How reverse mortgages staged a comeback

Professor Chris Mayer has a lesson for ­homeowners: Reverse mortgages, which let older Americans tap their home equity without selling or moving, aren’t as risky as some say. In an online video, he brushes aside “common misconceptions,” including fears about losing your home.

Mayer, a real estate professor at Columbia Business School, isn’t an impartial observer. He’s chief executive officer of a company that sells reverse mortgages. He’s trying to rehabilitate one of the U.S.’s most-­reviled financial products—part of a broader push that relies in part on academics with interests in the mortgage industry.

The host of Mayer’s talk was the American College of Financial Services, a school that trains financial planners and insurance agents. Until recently, it had a task force funded by reverse mortgage companies, which each contribute $40,000 a year. They include Mayer’s firm, Longbridge Financial, and Quicken Loans’ One Reverse Mortgage.

To show the need for reverse mortgages, industry websites cite a Boston College retirement research center run by Alicia Munnell, a professor and former assistant secretary of the Treasury Department in the Clinton administration. She once invested $150,000 in Mayer’s company, though she’s since sold her stake.

The six-year-old task force cites key successes. Mainstream publications have run articles quoting positive research on the loans, and financial planners are growing more comfortable recommending them. The Financial Industry Regulatory Authority, the securities industry’s self-regulatory agency, in 2014 withdrew its warning that reverse mortgages should generally be used as “a last resort.”

Mayer and Munnell said they’ve fully disclosed, in research, appearances, and interviews, their financial interest in the lender. Columbia and Boston College both said they approved the arrangements.

The professors and industry officials say these government-backed mortgages deserve a second look, partly because of a series of federal reforms in recent years designed to protect taxpayers and consumers.

“We are looking to help people responsibly incorporate home equity in their retirement planning,” Mayer said of Longbridge.

Reverse mortgages let homeowners draw down their equity in monthly installments, lines of credit or lump sums. The balance grows over time and comes due on the borrower’s death, at which point their heirs may pay off the loan when they sell the house. Borrowers must keep paying taxes, insurance, maintenance and utilities—and could face foreclosure if they don’t.

While even critics say the mortgages can make sense for some customers, they say the loans are still too expensive and can tempt seniors to spend their home equity early, before they might need it for health expenses.

Fees on a $100,000 loan, based on a $200,000 home, can total $10,000. Because the fees are typically wrapped into the mortgage, they compound at interest rates that can rise over time. Homeowners who need cash could be better off selling and moving to less expensive quarters.

“The profits are significant, the oversight is minimal, and greed could work to the disadvantage of seniors who should be protected by government programs and not targeted as prey,” said Dave Stevens, CEO of the Mortgage Bankers Association until last year and a commissioner for the Federal Housing Administration in the Obama administration.

Academics represent a new face for an industry that’s long relied on aging celebrity pitchmen. The late Fred Thompson, a U.S. senator and Law & Order actor, represented American Advisors Group, the industry’s biggest player. These days, the same company leans on actor Tom Selleck.

“Just like you, I thought reverse mortgages had to have some catch,” Selleck says in an online video. “Then I did some homework and found out it’s not any of that. It’s not another way for a bank to get your house.”

Michael Douglas, in his Golden Globe-winning performance on the Netflix series The Kominsky Method, satirizes such pitches. His financially desperate character, an acting teacher, quits filming a reverse mortgage commercial because he can’t stomach the script.

In 2016 administrative proceedings, the U.S. Consumer Financial Protection Bureau accused American Advisors, as well as two other companies, of running deceptive ads. Without admitting or denying the allegations, American Advisors agreed to add more caveats to its advertising and pay a $400,000 fine.

Company spokesman Ryan Whittington said the company has since made “significant investments” in compliance. Reverse mortgages are “highly regulated, viable financial tools,” and all customers must undergo third-party counseling before buying one, he said.

The FHA has backed more than 1 million such reverse mortgages. Homeowners pay into an insurance fund an upfront fee equal to 2 percent of a home’s value, as well as an additional half a percentage point every year.

After the last housing crash, taxpayers had to make up a $1.7 billion shortfall because of reverse mortgage losses. Over the past five years, the government has been tightening rules, such as requiring homeowners to show they can afford tax and insurance payments.

In response to public concerns, Shelley Giordino, then an executive at reverse mortgage company Security 1 Lending, co-founded the Funding Longevity Task Force in 2012. It later became affiliated with the Bryn Mawr, Pennsylvania-based American College of Financial Services.

Giordino, who now works for Mutual of Omaha’s reverse mortgage division, described her role as “head cheerleader” for positive reverse mortgages research. Gregg Smith, CEO of One Reverse Mortgage, said the group is promoting “true academic research,” including work by professors with no industry ties.

In January, the American College cut its ties with the task force because the school, as a nonprofit institution, wasn’t comfortable being affiliated with an organization endorsing products, according to Vice President James N. Katsaounis. “A proper retirement portfolio is one that is well-balanced and diversified, which may or may not include reverse mortgages,” he said.

Mayer, the Columbia professor and reverse mortgage company CEO, said many older consumers could benefit from the loans because they can never owe more than their house is worth even if real estate prices plunge.

A former economist at the Federal Reserve of Boston with a Ph.D. from the Massachusetts Institute of Technology, Mayer joined the Columbia faculty in 2004 and currently co-­directs Columbia’s Paul Milstein Center for Real Estate. He wrote his first paper on reverse mortgages in 1994, when the FHA product was five years old.

In 2012, Mayer co-founded Longbridge, based in Mahwah, New Jersey, and in 2013 became CEO. He’s on the board of the National Reverse Mortgage Lenders Association. He said his company, which services 10,000 loans, hasn’t had a single completed foreclosure because of failure to pay property taxes or insurance.

While many colleges let professors engage in outside business activities, Gerald Epstein, a University of Massachusetts economics professor who’s studied academic conflicts of interest, said Columbia may need to scrutinize Mayer’s arrangement closely.

“They really should be careful when people have this kind of dual loyalty,” he said.

Columbia said it monitors Mayer’s employment as CEO of the mortgage company to ensure compliance with its policies. “Professor Mayer has demonstrated a commitment to openness and transparency by disclosing outside affiliations,” said Chris Cashman, a spokesman for the business school. Mayer has a “special appointment,” which reduces his salary and teaching load and also caps his hours at Longbridge, Cashman said.

Likewise, Boston College said it reviewed Professor Munnell’s investment in Mayer’s company, on whose board she served from 2012 through 2014. Munnell said another round of investors in 2016 bought out her $150,000 stake in Longbridge for an additional $4,000 in interest.

She said she now prefers another approach: States allowing seniors to defer property tax payments. The advantages include “no fee, no paperwork and no salespeople,” she said. In one way, she’s glad she exited her reverse mortgage investments.

“Anytime I had a conversation like this, I had to say at the beginning that I have $150,000 in Longbridge,” she said. “I had to do it all the time. I’m just as happy to be out, for my academic life.”

 

Source: Copyright Bloomberg News – Business News 13 Mar 2019

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A first-time homebuyer’s guide to avoiding the house poor trap

Photo: James Bombales

Life likes to deal us surprises from time to time — a job loss, a chronic illness, an unfortunate fender bender. As a homeowner, any one of these sudden changes can throw you off your game, financially speaking, but if you’re house poor, even a minor expense change can have catastrophic consequences.

House poorness occurs when a large portion of your income goes towards your housing expenses, leaving little leftover for savings, discretionary spending or emergency funds. House poorness is not uncommon; an Ipsos poll by MNP published in January found that nearly half of Canadians are $200 or less away from being unable to pay their bills. A fluctuation in interest rates or a sudden expense can bring a house poor owner to their knees, Laurie Campbell, CEO of Credit Canada Debt Solutions explains.

“You’re really fighting a situation where anything that happens becomes too much,” she says.

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House poorness falls on a spectrum of intensity. For some, not having much financial wiggle room means no vacations or new cars. For others, it’s the difference between paying the mortgage and saving for retirement.

“The more serious version of house poor that I think people are just starting to see, and possibly for a couple more years, is people who not only can’t afford to do those discretionary spending types of things, but who also cannot save for retirement, save for children’s education, other things that are really important to do as well,” says Jason Heath, managing director of Objective Financial Partners Inc.

While the prospect of house poorness is frightening, it can be prevented through detailed planning, budgeting and thinking into the future. Campbell and Heath share how you can avoid house poorness, even before you sign those mortgage documents.

Want to retire? Buy from the bottom

While it’s expected that Canada’s hottest housing markets won’t cool off entirely this year, affordable housing remains inaccessible for many. Campbell is concerned that in the current market conditions, some new buyers are still purchasing above what they can afford. In the event of a interest rate rise, she says that those who’ve bought beyond their means could be on a course for financial hardship.

Photo: James Bombales

“Even a quarter point could result in immediate financial discord for a family that has really bought at the top of their income,” says Campbell.

Heath has worked with a number of clients, who, after several years of house poorness, have not been able to efficiently save for retirement. In order to recoup their losses, Heath says that house poorness has forced some homeowners to make downsizing an inevitable part of their financial plan. He fears that those overpaying in today’s market will follow the same fate.

“Particularly if and when home interest rates rise, mortgages payments will rise accordingly,” says Heath. “I worry that you’ve got a whole generation of young people who may be putting a lot of their retirement plans into their home as opposed to saving in a traditional manner.”

Preventing house poorness starts with buying at the bottom of the market, where the prices are the lowest, but Campbell adds that it also requires ignoring the pressures of needing to buy right now — home prices may decline further yet. By monitoring the price of homes in the markets in which you want to buy, you’ll build your knowledge of a fair evaluation of prices in your desired area and skip overpaying, Campbell explains.

“Even if you want to buy a house a year from now, start doing your research now,” she says. “Know what the real cost of housing in the area you want to buy is so you can make sure you’re evaluating the houses that are up for sale with experience.”

Taking on a smaller mortgage loan may also prevent house poorness, especially in the event of an unexpected income change. Borrowing under the maximum amount a mortgage lender approves you for, Heath says, leaves a good buffer in your financial budget in case any unanticipated changes should occur.

“I think it’s a really good lesson to people before they buy to appreciate that job loss happens, health issues happen,” says Heath. “There are extraordinary financial situations that you may not be able to anticipate that could put you into difficulty if you bite off more than you can chew in the first place.”

Skip the McMansion — think long term

Like we keep a spare tire in the event of a flat, or a box of bandaids for those little accidents, avoiding house poorness requires establishing some safeguards in case of unforeseen circumstances. This means having a well thought out financial budget, and a good cushion of emergency funds.

When it comes to budgets, Heath says it takes a very personalized approach to get it right. The mortgage stress test does not factor in personal spending, so financial budgets for homeownership should reflect your own spending habits and expenses.

“The mortgage qualification process does not take into account things like your discretionary spending or the activities that your children are enrolled in, for example,” says Heath. “You can have two families with the same income and the same mortgage approval, but spend very different amounts of money month to month on housing related stuff.”

Photo: CafeCreditFlickr

Beyond budgets, Campbell says it’s also important to account for the long-term lifestyle you’ll want under your mortgage. Owning a home in your early thirties with no children will mean different financial priorities compared to your late forties with post-secondary education fees and retirement in mind. It’s important that your mortgage accommodates your long-term savings and planned changes to family and income. Campbell says this starts with sticking to a budget.

“You don’t need the McMansion,” she says. “A lot of people think the bigger the house, the better it is and a lot of people regret that. So make sure that it’s within the budget that you have within an emergency fund that you need to develop around that budget and you’re able to do the things that you’ve wanted to do over time that won’t be impacted by the decisions you make with that home.”

Don’t give up everything

Owning a home ain’t cheap: there’s renovations, regular maintenance, seasonal upkeep and at least one emergency repair that you’ll need to fork out for at some point. Heath says that new home buyers tend to overlook these expenses — but they are critical to account for in any homeowner budget.

“I think it’s really important to, either on your own or with a professional, to try to assess what the true homeownership cost is going to be in that home,” says Heath. “Particularly, if you’re moving from a condo into a house, or from a rental into a homeownership position.”

Failing to accommodate regular home upkeep and extra costs in the budget can skew the true cost of homeownership. It can also be a drain on your finances. House poorness is marked by a lack of disposable income, which not only leads to skipping those needed repairs, but also the inability to go out and enjoy living life.

“People will often say, ‘We’ll give up everything to buy this house,’ but everything gets really boring very fast to have given up everything,” says Campbell.

Heath recommends making a detailed budget for the medium- to long-term financial outcomes of buying a home in order to assess true ownership costs.

Breaking up is hard to do

If you’re in a position of house poorness, don’t give up — there are options.

Campbell says that boosting your income is a good first step. You can do this by getting a part-time job, or creating side hustle from your home by renting out your extra rooms on Airbnb. But, if your mortgage payments have simply become too much, Heath says that you may need to consider selling and downsizing.

“There are situations where people need to consider the home that they own and whether it is too expensive,” he says.

If selling is the last resort, Campbell advises not to do so hastily. While there could be a mounting urge to get cash — and fast — selling quickly could cost you value in your home.

“Don’t wait until you really hit the dirt, and then try to sell your house, because chances are you’re going to have to sell it very quickly, and if you need to sell it very quickly, you’ll probably going to sell at a lower rate than you wanted to get,” says Campbell.

Source: Livabl.com –   

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The Cost of Selling Your Home Without a Real Estate Agent

Everybody likes to save a little money. So when Rossana was ready to sell her condo a few years ago, she figured she could save some cash by selling it herself — without using a real estate agent. After all, her property was in a hot real estate market and she thought: “How hard could this be?”

Rossana, a busy mother of one, had become overwhelmed juggling her daily responsibilities in addition to managing her rental condo. She had grown tired of being a landlord and dealing with a revolving door of tenants — so when the family currently renting it was moving out, she decided that it was time to sell.

In hopes of saving some money, Rossana chose to sell her condo herself instead of working with a real estate agent. She thought: How hard could it be? She figured it would be easy to just hire a company that charges a flat fee to photograph the condo for her and advertising the property online. After all, she could handle the rest of the details herself. Right?

What she quickly discovered was that this approach didn’t work.

Missed Opportunities

“I found the service I used was not the best,” Rossana says. First, she says the service might have turned off potential buyers with unprofessional photos, “Honestly, I could have done a better job if I had done it myself.”

Second, when it came to marketing her property, Rossana says the marketing plan wasn’t aggressive enough to expose her condo listing to a large population of potential buyers. “My condo just didn’t get the same visibility if it would have had on MLS.”

Her condo was not widely promoted, and the service she used was not authorized to advertise on Realtor.ca (also known as MLS), which is many Canadians’ first stop when starting their home search.

Low Buyer Confidence

Rossana found buyers who had real estate agents wouldn’t come to view her property since she was selling it herself. “I think they lacked confidence that the sale would go through, or that it would be a complicated process because I didn’t have an agent.”

While she wasn’t getting a great deal of interest, Rossana still had to be on-site for open houses over the weekends. “I was living at the other end of the city at the time, so the commute was terrible. It was so much work, but I wasn’t getting much traction.”

Less-than Attractive Offers

When offers did get presented, they were far below the listing price. Plus, agents came in very confident with their clients’ offers, and Rossana didn’t feel she had the experience to handle these types of negotiations.

“I felt people were trying to take advantage of me, because I was trying to sell on my own. And I didn’t have the full picture of the market. I didn’t have the background to stand up to those low offers.”

Making the Decision to Hire an Agent

After more than five weeks of trying to sell the property on her own, Rossana decided to list her home with a professional real estate agent, after getting a referral from a friend.

“I immediately saw the difference in having a real estate professional in my corner,” Rossana recalls. “She offered staging, took really nice photos, and her level of professionalism was so impressive. And when there was an offer coming in, she was able to negotiate on my behalf.”

In the end, Rossana sold her condo — about two weeks after hiring an agent — and for a price she was very happy with.

“I really underestimated the amount of time an effort needed to sell a home myself. For anyone looking to sell their home, I highly recommend working with a real estate professional.”

Reasons to Use a Real Estate Professional

Rossana’s experience is a valuable tale for those thinking of taking a DIY approach to selling a home. While there is a cost to selling with a real state agent in the form of commission, the cost to sell without one may be greater.

Here are five benefits to working with a real estate agent:

  1. Market Knowledge. Rossana’s real estate agent knew what comparable condos in her neighbourhood had sold for, and the inventory on the market at the time. This enabled her to have an informed perspective on a reasonable listing price and acceptable end selling price.
  2. Visibility and Presentation. From professional staging to high quality photos, Rossana’s real estate agent presented her home in a highly attractive manner that was appealing to potential buyers. And because she could list the property on Realtor.ca, those looking for properties online could browse the photos and features of Rossana’s condo 24/7.
  3. Administration and Coordination. One of the things that Rossana underestimated was the time commitment required to sell a home privately. Her real estate agent took care of all the showings and open houses, allowing Rossana to be completely hands off until it came time to review an offer.
  4. Professional Real Estate Networks. As an established agent, Rossana’s real estate agent could connect with others working with buyers in the neighbourhood, and present the property to those in her network, further widening the net of potential purchasers.
  5. Negotiation Skills. Rossana’s real estate agent had significant experience negotiating deals and was in a great position to get Rossana the best possible price for her condo — Rossana didn’t have to do any of the negotiating herself.

Thinking about selling your home? Let Rossana’s story be a reminder of the benefits to working with a real estate professional.

Not sure how to find one or what to look for in a real estate professional? Discover Seven Things to Look for in a Real Estate Professional for some valuable tips.

Source: RoyalBank.com – By Diane Amato February 19, 2019
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How Much You Need to Earn to Buy a Home in America Today

Seven years after the U.S. housing market bottomed in February 2012, the market has staged a dramatic recovery. U.S. housing prices are now about 11 percent higher than their 2006 peak, according to the latest S&P/Case-Shiller U.S. National Home Price Index data.

National Averages

While that surge in home prices is great for homeowners, it’s made it difficult for homebuyers, particularly younger buyers in large cities where the real estate market is hottest.

To make matters worse, rising interest rates have pushed mortgage rates higher than they’ve been in years, creating yet another obstacle for buyers. HSH.com recently compiled a list of the most- and least-affordable U.S. metro housing markets. The list incorporates median housing prices, interest, taxes and insurance payments and is ranked by the salary a homebuyer would need to afford the average home in each market.

On a national level, the salary needed to comfortably afford a home is $61,453, according to HSH.com. That estimate is based on an average mortgage rate of 4.9 percent on a median home price of $257,600. That average home price is up 3.95 percent from a year ago. The average monthly mortgage payment is around $1,433.

Least Affordable Markets

Of course, some markets are much pricier than the national average. The following are the top five most expensive housing markets:

San Jose, California

  • Median home price: $1.25 million
  • Year-over-year change: -1.5 percent
  • Monthly payment: $5,946
  • Salary required: $254,835

San Francisco, California

  • Median home price: $952,200
  • Year-over-year change: +3.5 percent
  • Monthly payment: $4,642
  • Salary required: $198,978

San Diego, California

  • Median home price: $626,000
  • Year-over-year change: +2.6 percent
  • Monthly payment: $3,071
  • Salary required: $131,640

Los Angeles, California

  • Median home price: $576,100
  • Year-over-year change: +4.1 percent
  • Monthly payment: $2,873
  • Salary required: $123,156

Boston, Massachusetts

  • Median home price: $460,300
  • Year-over-year change: +2.6 percent
  • Monthly payment: $2,491
  • Salary required: $106,789

Most Affordable Markets

If these numbers are enough to make the average American earner dizzy, there are also plenty of metro housing markets around the country that are much more affordable. The following are the five most affordable cities to buy a house, according to HSH.com:

Pittsburgh, Pennsylvania

  • Median home price: $141,625
  • Year-over-year change: +4.9 percent
  • Monthly payment: $878
  • Salary required: $36,659

Cleveland, Ohio

  • Median home price: $150,100
  • Year-over-year change: +6.9 percent
  • Monthly payment: $943
  • Salary required: $40,437

Oklahoma City, Oklahoma

  • Median home price: $161,000
  • Year-over-year change: +5.3 percent
  • Monthly payment: $964
  • Salary required: $41,335

Memphis, Tenessee

  • Median home price: $174,000
  • Year-over-year change: +4.3 percent
  • Monthly payment: $966
  • Salary required: $41,400

Indianapolis, Indianapolis

  • Median home price: $185,200
  • Year-over-year change: +7.4 percent
  • Monthly payment: $986
  • Salary required: $42,288

Millennials Getting Burned

In addition to paying higher prices for homes, a recent survey by Bankrate suggests that millennials are being too hasty about jumping into the market. One in three millennials under the age of 35 own a home, but 63 percent of those young homeowners admitted to having regrets about the home they purchased.

The biggest source of buyer’s remorse for millennial homeowners is underestimating the amount of hidden costs associated with owning a home. Insurance costs, property taxes and closing costs can add up to between 2 and 5 percent of the total value of the home, but many buyers don’t consider these fees when shopping for homes.

Homeowners should also set aside at least 1 percent of the value of the home each year for repairs and maintenance, according to HGTV.

In addition to paying too much, nearly 1-in-5 (18 percent) of millennial homeowners regret not buying a larger house.

 

Source: News Republic – March 11, 2019 

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How To Sell Your Property In Jamaica

 

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Thinking About Moving? Want A Change Of Scenery? Have You Had Any Thoughts Of Selling?

Selling a property in Jamaica, can be a scary process, if you do not have the right Real Estate Professional by your side. Thank God, I am here to assist you!

When selling Real Estate, every owner wants the same thing – the Best Possible Price with the least amount of Hassle and Aggravation. Doing business in today’s real estate world requires experience and training in such fields as: Real Estate Marketing, Financing, Negotiation and Closing – all of which I possess.

HOW DOES THE SALES PROCESS WORK HERE IN JAMAICA?

All you need to do is pick up the phone and give me a call at 1-876-862-5848. I can also be contacted via whatsapp, text messaging, email at paulasellsjamaica@gmail.com My Facebook Business Page – Paula Sells Jamaica and my YouTube Channel is – Paula Sells Jamaica. After which, I will schedule an appointment with you, at your earliest convenience, to view your property and discuss our way forward.

After I have viewed your property, I will go back to my office and research your property and present you with a Comparative Market Analysis (CMA). A CMA in the simplest of terms, is a valuation which a Professional Real Estate Agent does, which gives you a suggested price, at which to list your property for sale, by comparing your property with all the properties which have sold in recent time and which are currently on the market for sale in your area. Unfortunately, this cannot be used to submit to Banks or other Lending Institutions. After I present you with your CMA, I will also present you with my customized Marketing Plan for your Property. This is my guideline on how, I will get your property sold, for the most amount of money, in the shortest possible time.

Your Marketing Plan may include, but is not limited to: Newspaper Advertising, Magazine Advertising, Web-listing, Social Media Advertising (LinkedIn, Facebook, Instagram, YouTube, etc.), Signage (For Sale sign posted at a designated spot), Open Houses, Networking with other Sales Associates/Brokers or Real Estate Companies and other appropriate marketing strategies.

We will agree on the best Listing Price, that will ensure that your property is Competitive with others for sale in your surrounding area. We will discuss the Listing Agreement and the length of the Agreement. Then we will sign to what we have agreed upon.

The house will need to be in “Show” condition before being placed on the market, so we will also discuss what will need to be done, if anything, before your property goes up on the Multiple Listing System (MLS), where it will be syndicated to thousands of websites across the world. Our goal is to make your home as attractive as possible to Prospective Purchasers, which will shorten the time it will be on the market and increase the chances of us getting “Top Dollar” for your property.

After your house is placed on the market and we have done numerous showings to prospective purchasers and obtained an Offer to Purchase from an interested buyer. I will explain the Offers details to you and help you to negotiate the best possible price we will be able to get for your property.

After we have agreed on a Sales Price with the Purchasers, I will turn over all documentation to your Attorney, who will prepare the “Sales Agreement” for both you and the buyer to sign. The buyer will be required to pay a minimum deposit of 10% of the purchase price upon signing this agreement.

Both Attorney’s then begin the process of transferring the title, this includes the payment of Stamp Duties and Transfer Taxes. The balance of the purchasing price is due upon the closing of the sale.

HOW LONG DOES IT TAKE TO SELL A PROPERTY?

If the buyer’s purchase is financed by a Mortgage from a Jamaican Financial Institution, the average time to complete the sale is approximately 60-120 Days or 2-4 months from the signing of the Sales Agreement. However, please bear in mind, this is not always the case. This time frame may be extended because of situations beyond anyone’s control or it may also be shorter. It all depends on may variables.

