You’ve Qualified for First Time Home Buyers Incentive – Now what?

So you’ve qualified for the First Time Home Buyers Incentive – now what? While one could imagine your locally elected MP wanting to walk around handing out cheques for those who qualify, that is not how it works.  This article is for those that have gone through the initial process and determined that they are eligible.

If you do not know how to do that – there are a million articles about the process.  Find your favourite mortgage broker to assist.

Watch Out for Deal Changes

There are number of criteria that can trigger a review of your qualification for the program.  In the short term, the big one would be changing the possession day.  If you change a possession day to a date prior to November 1, 2019, they will not qualify the deal.

After that date, there are still a number of triggers for requalification.  These include, but not limited to:

• Not having it owner occupied
• Change in purchase price (like repair credits or other adjustments)
• Qualifying income increasing beyond threshold.

How Do I Get the Money?

Well…you won’t see the money.  Your lawyer will. Your lawyer will work with your lender and the program funder to get these funds.  We need to prepare and register a second mortgage on the title, request the funds, and report to all the relevant parties.  The second mortgage will be registered on title at the same time as the first mortgage.

We will be required to request funds from FCT (First Canadian Title) with some very specific instructions from your lender.  The funds will be advanced at the time of the first mortgage.  If a new construction, the funds will be advanced when the home is 100% complete.

There will be extra costs associated with this.  At a minimum, the mortgage registration costs will double due to an additional registration on title. (An additional $160 for mortgage registration costs minimum.  It depends on the number of titles.)  Lawyers may also charge an additional fee for preparing the additional security.

When do I Have to Repay?

These repayment rules have a lot of discretion built into them.  The administrator has a lot of authority, especially in hardship situations, to work things out.  However, the general rules are as follows.

There are three options for repayment:

1. Any time you want prior to the house being sold. Get an appraisal, have CMHC agree to the appraisal, and pay amount to them. They will discharge the security from the title.
2. You must pay out mortgage 25 year from the date of close. Process is the same as #1.
3. Upon sale of the property, or an action that is the equivalent as a sale. If a sale, then usually the purchase price will be determinative of the value.  If sold to a close or related party, then a third party appraisal may be necessary.

What is equivalent to sale?

1. Porting the mortgage to a new property
2. Refinancing the property to obtain funds to pay departing spouse in separation/divorce.
3. Converting the property from residential use to commercial use (quite uncommon)
4. Anything not covered that CMHC decides will be equivalent to sale as the rules of the program change.

What is not equivalent to sale?

1. Mortgage assumption/release (usually due to new spousal relationship or breakdown in spousal relationship.
2. Transfer to spouse or child upon death.
3. Most refinances as long as certain rules are met around ratios of value, and position of mortgage security.

How Much Money Do I Have to Repay?

Generally the percentage of down payment provided will be the percentage of the fair market value that needs to be repaid.  So, if they provided 5% of the purchase price, you will be required to pay out 5% of the sale proceeds.

Based on the details I have seen to date, there is no discount (even on a proportional basis) for real estate commissions or legal fees to close a sale.  It also appears that major renovations will not impact the percentage that CMHC is taking.  In other words, if as a result of your renovations, your property increases in value from $400,000 to $450,000, the payout will still be value at time of sale or voluntary repayment.  There is no corresponding reduction in their equity share based on the increase in value that you have put into the property.

How do I repay the money?

Really important – You must a get CMHC approval for their payout upon a sale.  They request at least 10 days to consent to value and corresponding payout that they will receive.  They want a copy of the offer to purchase, and a statement that the purchaser is an arm’s length third party.  Likely it will be your lawyer that is obtaining this information, but accordingly, you should be aware of the necessary timelines to provide that information.

Please note, these programs tend to have some alterations to them as they get the operational issues worked out.  I will try to update major changes as they become available.