Curious about those new down payment assistance loans?
The BC Liberal government has rolled out a new program to help first-time homebuyers enter the housing market. The loan program will be available for three years, beginning January 16th, 2017 and ending March 31st, 2020. The following is a breakdown of the BC HOME Partnership program, including additional considerations to help you decide if the program is right for you.
The BC Homeowner Mortgage and Equity Partnership (BC HOME Partnership) program is available to eligible first-time homebuyers who are residents of BC. The program contributes to your down payment up to 5% of the home’s purchase price (capping out at $37,500). The loan will be registered on your property title as a second mortgage, with a 25-year term which is interest-free and payment-free for the first five years.
The applicant (including all individuals on title) must:
- be a Canadian citizen or permanent resident for the last 5 years
- have lived in BC for at least the 12 months preceding their application
- be a first-time buyer, not having owned an interest in a principal residence anywhere in the world, and having never received a first-time homebuyers’ exemption refund
- be purchasing a home that is $750,000 or less
- be eligible for a high-ratio insured first mortgage on the home
- have a combined gross household income not exceeding $150,000
- use the home as their principal residence for the first 5 years
Before You Apply
Before applying, you must have a partial down payment saved up — enough to reach the minimum 5% for an insured mortgage when combined with the loan. The program contributes to your down payment by matching your own funds up to the prescribed maximum amount of $37,500. You must also be pre-approved for a high-ratio first mortgage from a National Housing Act approved lender.
*Note: The program is designed for insured mortgages only, so the total down payment must be less than 20% of the home’s purchase price in order to qualify.
How to Apply
Applications will be accepted starting January 16th, 2017. If you have already begun to search for a home, your closing date must be on or after February 15th, 2017 in order to be eligible for the program. You must upload all supporting documents (proof of status in Canada, photo ID, proof of income, and mortgage pre-approval) to BCHousing.org for each applicant.
If You Qualify
If your application is accepted, you will receive confirmation of pre-approval and a Homebuyer’s Package with information on how to receive the BC HOME Partnership loan, as well as information for your REALTOR®, lender, and lawyer/notary. You can then begin working with your REALTOR® to find a home and make an offer. Once you have an accepted offer, you must provide BC Housing with a copy of the Contract of Purchase and Sale, as well as details on the home. BC Housing will then provide you with a loan commitment letter to take to your lender in order to finalize financing. Approval remains conditional until the final first mortgage insurance underwriting review is conducted and approved. You should check your MyBCHousing account often to complete all steps in the process.
The first five years of the loan are interest-free and payment-free. You may make additional payments or repay the loan in full at any time with no penalty. Interest begins accruing at the beginning of the sixth year, at which time you will begin making principal and interest payments, which are amortized over the remaining 20 years. The loan becomes due and payable in full upon any of the following:
- default on the first mortgage or on the BC HOME Partnership loan
- transfer of the home or change of ownership (including addition of an individual to title)
- the home is no longer your principal residence during the first five years
Who Does This Really Benefit?
The Liberals have introduced the BC HOME Partnership program in time for the upcoming election year. One could argue that they will be reaping more benefits from the program than will the home buyers who choose to participate. Banks have come forward to say that loans from this program will be considered debt, and as such will be calculated into Debt Service Ratios when determining how much they are willing to lend to a borrower. This means that anyone who receives one of these government loans will not qualify for a larger mortgage; instead, they will simply be able to buy a home sooner than otherwise possible. The program would be best suited for someone who really needs or wants to become a homeowner sooner than later, and who also has a solid plan in place to earn more money over the next five years. This will ease the financial burden of paying off this second mortgage in addition to making their regular first mortgage payments. Better yet, if you are able to start making payments before they become due, you will save yourself a lot of money on interest before it begins to accrue in year six.
The BC HOME Partnership program offers a unique opportunity to first-time buyers looking to enter the housing market. There are, however, some less obvious drawbacks that should be considered when deciding if the program is a good fit for you. The program targets millennials who are likely in debt already (think car payments and student loan payments), and who may not otherwise be ready to purchase a home. Enabling more people to buy will put further pressure on a low-inventory, high-demand market, rather than addressing the issue of supply. This added pressure on the market will not combat the current climate of high prices and multiple offer situations. Furthermore, what will happen to borrowers if there is a downturn in the market, or a rise in interest rates? Young buyers should be adequately prepared to take on these potential risks if they wish to participate in the program. I encourage everyone who is interested to look at both the benefits and the drawbacks of the BC HOME Partnership program before deciding whether or not it will support their longterm financial and home-ownership goals.