If you live in Vancouver and/or the Lower Mainland you surely know of the difficulties facing prospective first time home buyers wishing to enter our residential real estate market. The BC Government has just unveiled a new program aimed at removing some of these hurdles in an effort to assist middle-class British Columbians pursue their goals of home ownership.
The B.C. Home Owner Mortgage and Equity (HOME) Partnership program will be accepting applicants as of January 16th, 2017, and BC Housing anticipates 42,000 to take advantage over the next 3 years.
Many, many, British Columbians will be thrilled to hear of this initiative. However, like any other financial product there are definite pros/cons and details within the fine print that may not appear upon first blush. For the purposes of this post I thought it best to provide a quick overview of the program followed by some thoughts from a mortgage professional in the know.
The government will provide first time homebuyers a loan in the amount equal to the downpayment the first time buyer has already saved. This amount will be capped at 5% of the purchase price of the home up to a maximum purchase price of $750,000. Therefore, the maximum loan the government will provide will be $37,500.
For Example: I am a first time homebuyer looking to purchase a $500,000 condo. If I've already saved $25,000 this program will provide me an additional $25,000 loan to be used as part of my down payment. I then have $50,000 to put down on the purchase.
This loan will be due 25 years from the start date while being interest-free and payment-free for the initial 5 years of the term. Following this first 5 years the applicant may choose to repay the loan in full or enter into a monthly repayment plan. Should the applicant enter into a repayment plan the loan will be amortized over 20 years at the current interest rates of the time.
In order to qualify for this program the government requires you meet all eight of these criteria:
1. Have been a Canadian citizen or permanent resident for at least five years
2. Have resided in British Columbia for at least one year immediately preceding the date of application
3. Be a first-time buyer who has not owned an interest in a residence anywhere in the world at any time
4. Use the property as their principal residence for the first five years
5. Purchase a home that has a purchase price of $750,000 or less (excluding taxes and fees)
6. Obtain a high-ratio insured first mortgage on the property for at least 80% of the purchase price
7. Have a combined, gross household income of all individuals on title not exceeding $150,000
8. Have saved a down payment amount at least equal to the loan amount for which the buyer applied
Some points from the fine print you'll want to make note of:
With help from long-time Mortgage Professional, Heather Jiwan, I've compiled a few notes that applicants must consider prior to seeking assistance through this initiative.
This program while it may be great for some definitely has real costs involved to it. Whether or not any individual first time homebuyer should be seeking approval through this program to assist them is truly on a case-by-case basis. Here are some key points to make note of:
- The loan provided goes into your debt service calculation and can actually have the effect of reducing the amount of mortgage funds you qualify for.
- Using these funds automatically requires you qualify for high-ratio financing, which means an insured mortgage through CMHC, which means insurance premiums.
- The cost of these insurance premiums will vary depending on the down-payment but very important to know that amount will carry interest over the life of the mortgage.
- In order to qualify for the mortgage you must also qualify for loan payments on the government contribution at 4.64% (current posted 5-year rate as of writing) over a 20 years as if they were starting today and not the actual start date 5 years from now.
- Keep in mind interest rates today are historically low and the interest rates of 2022 are unknown
After speaking with those in the know it's become clear to me this is actually a costly plan to the applicants and will not be beneficial to everyone. So, I've asked who is this program great for!?
This program will be great for the first time homebuyer who is making good money, has great credit with little to no other debt, who can then save for the repayment after 5 years.
There are certain other situations in which this program will certainly benefit the applicant but definitely best you speak to a mortgage professional about your specific situation before diving in with an application.
Check out these following sites for further information: