what form this incentive will take and will keep you posted as we learn more in the coming months. 

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