Category Archives: young buyers

Young Homebuyers Are Vanishing From the U.S.

The median age of first-time home buyers has increased to 33, the oldest in records dating back to 1981, according to a National Association of Realtors report released Friday. The median age of all buyers also hit a fresh record, 47, increasing for a third straight year — and well above the median age of 31 in 1981.

Getting Older

The median age for all U.S. homebuyer profiles is creeping higher

Click link to see graph: https://www.bloomberg.com/news/articles/2019-11-08/young-homebuyers-vanish-from-u-s-as-median-purchasing-age-jumps

Note: Survey conducted almost every other year prior to 2002. No data for 1983 and 1999.

While the median age of first-time home buyers only rose by one year, the increase reflects a variety of factors facing Americans searching for a home.

A nationwide shortage of affordable housing, coupled with lower mortgage rates, has stoked prices in cities from the coasts to the heartland. At the same time, student loans and other debts make it harder for Americans to save tens of thousands of dollars for a down payment, while tight lending standards can make getting a bank loan difficult for borrowers with less-than-stellar credit scores.

“Housing affordability is so difficult today, especially when coupled with rising rents and student loan debt, that they’re finding different ways to enter home ownership,” said Jessica Lautz, vice president of demographics and behavioral insights at the Realtors group in Washington.

The characteristics of home buyers have changed in recent years. The share of married couples has declined as unmarried couples and those purchasing as roommates has risen.

As buyers’ ages have increased, so have their incomes. The typical income of purchasers rose to $93,200 in 2018 as a lack of affordable options squeezed lower-income potential buyers out of the market.

Higher prices of homes have also changed how first-time buyers are entering the market. Nearly a third of first-time home buyers said they used a gift from a relative or friend to fund their down payment.

Builders have cited a shortage of affordable lots and labor as reasons to build fewer or bigger single-family homes, leaving America’s growing population to consider more of the existing housing stock. New homes as a proportion of all purchases fell to a low of 13% in records dating back to 1981.

The report reflects survey responses from 5,870 people who purchased a primary residence in the period between July 2018 and June 2019.

Source: Bloomberg.com – By 

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Mortgage Pre-Qualification vs Mortgage Pre-Approval vs Mortgage Approval

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Buying & Selling Tips

Mortgage Pre-Qualification vs Mortgage Pre-Approval vs Mortgage Approval

What are the differences between each stage of the mortgage process?
By Kara Kuryllowicz September 18, 2019

In early 2019, several Canadian banks launched digital apps that offer home buyers easy, hassle-free mortgage pre-qualification in 60 seconds or less. Sounds great, right?  The problem is many consumers believe a mortgage pre-qualification is a lot like a mortgage pre-approval or mortgage approval. As a result, prospective home buyers and sellers are left expecting the financial institution associated with the app to lend them hundreds of thousands of dollars, despite the fact they simply keyed their names, addresses, contact information and gross income into various online fields.

Getting Mortgage Approval

“Every week, as many as 40% of my new clients come to me because they’ve just bought a home and discovered that mortgage pre-qualification is meaningless and that they do not have the financing required for the purchase,” says Tracy Valko, owner and principal broker of Dominion Lending Centres Valko Financial Ltd., and a director at Mortgage Professionals of Canada.

Let’s get real: A mortgage pre-qualification gives the financial institution warm leads (names, contact information, purchasing timeline) and tells consumers how much money a financial institution might loan them. There is no way any financial institution will actually lend consumers hundreds of thousands of dollars just because they spent 45 seconds with the company’s mortgage pre-qualification tool.

Lenders do everything they can to ensure the borrower will repay the loan. A mortgage pre-approval looks at how an individual manages his/her money to determine that person’s creditworthiness. The next step is the mortgage approval which assesses that specific person’s ability to repay a loan of a certain amount at a set interest rate on a particular home.

“Always get a mortgage pre-approval before you start searching for a home and have a mortgage approval in place before you waive your financing condition on the offer – back out of a deal after it’s firm and you could be sued by the seller.” says Valko. “A mortgage pre-approval will tell consumers and their realtors what they can realistically afford to buy.”

Let’s further define the terms consumers need to fully understand before they commit to a real estate agent and start shopping for a home.

What is Mortgage Pre-Qualification?

It takes less than 60 seconds because it requests only the most basic information, whether it’s submitted to an online app or a financial representative. Mortgage pre-qualification never requires supporting documentation that proves the consumer actually has a full-time job, is paid a weekly salary and has earned a good credit score. At best, a mortgage pre-qualification can provide a very loose, broad estimate of a consumer’s home-buying power based on the consumer’s unverified data. Because the consumer typically inputs the information into an online tool, it takes just seconds for the software, not an experienced, professional underwriter, to pre-qualify a consumer for a mortgage.

If consumers notice and bother to read the apps’ fine print or legal disclaimers, they’ll likely see a statement like this one: “This is not a mortgage approval or pre-approval. You must submit a separate application for a mortgage approval or a mortgage pre-approval and a full credit report.”

In other words, they’re not actually promising you a dime, let alone enough the hundreds of thousands of dollars you’ll likely need to buy a home anywhere in Canada.

What is Mortgage Pre-Approval?

In general, it will take two to five business days to investigate an individual’s financial circumstances and the risk that a person might represent to the lender. The underwriter will need the basics, such as name, address and contact information in addition to detailed data on their income, assets (e.g. stocks, RRSPs, property, vehicles, savings), liabilities (e.g. debt, loans, mortgages) and their credit rating and report as well as the available down payment. Supporting documentation may be required to prove any or all of the above.

Unlike a pre-qualifying app, lenders’ underwriters may request a letter of employment, a Notice of Assessment, pay stubs, or T4 for the two most recent years as well as documentation indicating the down payment is available. The lender or mortgage broker will also require the consumers’ permission to pull credit scores and credit reports from organizations such as Equifax.

Your credit score, typically 300 to 800+, is based on feedback from lenders who confirm that you do or don’t pay your bills in full and on time every month. The credit report includes your name, address, social insurance number and date of birth as well as your credit history, for example, your debts and assets and whether you’ve ever been sent to collection or declared bankruptcy.

“Lenders want to know how well or how poorly you manage your money and will be looking for patterns of insufficient, late and missed payments,” says Valko.

A mortgage pre-approval is generally valid for up to 120 days at a specific interest rate unless the consumers’ circumstances change, for example, employment status, down payment, or income. For example, a consumer may not realize it, but their probationary status with a new employer, whether it’s three, six or 12 months, does matter to lenders. Likewise, a move from a salaried to a contract or self-employed position will also be seen as a higher risk.

“I’ve had clients believe they were full time, salaried employees, then discover they’re still on probation when we start underwriting,” says Valko. “An electrician client left his full-time salaried position to work independently and didn’t realize it negated his mortgage pre-approval, which was based on the guaranteed weekly paycheck versus the sporadic earnings associated with self-employment.”

What is Mortgage Approval?

This is the big one. Once consumers have identified the homes they want to purchase, they need mortgage approval to buy that specific home. Lenders assess the age and condition of the homes and consider comparable homes to confirm the price being paid is fair and market value. The mortgage approval is valid until the closing date unless the buyers’ circumstances change.

“Only the mortgage approval accounts for property specifics, such as taxes or condo fees, so give your underwriter/lender time to ensure the numbers previously used are still valid and that the property is acceptable to the lender,” says Valko.

If you’re serious about the home search and purchase process, skip the mortgage pre-qualification apps. Instead, take the time and make the effort to get mortgage pre-approval, then find the home suits you best, then get mortgage approval to close the deal. Then? Enjoy your new keys.

Source: REW.ca –  Kara Kuryllowicz September 18, 2019

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First-Time Home-buyer Lessons

 

My husband and I bought our first home three years ago, and I’ll admit we made some mistakes along the way.

