Rate Update – Who’s Driving The Bus?
January 18, 2017
Mortgage Insurance Premiums on the Rise
January 21, 2017
Finally some good news for First Time Buyers!
In case you missed the headlines, the BC Government has launched a new program to help First Time Buyers get into the market. Ironically, this comes on the heels of new rules just introduced by the federal government designed to make it harder for people to buy their first home.
The new program called The BC HOME Partnership, is a down payment matching program, with the BC government matching a First Time Buyer’s down payment up to a limit 5% of the purchase price up to $37,500. We had the privilege of hearing Dan Maxwell, Vice President and CFO of BC Housing talk about the program, and had the opportunity to ask some questions.
Why launch this type of program, and why now?
The media has made us all aware that buying a home in Vancouver has become quite a challenge. What’s not mentioned by the media, however, is that it’s not the first time buyers level of income that’s holding most them back, it’s the down payment. This program is aimed at the individual who can afford the monthly mortgage payments on a home now but would normally need two to three years to build up their down payment. By launching this program, the BC Government is offering a solution that makes the distant dream of homeownership a present, viable reality.
What is it and how does it work?
Basically, its a loan program where the BC government matches your down payment up to a maximum of 5% of the purchase price up to $37,500. The money is given to you as a 2nd mortgage that is repayable over 25 years.
What are the conditions?
There are a number of conditions but here are the main ones.
- You have to be a First Time Buyer
- This means you haven’t in the past or don’t currently own a home anywhere in the world.
- The minimum down payment must be 2.5%
- However the 2.5% can be from borrowed funds
- The total income of all the applicants can’t be more than $150,000
- You must be a BC resident for more than 12 months
- You must be a Canadian Citizen or Permanent resident for a minimum of 5 years
- Maximum purchase price is $750,000
- The total maximum down payment must be less than 20%
- The mortgage must be a high ratio, insured mortgage
- The program opened up January 16th, 2017 for applications.
- The earliest completion date of a purchase is February 15th, 2017.
- The program closes off March 31st, 2020 – no extensions will be given.
What are the terms of the mortgage?
- The loan is registered as a 2nd mortgage behind the 1st mortgage of the lender you are using.
- The loan requires no payments or has any interest charges within the first 5 years.
- After the 5 year period, regular principle and interest payments need to be made.
- On year 5, the interest rate on the loan is set to the RBC prime lending rate plus 0.5%.
- The interest rate will be fixed for a 5 year period and then readjusted to the RBC prime rate at every 5 year maturity mark.
- The loan is completely open and can be paid back at any time without any penalties.
So who is a good fit for the program?
Besides the targeted candidates, here are some scenarios that fit within the guidelines:
- If you have any kids that have just started full time jobs and are no longer on probation, they are an excellent fit for this program.
- The down payment needed is now only 2.5%, which can be a gift from a family member.
- Anyone who has a 5% down payment can now increase their down payment to 10%. This means you could potentially save up to $7,000 in insurance premiums.
Are there any drawbacks to the program?
- It takes a minimum of three weeks from an application to funds being advanced to your lawyer/notary. So planning is critical.
- The initial application is only good for 6 months. If you don’t find a home in that timeframe you will need to reapply.
- If you move out of the home and rent it within the first five years, the mortgage has to be repaid in full.
- You can’t refinance your home without paying the loan off in full.
- If you get married and want to add your spouse to the title, they must be a first time buyer and meet the criteria.
- If you need a co-signer for the mortgage, and the lender wants them on the title of the home, they must meet the criteria (1st Time Buyer and total income of all applicants under$150,000)
- The mortgage insurers charge a 0.25% higher premium since the funds are borrowed.
- There will be no extensions given to the March 31st, 2020 deadline. So if you have bought a condo that is a being built and the builder gets delayed, you are going to loose access to the funds.
What’s our opinion of the program?
As a mortgage team, we feel it’s a great idea. Over the span of our careers, we have seen too many first time buyers get left behind by a rising market. With this program, they will be able to fast track the entire process, stop wasting their money on rent, and start building net worth with the equity in their home. Our only concern is making sure clients understand the extra risks they are taking on by borrowing a portion of the downpayment. To mitigate this we will be making sure that the clients have a good financial footing and that the property they are buying not only fits their needs now but also over a 5 to 7 year time frame. After 5 years, even if the market levels stayed the same, buyers that utilise the program should have enough equity built up to sell their home and not incur any losses. In our opinion, not utilising the program and waiting represents a greater risk.
If you have any questions about the program, please don’t hesitate to give us a call.
BC Housing has also put together a very detailed, easy to use website that explains the program in full.
