BC Home Owner Mortgage and Equity Partnership (BC HOME Partnership)
February 1, 2017 | Posted by: Kelleway Mortgage Architects
Depending upon the price of a home (e.g., to maximum of $750,000), eligible first time home buyers in BC could borrow 2.5% to 5% towards their down payment. The 2.5% that the borrowers pay themselves needs to come from their own resources, although it could be saved or gifted. The loan, to a maximum of $37,500, is interest free for the first five years. If allowed by the mortgage lender, the repayable loan will be registered as a charge against the property as a second mortgage. This “non-traditional down payment” as defined by CMHC, will attract an additional 0.25% mortgage insurance premium when the total loan is 90.01% to 95% of the purchase price or appraised value, whichever is less.
As of January 16, 2017, applications for the program are being accepted and will only be considered if the closing date on the purchase of the home is on, or after, February 15, 2017. Through the BC HOME Partnership program, the Province is investing about $703 million over the next three years to help an estimated 42,000 households throughout the province of BC to enter the market for the first time. The program will run to March 31, 2020, with no limit on the number of loans given each year. Premier Christy Clark announced that the plan will be paid for by property-transfer tax revenues, a 15-per-cent foreign homebuyers' tax and a luxury tax on homes priced at over $2 million. BC is forecasting a budget surplus of more than $2 billion, due largely to property revenues.
Borrowers will need to create a MyBCHousing Login account as they will be notified by email once their application has been processed. Only fully completed applications with all supporting documents will be considered.
BC Housing will evaluate applications and determine borrower eligibility. If the borrowers application is accepted, they will receive a Homebuyer’s Package by email that includes information to share with the borrowers’ real estate licensee, mortgage broker, lender and lawyer/notary public.
To process and register the BC HOME second mortgage, the solicitor/notary used by the buyer must be on the approved BC HOME Partnership list. Added to the BC HOME loan amount, the borrower will be charged $560 plus taxes to cover BC Housing’s legal fees and disbursements. That amount is in addition to regular closing costs although it may be wrapped into the funds advanced as part of the second mortgage.
Borrowers will need to submit via their MyBCHousing account, a copy of their accepted offer and details on the home they are purchasing. BC Housing will then issue a loan commitment letter that is conditional upon the transaction being approved for default mortgage insurance. Make note that this turnaround time may affect two terms in the Contract of Purchase and Sale; namely, that 1) the contract is subject to approved financing, and 2) subject removal dates may need adjusting. On completion of the sale, BC HOME program funds will be advanced for the down payment. Possession of the home must be within 30 days of closing and move in within six months.
Except for soon to be occupied homes, the BC HOME Partnership program will likely not work for buying “pre-sale” property due to the above restrictions effecting subject to financing clauses, closing dates and possession by owner-occupiers.
The no-interest/no-payment loan is due and payable after the first five years, and it can be paid out sooner with no penalty.
If the loan is not paid out by the beginning of the sixth year, then the loan will start accruing interest at current market interest rates and regular principal and interest payments are to be paid by the borrowers. The government is setting the sixth year rate based on RBC’s prime rate at that time plus 0.05%. The amortization period for the remaining balance of the loan is 20 years.
Otherwise, the BC HOME Partnership loan is due and payable in full upon any of the following:
1. Default on the first mortgage or the BC HOME Partnership loan.
2. Transfer of the home or change of ownership (including addition of a person to title).
3. The home is no longer your principal residence in the first five years.
What is the definition of a principal residence?
Principal residence is defined as the home that is designated (and is eligible to be designated) as the owner’s principal residence for tax purposes, and where all persons registered on title live permanently (for at least six months per year) in a self-contained unit with access to all living facilities at all times to conduct their daily activities (such as cooking, sleeping and receiving mail) and is the residential address used by the persons registered on title on documentation including but not limited to identification, vehicle registration and income tax returns.
Borrower Eligibility for Program Specific to BC
Anyone who appears on the title of the mortgage must meet the following criteria.
• Be a Canadian citizen or permanent resident for the last five years.