Here are 5 hard lessons we learned as first-time homebuyers.

1. We bought a very old house. Before we bought the home, we had it inspected by a reputable home inspector. In his report, he suggested that we have the house’s foundation assessed by an engineer. But we didn’t do that. Why? We were in too much of a rush to buy the house.

Lesson? Pay attention to the inspection report. After living in the home for about a year and a half, I called an engineer who told us a foundation wall had to be replaced–and soon. It wasn’t cheap.

2. Our agent told us that upping our offer by a few thousand dollars would only mean an extra $40, $50 or $60 a month on our mortgage. It doesn’t sound like much, but if interest rates go up spending thousands more on our home will hurt.

Lesson? Once you figure out your maximum price, stick to it. This is one thing we actually did well. In the end our offer was accepted at the price we were willing to pay, but upping our bid could’ve made paying the mortgage a lot tougher.

3. When you’ve been a renter for most of your life, it’s a shock to suddenly find yourself responsible for repairs. We hired a roofer who did a really bad job, and we had to pay another roofer to do the work a second time. Then I had to go to small claims court to try getting my money back from the first one.

Lesson? Shop around before hiring a contractor. I should have paid more attention to a couple of negative online reviews. You can also look up court decisions online to see if other customers have had problems.

4. We were able to put a 20% down payment on our home and had about $10,000 set aside for closing costs, taxes, home insurance and other expenses. It wasn’t enough.

Lesson? Set money aside, then set some more aside. You also need to budget for the unexpected. In the first year, we spent several hundred dollars on a new sump pump after our crawl space flooded. Last year, we spent a few hundred dollars on an exterminator for mice.

5. This past winter, while our foundation wall was being dug up and replaced, I called a real estate agent to talk about possibly putting our house up for sale. I was pretty fed up with the seemingly unending problems and stress. The good news was that our home had gone up in value and we could make a profit. Though we’ll stay put for now, at least we have an exit plan–as long as the housing market stays strong.

Lesson? Have an exit plan. Hopefully these hard-earned lessons can help you become homeowners. Or maybe decide to remain renters. Good luck!

 

Source: Tangerine.ca – by Dominique Jarry Shore Wednesday, July 3rd, 2019

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12 home inspection issues buyers can leverage to negotiate the sale price

Photo: James Bombales

Waiving a home inspection is like purchasing a used car on Craigslist without taking a look under the hood — you’re likely to run into issues down the road. A new survey from the online home improvement marketplace, Porch, reveals that 86 percent of home inspections uncover one or more problems that need to be addressed. While hiring a home inspector will set you back about $377 on average, their expertise could save you from buying a lemon or shelling out thousands of dollars in future repairs.

Prospective homebuyers can use the information provided by a home inspector to negotiate a lower sales price, accounting for the cost of repairs or replacing a feature altogether. Of the 1,000 individuals surveyed by Porch who hired a home inspector, 37 percent submitted a revised offer with help from their real estate agent, saving an average of $14,000 off the listing price of their new home. That’s no small chunk of change!

Here we examine the most-flagged home inspection issues buyers can use to negotiate the best sale price.

Photo: James Bombales

1. Roof – flagged in 19.7% of reports

Roofs with asphalt or cedar shingles have an average lifespan of 20 years whereas metal roofs only need to be replaced every 50 to 75 years. Your home inspector will look for signs of water damage, mold or algae, and take note of any sagging or missing shingles.

2. Electrical – flagged in 18.7% of reports

If you’re looking to purchase a home built prior to the 1950s, you’ll want to inquire about its electrical wiring. Knob-and-tube wiring, which was popular from the 1880s to the 1940s, can cause electrical shocks and fire. Other issues to take note of include exposed wiring, ungrounded wire receptacles and paint on electrical outlets.

Photo: James Bombales

3. Windows – flagged in 18.4% of reports

While broken windows are a pretty obvious spot, your home inspector may conduct a simple test to check for air leaks. However, there’s no guarantee the home owners will agree to repair the window seals — some consider this cosmetic, rather than structural.

