B.C. Government to offer downpayment loans for first-time home-buyers

[rubecube]

Originally Posted by squiggs96

I'm not sure you are looking at the math correctly. Let's suppose you saved up $20,000 in 10 years, as per your example. This amount is in addition to the rent and housing costs you are already paying before becoming a homeowner. If you can do this, it would give me confidence you know how to save some money, and could likely pay me back in the future. Your monthly housing costs once being a homeowner could be very close to what you were paying as a renter. In some cases, it will be less. You will still have the ability to save another $10,000 in the first five years, assuming the same amount is put aside to savings each month, as per your original example.

The $20,000 loan from the government doesn't have to be paid off in the first five years. It can be paid off at any time, but the balance gets paid off in years 6-25, as a 20 year loan. I don't know what the interest rate will be, but let's assume 5%. That $20,000 loan will add $131 per month to your payments, starting in year 6. If it took you 10 years to save $20,000, that's an average of $167 per month. In this case, you are still ahead by $36 per month. If in the first five years you took your $167, saved it, and put that whole amount towards the loan, you would only have $10,000 to pay down. Now the loan only has $67 per month, assuming mortgage financing rules. More frequent compounding would increase this amount.
ese payments could be less than your

Sure that's one example, but we both know this has the potential to be abused pretty badly. Parents gift/lend their kids the $20k, and then pocket the amount received from the government. I'm pretty sure I could secure a $20k personal loan from family and friends within a few days if I really worked at it. Five years roll around and the kid has saved nothing and now starts getting hit with monthly interest charges on top of their living expenses and it's ultimately the taxpayers who foot the bill if he defaults.

[Peanut]

I also feel like in most cases, going from renting to owning is more expensive. Mortgage payment plus property tax plus all utilities plus home insurance plus ongoing home maintenance.

[OMG!WTF!]

Originally Posted by rubecube

Sure that's one example, but we both know this has the potential to be abused pretty badly. Parents gift/lend their kids the $20k, and then pocket the amount received from the government. I'm pretty sure I could secure a $20k personal loan from family and friends within a few days if I really worked at it. Five years roll around and the kid has saved nothing and now starts getting hit with monthly interest charges on top of their living expenses and it's ultimately the taxpayers who foot the bill if he defaults.

Ok but this kid has already qualified for the loan even without the free government money. He can take his 20k and put 5% down and pay all of the interest from day one and somehow this is less scary? The government loan isn't adding any more risk. Why aren't you freaked out about people who currently put 20k of their parents money down on their first condo? This isn't creating new qualified buyers that are currently unqualified.

[rubecube]

Originally Posted by OMG!WTF!

Ok but this kid has already qualified for the loan even without the free government money. He can take his 20k and put 5% down and pay all of the interest from day one and somehow this is less scary? The government loan isn't adding any more risk. Why aren't you freaked out about people who currently put 20k of their parents money down on their first condo? This isn't creating new qualified buyers that are currently unqualified.

Who said I wasn't concerned with the status quo?

[OMG!WTF!]

Originally Posted by rubecube

Who said I wasn't concerned with the status quo?

I get that but it is the status quo. This loan program is actually quite smart. It gives people a huge incentive to build equity in the first five years...the riskiest time for lenders. And after five years more people will have more equity which is the healthiest thing for the market in general. And if they don't take advantage of the potential savings they are no worse off than before. Yeah it's actually a great idea.

[rubecube]

Originally Posted by OMG!WTF!

I get that but it is the status quo. This loan program is actually quite smart. It gives people a huge incentive to build equity in the first five years...the riskiest time for lenders. And after five years more people will have more equity which is the healthiest thing for the market in general. And if they don't take advantage of the potential savings they are no worse off than before. Yeah it's actually a great idea.

At the cost of $700M to the taxpayers. And sorry, I'm not a huge investment guru, but isn't the whole "more equity" bit contingent on the housing market?

[OMG!WTF!]

Originally Posted by rubecube

At the cost of $700M to the taxpayers. And sorry, I'm not a huge investment guru, but isn't the whole "more equity" bit contingent on the housing market?

