CHOF :: new program, marketed and administered by the Canadian Home Ownership Foundation (CHOF)
Maroney on Money for December 7, 1997
In my last article, I reviewed a new program designed to improve access to home ownership. This new program, which is being marketed and administered by the Canadian Home Ownership Foundation (CHOF), is designed to provide qualified parties with an interest free, no payment loan for up to 20% of the total purchase price of a new home for five years.
Daryl DeMarco, at Homelife Classic Realty in Maple Ridge contacted me this week to raise a number of valid points relating to the CHOF program. I called Susan Allen, a director on CHOF’s board, to review Daryl’s concerns. The issues discussed and Susan’s responses are as follows:
1. Who is supplying the interest-free money to finance CHOF?
In my original article, based on a previous discussion with Susan Allen, I noted that CHOF is funded primarily by developers, builders and financial institutions who stand to gain indirectly by increasing the pool of potential buyers in the marketplace. CHOF is not a government funded or sponsored program.
2. Since only CHOF approved projects qualify for the program, are the parties who fund CHOF the same as the parties who own the approved projects?
For the most part, the answer is yes. Knowing this, Daryl questions whether the buyer is adequately protected if developers, whose projects are approved by CHOF, are also funding CHOF? Knowing this Daryl questions whether CHOF was created simply to boost lagging sales caused by a growing number of leaking problems in stucco buildings. This is a very valid point, however, Susan is quick to point out that this is not a “flash in the pan” project; CHOF was incorporated two years ago and the concept was conceived six years ago. CHOF has every intention of sticking around which it would be unable to do if it became involved in the marketing of an inferior product.
3. Can buyers be represented by their own realtor?
Susan advises that CHOF currently contracts with Re/Max who will assign certain designated realtors to work with qualified buyers. In other words, CHOF participants must work with CHOF realtors who are also listing agents for the qualifying projects. CHOF is interested in working with realtors in the community and so, while not currently CHOF policy, consideration is being given to providing some form of referral fee to agents who were known to be working with CHOF participants prior to becoming involved in the program.
The other point to be made here is that, in the open marketplace, it is not uncommon for a listing agent to also be the selling agent as long as the required disclosure is made to the purchaser.
4. Can a buyer choose an appraiser to ensure they are paying a competitive price?
The initial appraisal is prepared by an appraiser selected by the lender and CMHC, however, CHOF will allow a buyer to have an independent appraisal done, albeit at their own cost. In addition, a buyer may choose to have his or her realtor prepare a valuation of the property again at their cost.
5. To participate in CHOF, buyers need only qualify originally for 75% financing and not the 95% they are actually borrowing. As a result, at the end of five years borrowers may not qualify for the amount still owing and, even if they do, banks will not provide a first mortgage for over 75% on refinancing, only on new purchases. In such a case, the purchaser will have to finance the required borrowing in excess of 75% of the appraised value. This will probably entail a personal loan or a second mortgage both of which probably mean a higher rate of interest. Daryl asks if there is any assurance of some type of re-financing plan for when the five year term expires?
The short answer here is, no. Borrowers will have four options upon renewal: pay off the second mortgage, requalify for a new first mortgage, arrange a private loan or second mortgage and, failing either of these, turn to CHOF for assistance in arranging a second mortgage. Susan points out that, while a personal loan or a private second mortgage will likely entail a higher interest rate, this will be offset, at least in part, by elimination of the CMHC insurance fee of 2.5%.
Again referring to my original article, the behaviour of the CHOF participant in the intervening five year period will determine whether or not participation has been beneficial; developing and implementing a financial plan is instrumental. If the participant’s financial position shows only limited improvement during this time, or if the participant spends any additional income received, there is likely little to be gained from CHOF.
Jim Maroney is a chartered accountant with Andrews, Brown, Maroney in Maple Ridge
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