The BC government today announced a program to help first-time home buyers to get into the market and purchase a home. The program matches the downpayment of the borrower dollar for dollar in the form of a second mortgage to a limit of $37,500. The mortgage provided will be a 25 year amortized mortgage with a 0% interest rate, and payments would not need to be made on the mortgage for the first 5 years of the term. To be eligible for this program, borrowers have to meet the following criteria:
- • be buying their first home;
- • obtain a high-ratio, insured first mortgage for at least 80 per cent of the purchase price;
- • have a combined gross household income not exceeding $150,000;
- • have saved a down payment amount at least equal to the loan amount;
- • be a Canadian citizen or permanent resident for at least five years; and
- • have lived in BC for at least the full year preceding their application.
The loans will be due in full if the buyer defaults on a payment, ceases to use the home as a principle residence or resells the home. Other key facts:
- • The loans will match a home buyer’s contribution to a down payment up to five per cent of the home’s purchase price.
- • The maximum purchase price to qualify for a loan is $750,000 (excluding taxes and fees).
- • After five years, buyers can either repay their loan or enter into monthly payments at current interest rates.
- • Loans through the program are due after 25 years.
Will this help first-time home buyers?
I believe this will be of clear benefit to some people. However, as this announcement is new, I believe there is still a number of questions that are yet to be answered about how this program will be implemented. I will likely have more information on this in the coming days and will write more about it at that time. I do see some challenges and difficulties to this depending on how lenders view this additional loan and its repayment as it is a non-traditional source of down-payment and many lenders will not support this without 5% down from own resources. For those with 5% or more of their own money already, this would make minimal difference, and would likely make no difference to the qualification amount.
I have also read that borrowers have to have a mortgage approval in place in order to apply for this program, so I wonder if the borrowers have to go out on a limb and place a deposit on the purchase prior to finding out if they are approved for the program or not. If borrowers don’t have 5% down payment saved and are relying on that program to be able to complete on their purchase, then it could potentially place them in a risky situation.
The ideal scenario would be that borrowers with at least 2.5% down payment will be able to qualify for this program and mortgage lenders will allow for the program to provide the rest of the down payment in some kind of favourable manner. That would help some people to get into the market. For any other scenario, it is difficult to see the benefit of this program except for a slightly lower payment and no interest for 5 years.
Let’s hope that this program was well thought through and consulted with mortgage lenders and that when all the details come to light, that we have a substantial program to help renters to buy their first homes.