B.C. HOME Partnership Program
Although the efficacy of the program as well as the timing of the announcement has been called into question, on December 15, 2016 the British Columbia Provincial Government released information on the B.C. Home Owner Mortgage and Equity Partnership program (the “B.C. HOME Partnership program”) in an attempt to help first-time home buyers fund their down payments.
What is it?
The B.C. HOME Partnership program gives eligible home buyers who require a high-ratio, insured first mortgage for the purchase of their home access to a government loan (the “Program”). This loan has a 25-year term, is interest and payment free for the first 5 years, and is registered on title as a second mortgage.
The loan is designed to match home buyers’ personal down payment on a property, up to a maximum of 5% of the purchase price (with the maximum allowable purchase price being $750,000.00).
The Program is set to run from January 16, 2017 to March 31, 2020.
What criteria must be met?
The following is a summary of the qualifying criteria which must be met by all Program applicants who will hold registered and beneficial interests in the property in order to obtain available loan monies:
1. Timing. First, given some of the excitement around the monies being made available by the B.C. HOME Partnership program, the timing of upcoming transaction must be considered.
- Although applications for the program will be accepted beginning January 16, 2017, any deals with a closing date of earlier than February 15, 2017 will not be considered.
2. Price. The property purchase price must be equal to or less than $750,000.00 (excluding taxes and fees).
3. High-ratio, insured mortgage pre-approval. Before applying for the program, applicants must be pre-approved for a high-ratio, insured mortgage.
- A high-ratio mortgage is one in which the down payment is less than 20% of the purchase price (and more than 80% of the purchase price is being borrowed).
- Insurance is required if a borrower has a high-ratio mortgage. The minimum down payment required in order to obtain mortgage insurance from the Canada Mortgage and Housing Corporation depends on the purchase price of the home:
- if the purchase price is less than $500,000.00, the minimum down payment is 5%; and
- if the purchase price is above $500,000.00, the minimum down payment is 5% of the first $500,000.00 and 10% of any amount over $500,000.00 (up to a maximum of $1,000,000.00).
4. Principal Residence. All individuals on title must live in the home as their principal residence for 5 years after the purchase (or less if the loan is repaid in full).
- Note that the Program defines principal residence as “the home that is designated as the owner’s principal residence for tax purposes and where all persons registered on title live permanently (for at least 6 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.”
5. First Time Home Buyers. Applicants must be a first time home buyers 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.
6. Income. The total annual household income for all individuals on title must not exceed $150,000.00.
7. Residency. Must have resided in British Columbia for the past 12 months prior to applying for the program.
8. Location. The subject property must be located in British Columbia.
9. Citizenship. Program applicants must be Canadian citizens or permanent residents that have resided in Canada for at least 5 years.
10. Possession. This criteria in particular could be a trap for applicants and should be carefully considered. Under the Program, purchasers are required to take possession of the purchased property within 30 days of closing and must move in within 6 months.
Administration and Repayment
A Home Buyer’s Package will be delivered by the B.C. HOME Partnership program to those who meet the above referenced criteria and have had their applications accepted. What exactly is contained within these information packages is unknown at this time but the content is described as being able to guide home buyers, and the real estate professionals assisting them, through the remainder of the loan-obtaining process.
With respect to repayment of the Program loan, the first 5 years is interest and payment free, and the home owner may repay the loan in full at any time with no penalty. At Year 6 however, interest will start accruing and principal and interest payments will have to be made, amortized over the remaining 20 years. The interest rate will be reset at the Royal Bank of Canada Prime Rate plus 0.5% at each of the 10th, 15th, and 20th anniversary dates, so options with respect to re-financing after 5 years will likely be a conversation many clients will want to have.
It is recommended that applicants be encouraged to speak with their mortgage broker or bank representative to first determine whether they will be allowed by their lender to take advantage of the Program.
Why? Because the Program loans will be registered on title as a second mortgage, which traditionally lenders do not permit on mortgaged properties. As such, applicants should ensure that their lender will agree to having a second mortgage registered in favour of the British Columbia government before beginning the application process.
The recent tightening of mortgage rules also acts to raise a few questions. For example, the new stress test for loan eligibility sets a debt ceiling of no more than 39% of household income being necessary to cover home-carrying costs such as mortgage payments, heat and taxes. While the Program loans are designed to be interest and payment free for the first 5 years, and presumably would not impact the calculation of home-carrying costs during such time, once Year 6 hits, home owners could have their options reduced when it comes to re-financing due to the emergence of a new debt obligation.