4. Gutters – flagged in 16.9% of reports

Your home inspector will want to make sure the gutters are in good working condition, assessing their size, any damage, and how far water is directed away from the house.

Photo: James Bombales

5. Plumbing – flagged in 13.6% of reports

Plumbing problems can quickly add up, costing an unsuspecting homeowner thousands of dollars. With a flashlight in hand, your home inspector will scan for potential leaks, polybutylene piping, DIY projects gone wrong, tree root damage, and more.

6. Branches overhanging roof – flagged in 13.3% of reports

Having an old-growth tree in your front yard might seem like a selling point, but it can actually cause a lot of damage if not properly maintained. Branches can rip off roof shingles, leaves can pile up and clog up your gutters, and heavy limbs can come crashing down into your living room.

Photo: James Bombales

7. Fencing – flagged in 12.6% of reports

Home inspectors will evaluate the condition of a fence that lines the property. But again, this is one of those “choose your battles” situations. Are you willing to risk losing out on your dream home because a few pickets have gone missing? Probably not.

8. Water heater – flagged in 12.2% of reports

While a rickety fence may be no big deal, a busted up water heater certainly is. Home inspectors check for things like water leaks, sediment buildup, corrosion on the pipes, and low water pressure.

Photo: James Bombales

9. Driveways, sidewalks, patios, entrance landing – flagged in 11.9% of reports

Cracks in your driveway or patio are pretty much inevitable. That being said, you’ll want the home inspector to ensure water isn’t seeping into those crevices. If major issues do turn up, you may be able to seek compensation for those repairs.

10. Air conditioning – flagged in 9.9% of reports

According to the Porch survey, most homebuyers negotiate only $500 for AC repairs, but the actual costs are much higher — think thousands of dollars, not hundreds.

Photo: James Bombales

11. Exterior paint – flagged in 9.6% of reports

If the house was constructed before 1979, your inspector will likely conduct a lead paint test. Additionally, if the exterior paint is peeling, some lenders (like the Federal Housing Administration and Veterans Affairs) will not approve the loan due to concerns over health and safety.

12. Foundation issues/cracks – flagged in 8.9% of reports

Home inspectors can look for obvious signs of foundation problems like cracks in basement walls, damaged bricks and uneven floors. If you and your home inspector suspect the problems are serious, you may want to bring in an engineer. But consider it money well spent — foundation fixes can cost $10,000 or more. Gulp.

Source: Livabl.com –  

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Fed unveils First-Time Home Buyer Incentive in Barrie

Fed unveils First-Time Home Buyer Incentive in Barrie 

A federal official unveiled Canada’s First-Time Home Buyer Incentive in Barrie, ON last week.

Adam Vaughan, the parliamentary secretary to the minister of families, children, and social development, said that $1.25 billion has been allocated for the program over the next three years. The program, which will begin on September 2, is expected to reduce monthly mortgage payments required for first-time buyers without increasing the amount they need to save for a down payment.

“Housing affordability is a major issue and a major concern for families,” said Vaughan. “This region has become one of the most expensive in the world and the prices of downtown Toronto are starting to echo up into communities like Barrie, and the success of Barrie itself is also having an impact on housing values and land costs.”

The program will be available to first-time home buyers with qualified annual household incomes of up to $120,000. Under the incentive, the Canada Mortgage and Housing Corporation (CMHC) will provide up to 10% on the purchase price of a new build and 5% on a resale.

Source: Mortgage Broker News – by Duffie Osental 31 Jul 2019

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The Benefits and Risks of Co-Signing for a Mortgage

 

Thanks to tighter mortgage qualification rules and higher-priced real estateparticularly in the greater Vancouver and Toronto areasit’s not always easy to qualify for a mortgage on your own merits.

You may very well have a great job, a decent income, a husky down payment and perfect credit, but that still may not be enough.

When a lender crunches the numbers, their calculations may indicate too much of your income is needed to service core homeownership expenses such as your mortgage payment, property taxes, heating and condo maintenance fees (if applicable).

In mortgage-speak, this means your debt service ratios are too high and you will need some extra help to qualify. But you do have options.

A co-signer can make all the difference

A mortgage co-signer can come in handy for many reasons, including when applicants have a soft or blemished credit history. But these days, it seems insufficient income supporting the mortgage application is the primary culprit.

We naturally tend to think of co-signers as parents. But there are also instances where children co-sign for their retired/unemployed parents. Siblings and spouses often help out too. It’s also possible for more than one person to co-sign a mortgage. A co-signer is likely to be approved when the lender is satisfied he/she will help lessen the risk associated with loan repayment.

Under the microscope

When you bring a co-signer into the picture, you are also taking their entire personal finances into consideration. It’s not just a simple matter of checking their credit.

Your mortgage lender is going to need a full application from them in order to grasp their financial picture, including information on all properties they own, any debts they are servicing and all of their own housing obligations. Your co-signer will go through the wringer much like you have.

What makes a strong co-signer?

The lender’s focus is mainly centred around a co-signer’s income coupled with a decent credit history. Some people think that if they have tons of equity in their home (high net worth) they will be great co-signers. But if they are primarily relying on CPP and OAS while living mortgage free, this is not going to help you qualify for a mortgage.

The best co-signer will offer strengths you currently lack when filling out a mortgage application on your own. For instance, if your income is preventing you from qualifying, find a co-signer with strong income. Or, if your issue is insufficient credit, bring a co-signer on board who has healthy credit.

Co-signer options

There are typically two different ways a co-signer can take shape:

  1. The co-signer becomes a co-borrower. This is like having a partner or spouse buy the home alongside a primary applicant. This involves adding the support of another person’s credit history and income to the application. The co-signer is placed on the title of the home and the lender considers this person equally responsible for the debtif the mortgage goes into default.
  2. The co-signer becomes a guarantor. In this scenario, he/she is backing the loan and vouching you’ll pay it back on time. The guarantor is responsible for the loan if it goes into default. Not many lenders process applications with guarantors, as they prefer all parties to share in the ownership. But some people want to avoid co-ownership for tax or estate planning purposes (more on this later).

gifting moneyNine things to keep in mind as a co-signee

  1. It is a rare privilege to find someone who is willing to co-sign for you. Make sure you are deserving of their trust and support.
  2. It is NOT your responsibility to co-sign for anyone. Carefully think about the character and stability of the people asking for your help, and if there is any chance you may need your own financial flexibility down the road, think twice before possibly shooting yourself in the foot.
  3. Ask for copies of all paperwork and be sure you fully understand the terms before signing.
  4. If you co-sign or act as a guarantor, you are entrusting your personal credit history to the primary borrowers. Late payments hurt both of you, so I recommend you have full access to all mortgage and tax account information to spot signs of trouble the instant they occur.
  5. Understand your legal, tax and even your estate’s position when considering becoming a co-signer. You are taking on a potentially large obligation that could cripple you financially if the borrower(s) cannot pay.
  6. A prudent co-signer may insist the primary applicants have disability insurance protecting the mortgage payments in the event of an income disruption due to poor health. Some will also insist on life insurance.
  7. Try to understand upfront how many years the co-borrower agreement will be in place, and whether you can change things mid-term if the borrower becomes able to assume the original mortgage on their own.
  8. There can be implications with respect to your personal income taxes. You may accumulate an obligation to pay capital gains taxes down the road. This should be discussed this with your tax accountant.
  9. Co-signing impacts Land Transfer Tax Rebates for first-time homebuyers. The rebate amount is reduced based on the percentage of ownership attributed to the co-signer.

Tips from a real estate lawyer

broker tipsWe spoke with Gord Mohan, an Ontario real estate lawyer, for unique insights based on his 22 years of experience.

