The B.C. provincial government announced a new Home Owner Mortgage and Equity (HOME) partnership initiative in December aimed at supporting qualifying first-time buyers seeking to enter the housing market.
The program, which provides matching loans for the down payment on eligible homes, will admittedly not solve all of Metro Vancouver’s housing challenges, as some skeptics have observed. But for first-time homebuyers shut out of an expensive market, the HOME program will no doubt be of great help, if used wisely.
If you are a prospective first-time homebuyer, follow these tips to get the most out of the new B.C HOME partnership program.
1. Get informed before you apply
Make sure you fully understand and meet the requirements for a loan, which include pre-approval for an insured mortgage (detailed information is available at the B.C. Housing website at https://www.bchousing.org/housing-assistance/bc-home-partnership). Some key points to note:
- Applications begin on Jan. 16 for homes with a closing date of Feb. 15 or later.
- Under the program, the B.C. government will provide loans for homes with a maximum value of $750,000, matching the amount already saved by qualifying first-time homebuyers.
- You will need to save at least 2.5 per cent of the down payment on the home in order for the government matching loan to get you to the minimum 5 per cent down payment. However, the more savings you have, the more funds you can access, up to $37,500.
The B.C. Housing website has information on all the requirements and includes FAQs and a calculator to check your eligibility. Make sure you review the page carefully before you apply.
2. Avoid over-extending yourself
Applicants must meet all safeguards and mortgage approval policies designed to ensure they are able to fulfil their repayment obligations, including the new stress-test introduced by the federal government in October.
While the HOME loan program will not sidestep these important checks, it allows buyers to afford a higher mortgage amount than before. However, resist the urge to significantly upsize or upscale your home choice as a result. Make a smart decision not to borrow any more than you need – this will give you a cushion for your closing costs and personal/family needs, including saving for emergencies and other long-term financial goals. A realistic mortgage will also help you better manage combined payments of the mortgage plus the loan when it is due in five years.
3. Maximize your mortgage payments
Make extra payments to your mortgage whenever possible to reduce your interest costs and ultimately decrease your combined financial obligations when your HOME loan is due for repayment after five years. For example, an extra $55 a month on a $400,000 mortgage will get you mortgage-free an entire year earlier.
A good way to pay down your mortgage faster is to split your monthly mortgage payment into two equal bi-weekly payments, or four equal weekly instalments. You can also bump up the amount for your regular mortgage payments – if you’re on a bi-weekly payment schedule of $750 every other week, round it up to $800. Also, homeowners typically have the option of making lump payments on the anniversary of the mortgage. Take advantage of this if you have the money.
4. Explore other programs for first-time buyers
Don’t consider the B.C. HOME partnership loan in isolation as it adds to other resources available to help first-time buyers. Another program to consider is the federal Home Buyers Plan. Under this plan, each qualifying mortgage applicant can borrow up to $25,000 from their RRSP for a down payment (visit the Canada Revenue Agency site for details).
A HOME loan and borrowing from your RRSP both demand consumer responsibility so take the time to compare and think carefully about your choices, in consultation with a financial advisor. You may also qualify for B.C.’s First Time Home Buyers Program that reduces or eliminates the property transfer tax (not to be confused with the RRSP-linked Home Buyers Plan), as well as the federal government’s First Time Home Buyers Tax Credit.
5. Get the right mortgage with the best possible rate
Help with your down payment will not eliminate the need for a good mortgage product with an affordable rate. As you complete the mortgage pre-approval process for your HOME loan, be sure to shop around for the lowest possible rate. This will be challenging if you have poor credit so check your standing first (visit www.transunion.ca or www.equifax.ca). In some cases, it may be wise to delay your purchase and improve your credit before applying.
In addition, look for mortgage products that provide helpful perks (such as cash back to help with your savings goals). Ultimately, the more savings on your mortgage, the more money you will have to repay your loan down the road.
Kathy McGarrigle is Chief Operating Officer for Coast Capital Savings, Canada’s largest credit union.