The period of closing for a cash purchase is determined by the buyer and the seller. However, this can be as quickly as 30-45 days all being well.

WHAT ARE THE COSTS ASSOCIATED WITH SELLING A PROPERTY?

Government Transfer Taxes & Registration Fees (5% and 0.5% respectively of the Selling Price). This may change on April 1, 2019.

Government Stamp Duty (4% of the purchase price), which is shared equally between Seller and Buyer.

Real Estate Agent Commission (approximately 5% – 6%).

Attorneys Fees (approximately 3% – 5% of purchase price, or as negotiated).

 

Source : Paula Sells Jamaica – Paula Roper Bacchas
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4 problems with Canada’s mortgage stress tests that are hurting homebuyers and the economy

Photo: James Bombales

Economic researcher Will Dunning has a problem with the mortgage stress test the federal government imposed about a year ago.

Actually, he has four.

Last January, the Canadian government expanded its standard stress testing, which requires borrowers to qualify at a higher mortgage rate than they are signing on for. Before that, it only applied to insured mortgages. Mortgage insurance is needed if a homebuyer can’t muster a downpayment of 20 percent or more, so previously, those who could managed to sidestep stress testing.

Dunning, who describes himself online as an “iconoclastic economist” outlines what he says are four significantly harmful shortcomings of the stress testing.

1. The stress test ignores potential income growth

“The tests fail to consider the income growth that will occur by the time mortgages are renewed” — that’s Dunning’s first issue, as outlined in his latest study.

The point of the stress test is to makes sure borrowers are up to the task of making higher mortgage payments upon renewal, typically five years from signing on. So federally regulated lenders now need to make sure all borrowers can afford to pay the higher of the Bank of Canada’s qualifying rate or the contract rate plus two percentage points.

Problem is, this method ignores rising incomes. Borrowers’ ability to make interest payments in five years is based on incomes today. Dunning notes that over the past five years, incomes have grown a cumulative 11.6 percent on average.

2. It’s also bad for the economy

“They have negative consequences for the broader economy,” Dunning says, summing up his second issue.

BMO suggests that the pace of residential construction has been slowing down as a the mortgage stress test has taken a bite out of homebuying activity. In fact, Canadian home sales were down 4 percent in January on a year-over-year basis, according to the Canadian Real Estate Association, which chalked up at least some of the decline to the stress tests.

Dunning estimates that Canada will lose 90,000 to 100,000 jobs when the labour market fully adjusts to the slowdown in starts.

3. Ditto for long-term best interests of Canadians

“They prevent Canadians from pursuing their long-term best interests,” says Dunning as his third strike against the current test. After all, a mortgage is really “forced savings,” he says. Sure, in the short term a roughly 60-percent portion of mortgage payments are going towards interest, and initially renting is usually the cheaper option.

But that changes over time. “Rents increase; for home ownership, the largest element of costs (the mortgage payment) is fixed (usually for the first five years). The total monthly cost of renting will rise more quickly than the cost of owning.”

4. Housing supply problems are going to intensify

Back to that slowdown in housing construction. Job losses aren’t the only negative consequence of less home construction taking place. “Suppressed production of new housing will worsen the shortages that have developed,” Dunning warns.

Dunning says construction needs to speed up, not slow down, to meet demand. The country’s population has been increasing at a rate of 1.25 percent annually for the past three years, above the long-run average of 1.1 percent.

“Long-term, the stress tests will add to the pressures that Canadians are already experiencing in the housing market.”

Source: Livabl.com –  

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The 7 Most Common Mistakes Home Buyers Make

 

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Not Getting Pre-Approved Before You Shop

The more experience you have with buying real estate, the more you’ll learn about the complicated process. Between the confusing terminology and the logistics of buying a house, it’s all-too-easy to make the wrong move or wind up in an unwise investment. If you’re a first-time home buyer, skip the buyer’s remorse by learning about some of the most common pitfalls and how to avoid them. To find out what not to do, we reached out to Tracie Rigione and Vicki Ihlefeldthis link opens in a new tab, Vice Presidents of Sales at Al Filippone Associates/William Raveis Real Estate in Fairfield, Connecticut, to get their best advice.

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