“The cleanest way to deal with these situations is for the third party (which is typically a parent) to guarantee the main applicant’s mortgage debt obligation,” Mohan says. “This does not require the guarantor to appear on the title to the property, and so it prevents most later complications.”

Following are five key suggestions from Mohan:

  • Co-signers should seek independent legal advice to ensure they fully understand their obligations and rights.
  • All parties should have updated wills to address their intentions upon death and give their executor clear direction with respect to their ownership.
  • Many co-signers try to minimize future tax impact by opting for 1% ownership and having a private agreement that the borrowers will indemnify them or make them full owners if there is a tax bite down the road.
  • Some co-signers try to avoid future tax consequences completely by having their real estate lawyer draw up a “bare trust agreement”, which spells out that the co-signer has zero beneficial interest in the property.
  • A bare trust agreement can come in handy for the Land Transfer Tax (LTT) rebate,enabling the co-signer to apply for a refund from the Ministry of Finance – LTT bulletin.

Source – Canadian Mortgage Trends – ROSS TAYLOR 

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When you break up a year after buying a condo together

Should you let your ex buy you out of a mortgage?

Q: My son and his common-law partner bought a condo together in Vancouver last year—which has since gone up in value. The relationship did not last and she would like to buy him out as both their names are on title. Are you aware of the steps involved to legally proceed with a real estate buy out and is it a wise move from an investment point of view?

— Norma R.

A: Hi Norma. I’m sorry to hear that your son is in this position. Break-ups are hard and can be exasperated when a division of assets is necessary.

I’m assuming your fear is that if your son accepts a buyout from his ex, he may then be priced out of Vancouver’s hot property market.

To minimize the impact of future property price appreciation, he should take the money and buy his own condo or home.

Your fear—that by giving up ownership of the condo he misses out on future appreciation—neglects how difficult decisions can be with someone you choose to no longer build a future with. Just imagine it’s five years from now. Your son has met someone new and he is happy. Very happy. He wants to buy a place with his new love and asks his ex if she could buy him out of this condo. His ex, on the other hand, has just gotten out of another relationship; she is unhappy, bitter and feeling defensive. How well do you think your son’s request will be taken? Probably not all that well. Of course, things could work out totally different, but that’s just it, we don’t know. For that reason, I’m of the belief that it’s always a good idea for each part of a dissolved partnership to sever emotional, physical and financial ties. As soon as possible. Remember, it’s already hard to make unemotional decisions about what to do with an asset when hurt or regret or anger or disappoint lingers, never mind when years have passed and life has unfolded in unpredictable ways.

The dilemma, then, is how to make sure that both your son and his ex are treated fairly when splitting this asset. This should be relatively easy, as long as they agree to pay for some expertise. The first is to pay for an appraiser who specializes in divorce settlements. This appraiser will be able to provide a “fair market value” report—a snapshot of what the property is currently worth if it were sold in as-is condition on this specific day. This FMV report would give a price or price range that your son’s ex could take to the bank in order to obtain mortgage financing. She would then be responsible for paying your son half of the condo’s FMV. He can accept this money free and clear, as he doesn’t have to pay taxes since the condo was his principal residence.

As to your fear of losing out from an investment perspective, remember that he will be selling his portion of the condo to his ex and, if he chooses, buying a new condo in relatively similar markets. That puts him in a net-net position—what he gained in price appreciation on the sold condo will help with current, higher condo prices.

Finally, when it comes to the legal process please advise your son to pay a mediator or lawyer. A few hundred or even a few thousand spent on professional, unbiased advice is well worth the money spent. If he wants to focus on a quick resolution, look for a lawyer or mediator that specializes in uncontested divorces. These professionals realize that not everyone wants to battle over every cent in court and will work to find a fair, quick resolution. Also, by employing a legal professional you are assured that all the paperwork and documentation required to remove your son’s name from the property title and the mortgage documents will be complete and filed, leaving him free and clear to enjoy the rest of his life.

Source: MoneySense.ca – by   

 

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