What is it and how can it kill your deal?
It is no secret that it is getting tougher for younger generations to buy a home, especially in Vancouver where the cost of living can make it exceptionally difficult to save the minimum down payment. If used correctly, one program which may help struggling first timers get into the market is the B.C. Home Owner Mortgage and Equity Partnership Program a.k.a. BC Home Partnership.
This program is available to eligible first-time homebuyers by providing repayable down payment assistance loans.
Here is how it works:
The B.C. Home Partnership program will meet the buyer’s contribution up to 5% of the home’s
purchase price, to a maximum purchase price of $750,000.
· Maximum loan amount is $37,500.
· After five years, buyers can either repay their loan or enter into monthly payments at current interest rates.
· Loans through the program are amortized over 25 years which is the same length as most mortgages.
· The applicant needs to be a Canadian citizen or permanent resident for five years, live in BC, have a household income under $150,000 per year and be pre-approved for a high-ratio mortgage, among other requirements.
For a first-time home buyer that has good earning potential but has not had adequate time to save a down payment, this program allows entry into the market with as little as 2.5% down. It also provides an adequate amount of time to increase earning power to pay off the loan upon renewal or to afford the associated payments by renewing the loan.
There are important details to know before opting for this program:
· The home being purchased must be used as the principal residence of all individuals on the title for the five years after purchasing. Any changes to the title will trigger the loan to become due and payable, except in the instance of divorce or new marriage and homeowner(s) qualifies to retain the loan.
· Borrowers incur extra legal costs of approximately $560 for the second mortgage registration, these fees are deducted from the mortgage proceeds.
· The minimum equity component from the borrower can be gifted from immediate family member.
· Mortgage cannot be transferred to a new lender upon renewal if the B.C. Home Partnership loan remains outstanding. This can mean a higher renewal rate if the existing mortgage holder does not offer the lowest market rate.
Other programs are available to help first-time buyers save on property transfer tax (PTT). The First Time Home Buyers Program can save first-time buyers up to $7,500 when purchasing a home valued up to $475,000.
Or, first-time buyers can access the Newly Built Homes Exemption, which can save buyers up to $13,000 in PTT when purchasing a newly constructed or subdivided home worth up to $750,000.
The most effective way to buy a home remains to be with a 20% minimum down payment which avoids costly insurer fees. However, if the choice between renting and home ownership which is reliant on getting the down payment, the BC Home Partnership is a viable option.
For more details and to see if you qualify: https://www2.gov.bc.ca/gov/content/home/featured-services/services/bc-home-owner-mortgage-and-equity-partnership-program
Arguably one of the most underappreciated roles in the home-buying process is that of a mortgage broker. Often prospective home buyers turn to their banks for their mortgage needs. However, an experienced mortgage broker can be the difference between a good mortgage deal and a great mortgage deal that can save thousands of dollars in the long run.