5 Things Home Buyers Should Know About the New Federal Budget

Preparing to buy a home in the not-too-distant future? Here’s how the recently-announced federal budget could impact you…

The Canadian government’s budget was unveiled on March 19th, and we’ve been fielding questions from friends, family, and clients ever since! While it touches on everything from workforce skills to pharmacare, the budget also contains a few measures that have caught the attention of prospective home buyers. The most notable is a pitch from the government to take on some of the costs of purchasing property for the first time. The potential buyers we’ve spoken to are excited about the budget, but they’re also unsure about certain aspects of it—such as eligibility, and what (exactly) it could mean for them when they’re ready to obtain financing.

If you’re thinking of purchasing your first property, here are five things you need to know…

1) $1.25 billion would be freed up for eligible Canadians

The government announced that $1.25 billion has been earmarked for lower and middle-class home buyers. This money would be administered by the Canada Mortgage and Housing Corporation (CMHC) through shared equity mortgages (SEMS). With this type of loan, lenders provide part of the financing for a home—and potentially share in the associated gains and losses. Many details of the government plan have yet to be hashed out, but it’s fair to say that SEMs hold a lot of promise when it comes to tackling affordability issues.

2) You may be able to borrow more from your RRSP

Right now, Canadian home buyers can take out up to $25,000 from their Registered Retirement Savings Plans (RRSPs) in order to buy a home. The budget would up that amount to $35,000. Buyers could access these funds without ever paying a tax on the withdrawal. If you take advantage of this measure, you’ll have 15 years to pay back the sum you take out.

3) It could mean a nearly interest-free loan for many buyers

At the centre of the government’s proposed housing-affordability pitch is the First Time Home Buyer Incentive (FTHBI). Through this plan, many eligible borrowers with an annual income of under $120,000 would receive shared-equity mortgages. In effect, we’re talking about loans that are almost interest-free. Here’s how it would work: buyers come up with a 5 per cent down payment, and the government pitches in up to 10 per cent of their home’s value. Of course, there are stipulations—the loan couldn’t be more than four times the buyer’s income, nor could it exceed $480,000. Fortunately, it wouldn’t need to be repaid until the property is sold.

4) Buyers sidelined by the stress test could benefit

Some critics have questioned how significant the impact of the FTHBI could be—especially for buyers in Toronto or Vancouver. The limits set on potential loans mean that they’ll only cover more modest homes in these hot markets. That said, the plan could provide the boost that some new Canadians, millennials, and other first-time buyers need to become homeowners. In many cases, these are the home hunters who have been pushed to the sidelines by the OFSI stress test.

5) Several questions remain

No doubt about it: the recent budget announcement contained a lot of new information for potential home buyers. That said, there also are some lingering questions. One of the biggest has to do with repayment. It’s clear that the owners who would receive loans as part of the FTHBI would have to pay them back once their homes sell. That said, the terms are somewhat hazy. What happens when the value of a home appreciates? Do buyers owe more than they borrowed? For now, we simply don’t know—though the government promises that more details will emerge soon.

Time will tell what kind of impact the budget’s housing-affordability measures will have on buyers. What we can say is that it just might be a major step in the right direction.

Thinking of buying your first home in Toronto? Take the first step by perusing our featured listings to see what’s available on the market!