Buying a house is one of the biggest investments you can make, especially if it’s your first home. Besides the emotional attachment that comes with this purchase, there is a strong financial component to this decision as well. In Canada, there are governmental programs in place to encourage first time home buyers. The newest program is the first time home buyer incentive, which was introduced in 2019 to help the first time home buyers (who can afford the minimum down payment) to get a portion of their home purchase financed via a shared equity mortgage with the Canada Mortgage and Housing Corporation. What makes these incentives such a hit?
First-Time Home Buyer Incentive
Starting from September 2019, the First Time Home Buyer Incentive has done a lot to lighten the financial burden of first time buyers in Canada. Because of this incentive, an eligible buyer is able to have between 5-10% of the home purchase covered by the government in a shared-equity agreement; with the repayment of this amount due within 25 years or if the house is sold based on the value of the property at the time of selling.
Other Incentive Programs in Canada
Apart from the first time home buyer incentive, there are two other major incentives through which the Canadian government encourages home ownership amongst its citizens, namely via land transfer tax rebates (and other home buyers’ amount) and the home buyers’ plan.
The United States has up to 40% of its first time buyers neck-deep in debt and this has increased the average age of first time home buyers to as late as 32 years old. While there are a lot of first time programs in the US (including the FHA loan program, USDA loan program, the HomePath ReadyBuyer Program, Energy-efficient Mortgage Program), these first time home buyer programs don’t seem to be enough.
Unlike in Canada, there are no shared equity programs in the United States.
Why Shared Equity Incentives?
One major difference between the real estate industry in the United States and Canada is mortgage rates and the rules applying to mortgage. Although mortgage rates in Canada are significantly lower than for the United States, the common term is about five years, unlike in the United States, where it could be up to 30 years.
Notwithstanding, the government easily gains from a more enthusiastic approach to real estate investment, as real estate typically grows at a faster rate than inflation can catch up with. Introducing first time home buyer incentives, as in Canada can help create a more desirous landscape for real estate investments.
Housing has also become generally more challenging in big cities such as New York and Los Angeles, and when younger individuals have some financial relief through incentives, it becomes easier to own their first houses and reduce the burden of housing in such expensive cities like Los Angeles, New York, and San Francisco.
One major roadblock to the implementation of such programs/incentives however, is funding. Perhaps, through the issuance of bonds which track housing performance, much funds can be garnered and channeled towards first time home buyer shared equity incentives in the United States.
As with Canada, there is a teeming population of young individuals in prime US cities. Introducing first time home buyer programs at such a time like this would produce amazing results over a period of time for the government, as first time home buyers would be encouraged to take the pretty huge step of home ownership.