Everything you need to know about CMHC’s First-Time Home Buyer Incentive

This article has been updated from a previous version.

The federal government introduced the First-Time Home Buyer Incentive (FTHBI) in September 2019. The program involves the government buying equity stakes in homes purchased by qualified home buyers, allowing for smaller mortgages and lower monthly payments.

Below, we break down all the key details of how the incentive works and who it is right for.

How the FTHBI works

The program is administered by Canada’s housing agency, Canada Mortgage and Housing Corporation (CMHC), which pays 5% of the purchase price for an existing home, and up to 10% for the value of a new home, in exchange for an equity stake. Once the homeowner sells, they’re obligated to repay the CMHC.

The fine print includes the following:

• To qualify, you must be a first-time homebuyer.
• Buyers must have a down payment of at least 5% of the total purchase price.
• The household’s income must be under $120,000, or $150,000 if you live in a Census Metropolitan Area (CMA), such as Toronto or Vancouver.
• The mortgage and incentive amount together can’t be more than four times the household income (4.5 times if the home is in a CMA).
• Only insured mortgages are eligible (mortgages with down payments worth less than 20% of the purchase price).
• Buyers will not be exempt from federal stress test regulations (a mandatory mortgage qualification using the five-year benchmark rate published by the Bank of Canada or the customer's mortgage interest rate plus 2%).

Who is the FTHBI for?

The program is designed for buyers who are looking for a starter home but can’t afford the monthly payments needed for a mortgage below $500,000.

To qualify for mortgages in the $400,000 to $500,000 range, a buyer’s household income would have to be close to six figures. In exchange for lower monthly payments, buyers have to be willing to give up at least 5% of the value of their home to the federal government.

As an example, a couple earning up to the household income cap of $120,000 with a down payment of 5% on a new home would be entitled to an additional $48,000 provided by CMHC, as below:

As both the household income and total purchase price are capped under the program, it’s worth noting that buyers with good credit and low debt might be able to borrow more money than the FTHBI would allow.  

In this scenario, “the program forces you to buy less home than you otherwise would be able to. Whether consumers are disciplined enough to take part in that or not is the real question,” says Paul Taylor, president and CEO of Mortgage Professionals of Canada.

Buyers in the program will also want to consider the future value of their home over time. Is the neighbourhood likely to increase in value? With a 5-10% equity stake in the home, CMHC will be along for the ride, both in the case of the depreciated or appreciated value of the home.  

“Vancouver North Shore is a great example. Now, it’s very much an outlier, but if you bought the home in 1986 for $250,000, it’s probably worth $4 million now,” says Taylor. 

Comparing markets

The most expensive home you can buy outside of CMAs would be about $505,000; however, within a CMA, the number jumps to a maximum purchase price of about $722,000.

This all but disqualifies purchases of detached homes or upscale condos in downtown Vancouver and Toronto. For example, the average home price in the Greater Toronto Area in 2021 was $1,095,475, according to RE/MAX Canada in its 25-year comparison of the housing market.

This means that potential buyers will have to be comfortable living in the outer suburbs like Langley or Surrey in Vancouver, or Brampton and Mississauga in Toronto. 

Recent residential listings for $720,850 (the average price for a home in Canada)
*Compiled using listings found on Realtor.ca during the week of February 25, 2022

The program would seem to favour first-time buyers in smaller cities across Canada, at least when comparing options for buyers that tend to want to live in large cities downtown.

What kind of house you get for $400,000 to $500,000

This program can get you property up to $722,000 in a CMA if you have the ideal qualifications (a maximum household income of $150,000 and a down payment of about 19.99%). However, we expect many who use this program will have the minimum 5% down payment and are looking to get into the property market sooner with help from the CMHC. 

Based on that idea, we've compiled a look at some properties you can get in four major housing markets in Canada in the $400,000 to $500,000 price range. Take a look:

• In Toronto: There are no detached houses listed in this range, but one-bedroom condos are available, typically between 600 and 1,000 square feet. Condos have more rooms and additional bathrooms as you get away from the city core. There is almost no supply below $479,000.
• In Vancouver: There are no detached houses listed in this range, but one-bedroom condos are available, typically around 600 to 1,000 square feet. More rooms and additional bathrooms are available within this price range as you get away from the city core.
• In Calgary: You can find listings in this range for two-storey detached houses downtown, along with two-bedroom condos that are more than 900 square feet.
• In Winnipeg: You will find a limited supply at this price range; however, detached houses are available with two-plus storeys and multiple rooms.