• Have lived in British Columbia for at least the full 12 months preceding the application
• Be a first-time homebuyer who has not owned an interest in a principal residence anywhere in the world at any time and has never received a first-time homebuyers' exemption or refund
• Purchase a home that is $750,000 or less.
• Be eligible for a high-ratio default insured first mortgage for the home
Other criteria are:
• The combined, gross household income of all individuals on the title must not exceed $150,000.
• The home being purchased must be used as the principal residence of all individuals on the title for the five years after purchasing.
• The home being purchased does not involve purchase plus improvement financing.
In ADDITION, the borrower needs to be eligible to qualify for homeowner mortgage loan insurance specific to Canada as follows:
• The home is located in Canada. (BC Specific: home is located in BC.)
• For CMHC-insured mortgage loans, the maximum purchase price or as-improved property value must be below $1,000,000. (BC Specific: home price must not exceed $750,000.)
• Typically, a minimum down payment starts at 5%. For a purchase price of $500,000 or less, the minimum down payment is 5%. When the purchase price is above $500,000, the minimum down payment is 5% for the first $500,000 and 10% for the remaining portion. (BC Specific: to a maximum of $37,500 from BC HOME Partnership.)
• Normally, the minimum down payment comes from the borrowers’ own resources. However, a gift of a down payment from an immediate relative is acceptable for dwellings of 1 to 4 units. For eligible borrowers, additional sources of down payment, such as lender incentives and borrowed funds, are also permitted. (BC Specific: All borrowers must be on title and must live in the property. And, half of the minimum down payment must be from the buyers' own funds.)
• The borrowers total monthly housing costs, including Principal, Interest, property Taxes, Heating (P.I.T.H.), the annual site lease in the case of leasehold tenure and 50% of applicable condominium fees, shouldn’t represent more than 32% of the gross household income (Gross Debt Service (GDS) ratio). (BC Specific: Depending upon the lender’s policy and if exceptions are allowed, the GDS could be as high as 39%.)
• The borrowers total debt load shouldn’t be more than 40% of their gross household income. The Total Debt Service (TDS) ratio is the P.I.T.H. + the annual site lease in the case of leasehold tenure and 50% of condominium fees (if applicable) + payments on all other debt / gross annual household income. (BC Specific: Depending upon the lender’s policy and if exceptions are allowed, the TDS could be as high as 44%.)
• Borrowers also need to think about closing costs (for example, legal and land transfer fees) equivalent to 1.5% to 4% of the purchase price. Closing costs include but are not limited to one-time items such as lawyer fees, GST and PST as applicable, land transfer tax if applicable, adjustments, etc., to allow borrowers to complete the house purchase. (BC Specific: Remember to add an extra $560 plus taxes to the second mortgage amount to cover legal fees for registering the BC HOME Partnership loan.)
In ADDITION, the mortgage lender may have other qualifying criteria or may not accept applications that involve the BC HOME Partnership program.
For example, lenders not on the National Housing Act list are not allowed to participate in this program.
Borrowers need their Notice of Assessment (NOA) from Canada Revenue Agency to prove that they are not behind on filing their income tax.
The home must be a legal, self-contained mortgageable residence located in British Columbia. The property being purchased must be approved and insured by a mortgage default insurer, e.g, CMHC, Genworth or Canada Guaranty. To take part in the program, borrowers must default insure the mortgage and the down payment cannot exceed 19.99% of the purchase price or appraised value, whichever is less.
Other programs are available to help first-time buyers save on property transfer tax. 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 property transfer tax when purchasing a newly constructed or subdivided home worth up to $750,000.
Only a minority of lenders currently have programs where they accept “non-traditional down payment” sources. (As mentioned earlier, a “non-traditional down payment” will attract higher mortgage default insurance premiums.) Fewer options, means less competition for the business. Time will tell whether this program could potentially lead to acquiring a mortgage with a marginally higher interest rate, or mortgage terms which are less flexible.
BC Home Owner Mortgage and Equity Partnership
Toll Free Number: 1-844-365-4727
Hours: Monday to Friday, 8:30am to 4:30pm
For mortgage advice, call Kelleway Mortgage Architects at 604 476 0053.
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