What you need to know before applying to BC's new mortgage program to help 1st-time homebuyers with your down payment
As of January 16th, 2017, first-time homebuyers can now apply for a loan to go towards their down payment with the B.C. government's new Home Owner Mortgage and Equity (HOME) Partnership Program. If accepted, a homeowner could receive a maximum of $37,500 - or up to 5% of the purchase price - with a 25 year loan that is interest-free and payment-free for the first five years and is registered on title as a second mortgage.
Since applications opened, more than $1 million in loans have been granted to first-time home buyers. The HOME program is set to run until March 31st, 2020, as an effort to alleviate some of the financial burden of saving up for a down payment in the province's pricey housing market.
If you're thinking of applying for this program, here are the criteria you must meet in order to qualify for the loan:
- Timing: Any deals with a closing date of earlier than February 15th, 2017, will not be considered.
- Price: The property purchase price must be equal to or less than $750,000 (excluding taxes and fees.)
- High-ratio, insured mortgage pre-approval: Before applying to the program, applicants must be pre-approved for a high-ration, insured mortgage. A high-ratio mortgage means the down payment is less than 20% of the purchase price. The minimum down payment required in order to obtain mortgage insurance from the Canada Mortgage and Housing Corporation depends on the purchase price:
• If the purchase price is less than $500,000, the minimum down payment is 5%
• If the purchase price is above $500,000, the minimum down payment is 5% of the 1st $500,000 and 10% on the remaining balance - Principal residence: All individuals on title must live in the home as the principal residence for 5 years after the purchase (or less if the loan is repaid in full.)
- First-time home buyers: Applicants must be a first-time homebuyer who have never owned an interest in a principal residence anywhere in the world at any time and have never before received a first-time homebuyers' exemption or refund.
- Income: The total annual household income for all individuals on title cannot be more than $150,000.
- Residency: Applicants must have resided in BC for the past 12 months prior to applying for the program.
- Location: The property must be located in BC.
- Citizenship: Program applicants must be Canadian citizens or permanent residents that have resided in Canada for at least 5 years.
- Possession: Under this program, purchasers are required to take possession of the purchased property within 30 days of closing and must move in within 6 months.
Additional Considerations
• The first 5 years are interest and payment free. However, once year 6 hits, interest will start accruing and principal/interest payments will begin, amortized over the remaining 20 years. The interest rate will be set at the Royal Bank of Canada Prime Rate, plus 0.5% at each of the 10th, 15th, and 20th anniversary dates.
• You should speak with your mortgage broker or bank representative before applying to make sure your lender will allow you to register the program loan on title as a second mortgage, which traditionally lenders do not permit on mortgaged properties.
• You may have your options reduced when it comes to re-financing your mortgage after year 6. This is because of the new stress test for loan eligibility which sets a debt ceiling of no more than 39% of household income going to home carrying costs, such as mortgage payments, heat, and taxes. While the HOME program loans are designed to be interest and payment free for the first 5 years and are presumably wouldn't impact that calculation of home-carrying costs during this time, home owners could have their re-financing options reduced after year 6 due to the emergence of a new debt obligation.
For more information about this program, including the application process, visit gov.bc.ca/housingaction
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