It's not really a cost to the tax payer the way you're thinking it is. It comes from a 2 billion dollar pile collected from land transfer taxes, luxury real estate taxes and some other source directly related to the real estate market. It's rich people money!

It doesn't take a huge investment guru to figure out that the real estate market may go up or down in five years. All things being equal building up equity for free is a smart thing. If you think/secretly hope everyone starts losing money in a massive crash and burn then that's a different topic.

[rubecube]

Originally Posted by OMG!WTF!

It's not really a cost to the tax payer the way you're thinking it is. It comes from a 2 billion dollar pile collected from land transfer taxes, luxury real estate taxes and some other source directly related to the real estate market. It's rich people money!

Okay, but it's still money that could be earmarked for projects and programs that are of a greater benefit to the province as a whole.

It doesn't take a huge investment guru to figure out that the real estate market may go up or down in five years. All things being equal building up equity for free is a smart thing. If you think/secretly hope everyone starts losing money in a massive crash and burn then that's a different topic.

It's not that I think or secretly hope, it's that we're being consistently warned that the bubble could burst at any moment. I'm an idiot when it comes to real estate speculation, so I have to trust what I hear from various experts.

[calgarygeologist]

Originally Posted by rubecube

At the cost of $700M to the taxpayers. And sorry, I'm not a huge investment guru, but isn't the whole "more equity" bit contingent on the housing market?

Is it really a cost to the tax payers though. Shouldn't all of the money be returned to the Government in the end plus interest. Maybe in the case of opportunity cost.

[bizaro86]

Originally Posted by calgarygeologist

Is it really a cost to the tax payers though. Shouldn't all of the money be returned to the Government in the end plus interest. Maybe in the case of opportunity cost.

Making high loan to value second mortgages is something where you should expect high loan losses that you are not able to recover from foreclosures.

There is a reason all those Aaron Acceptance type places charge like 16%...

[rubecube]

Again, maybe some of the investment crowd can chime in here because it's not my forte, but wouldn't this be better as a top-up program? Say if you're at $18,000 and you need the extra $2k to get to 5% rather than a straight up match? If I'm sitting at $20k and get pre-approved, what's to stop me from taking the government's $20k and spending it on hookers and blow?

[OMG!WTF!]

I'm sure the money would go to a lawyers trust account and would only be released to fulfill the terms of a real estate contract. So the money would be advanced straight to the seller based on the buyer's down payment on the contract.

[squiggs96]

Originally Posted by rubecube

Sure that's one example, but we both know this has the potential to be abused pretty badly. Parents gift/lend their kids the $20k, and then pocket the amount received from the government.

I don't think that's how this works at all.

Originally Posted by rubecube

Again, maybe some of the investment crowd can chime in here because it's not my forte, but wouldn't this be better as a top-up program? Say if you're at $18,000 and you need the extra $2k to get to 5% rather than a straight up match? If I'm sitting at $20k and get pre-approved, what's to stop me from taking the government's $20k and spending it on hookers and blow?

Unless I'm missing something in the articles, I don't think you understand how the program works. Let's assume you have saved up $20,000 and qualify for another $20,000 from the government. The government isn't writing you a cheque that you can cash at the bank. You go find a home and write an accepted offer. At closing time you go to the lawyer's office. You give the lawyer your $20,000 bank draft. The government will provide an additional $20,000 towards the purchase price and register a second mortgage. The balance will be the remaining amount, which will be the first mortgage.

After five years, you have to start paying back the $20,000 government loan over a 20 year period. You have the right to pay back this loan at any point. While not a perfect example, it's very similar to taking out $20,000 from your RRSPs to use the Home Buyers Plan. When you take advantage of the HBP, your bank doesn't give you the $20,000. The money is moved at closing, and you have to pay yourself back the money over the next 15 years. If you don't, you have to take that amount into your income on your tax return.

[Sylvanfan]

I can see this program being abused pretty well. Its like how my sister in law and her ex husband who own 25 plus properties qualified for a low housing condo in Vancouver because he had an income under 40 grand last year.