Buying a Home? CMHC Could Soon Kick in 10% of the Cost

The 2019 federal budget includes a tantalizing pitch for prospective first-time homebuyers — one that could see Canada's housing agency contribute up to 10 per cent of the purchase price of a home and bring down the mortgage load for borrowers.

The budget offers the program, known as the First Time Home Buyer Incentive, as a way to help with housing affordability. The government is earmarking $1.25 billion over three years for something its "shared equity mortgage."

Functionally, it's more like an almost interest-free loan — one where the repayment plan doesn't require any payback until years in the future. In order to qualify, an applicant must have a household income of less than $120,000 per year and be able to come up with a five per cent down payment — the minimum requirement for an insured mortgage with the Canada Mortgage and Housing Corporation (CMHC).

CMHC is the Crown corporation that backstops the vast majority of Canada's housing market by insuring the loans that finance it. This new program will make its role in the market even larger than it already is.

In addition to those stipulations, 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 plus the CMHC loan don't exceed $480,000.

But if a would-be buyer meets the conditions described above, under the program, the CMHC would kick in up to 10 per cent of the value of a newly built home, or five per cent of the value of a resale.

The CMHC would contribute that much to the home purchase in exchange for a corresponding equity stake in the home. That has the effect of bringing down the size of the homeowner's mortgage — but comes with a bill to be paid down the line.

Precise details of how the program works won't come out until later in the fall, but today the government provided a rough breakdown of how it might work for a prospective buyer. If a first-time buyer wants to get a home that costs $400,000, they'd have to come up with a $20,000 down payment, under both the new rules and the old ones.

Normally, they'd have to take out a loan for $380,000 to cover the rest of the purchase price — but under the new program (if it's a newly constructed home), CMHC could kick in $40,000 toward the purchase price, in exchange for a 10 per cent stake in the home.

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