Tag Archives: divorce and home ownership

How to protect homes in the event of divorce

As the cost of living soars, more couples are cohabitating, even getting married sooner. But, as Statistics Canada showed, there were 2.64 million divorced people living in Canada last year, and when you throw a family gift into the mix, things get hairy.

“Family gifts are a very complicated area of the law and there are two different ways of looking at it,” said Nathalie Boutet of Boutet Family Law & Mediation. “A gift received before marriage is treated as a pre-marriage asset. There’s a huge exception if that gift is the matrimonial home.”

In other words, pre-marital exclusions don’t apply to matrimonial homes—the reason for which is to rectify a historical transgression that saw women spend most of their time in the matrimonial home but have their name excluded from title, effectively leaving them no recourse upon divorce.

“Parents who want to give money to their child need to understand before marriage that if it goes into a matrimonial home, they end up sharing that with their spouse if there’s a separation,” said Boutet. “If the parents have a condo and they give it to their child who gets married, that becomes equal sharing with the spouse. A parent should understand that first and have a conversation with their child. Sometimes when a person owns a house, they ask the person to sign a marriage agreement as a way to get themselves out of that mess should it ever occur.”

Boutet recommends that in-laws-to-be have the dreaded conversation about signing an agreement that will protect them from relinquishing their asset in the even their child gets divorced.

“I often get called in when parents still own a home and let someone go live in it,” said Boutet. “Sometimes, for planning, have them sign a prenup, or a cohabitation agreement if they’re not going to get married. At the time they begin living together, sign the agreement in case they separate.”

Another interesting scenario divorced couples and their in-laws sometimes find themselves in pertains to cottage ownership. What happens if the couple is married for a period of time during which the cottage was renovated with contributions from the outgoing spouse?

“I have a case right now where the parents own a cottage and the family has been using it for upwards of 30 years, but their child is getting divorced and his wife wants to know what her rights are to recoup renovations,” said Boutet. “The husband’s parents had been very well-advised by their own lawyers and, because they paid for all the materials, the wife could not pinpoint any specific expense she paid out of her own pocket. It was determined that she had done a little here and there, and it offsets the cost of free accommodations she’s had over all the years—she didn’t pay for the land, heating, repairs, things of that nature. So she was entitled to nothing.”

Source: Real Estate Professional – by Neil Sharma 18 Sep 2019

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How divorces affect mortgages


How divorces affect mortgagesThey say about half of all marriages end in divorce—whatever the figure, complications arise when it comes to dividing assets like homes, and determining who keeps making mortgage payments.

“It’s a commercial transaction irrelevant to marital status,” said Nathalie Boutet of Boutet Family Law & Mediation. “If one person moves out and the other stays in the house, they still have an obligation to pay the mortgage to the bank, so the sooner the separating spouses make an arrangement the better because it could impact credit rating.”

According to Statistics Canada, there were roughly 2.64 million divorced people living in Canada last year—a figure brokers may not find surprising. While divorcing couples often fight over their marital home as an asset, the gamut of considerations is in fact more onerous.

“With the stress test, it’s a lot harder,” said Nick Kyprianou, president and CEO of RiverRock Mortgage Investment Corporation. “The challenge is qualifying again with a single salary. The stress test adds a whole other level of complexity to the servicing.”

Additional complexities include a new appraisal, application, and discharge fees.

“If you have a five-year mortgage and you’re only two years into it, there will be some penalties,” said Kyprianou. “Then there’s a situation of whether or not the person will qualify as a single person for a new mortgage.”

As an equity lender, RiverRock has welcomed into the fold its fair share of borrowers whose previous institutional lender wouldn’t allow one of the spouses to come off title because they were qualified together.

If one spouse is the mortgage holder and the other is not, Boutet explains how the law would mediate.

“Let’s say she owns the house and he moves in and pays her something she would put towards the mortgage but it’s still below market rent, she’s effectively giving him a break,” she said. “Would part of his rent go towards a little equity in the house because he helps pay the mortgage? Or is he ahead of the game because he pays less than he would to rent an apartment? What they have decided in this case is that a percentage of his payment will be given back to him as compensation for helping her out with her mortgage and he will never go on title.”

Boutet recommends that cohabitating couples, one of whom being a mortgage holder, should have frank discussions at the outset about where the rent payments go.

“Sometimes the person who pays rent has a false understanding of paying the mortgage. They have a misunderstanding of what that money is going towards.”

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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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A first-time buyer’s guide to understanding Canada’s mortgage stress test

Photo: James Bombales

Livabl is here to help you understand the housing market. With this comprehensive explainer, our aim is to give you a 360-view of this important issue that has been affecting the market.

For prospective homebuyers, there are several financial hoops to jump through on the way to property ownership: growing a healthy downpayment, securing a preapproval, and finding a home that fits within budget, to name a few. Yet, even with years of financial planning, the dream of homeownership can quickly come crashing down if one cannot jump through the hoop that trips up first-time and repeat buyers alike: the mortgage stress test.

In January 2018, the Office of the Superintendent of Financial Institutions, a federal watchdog and the sole regulator of Canadian banks, implemented the Residential Mortgage Underwriting Practices and Procedures guideline — otherwise known as B-20. Under B-20, all new and renewing homebuyers who opt for a regulated mortgage lender are subject to a mortgage stress test, which evaluates the borrower’s ability to afford residential mortgage payments against higher interest rates. OSFI says that this policy protects Canadian homeowners from excessive debt and unaffordable mortgage payments.

“The stress test, which is one component of our B-20 guideline, is a safety buffer that ensures a borrower does not stretch their borrowing capacity to its maximum, leaving no room to absorb unforeseen events,” says OSFI in a statement to Livabl. “Borrowers across Canada face different risks that could impair their ability to pay their mortgage: changes to income, changes to expenses, changes to interest rates.”

However, the mortgage stress test does not affect everyone equally. In Canada’s most expensive markets, such as Toronto, where the average price of a home is expected to surpass $820,000 in 2019, buyers have been disqualified for mortgages by the test based on high down payment requirements. Meanwhile, in cheaper real estate markets, such as Regina, the RBC reports real estate prices fell in the third quarter of 2018. Yet, as the job market remains stagnant in some cities, meeting the income standards to pass the stress test creates a provincial disadvantage.

“The one downside is that it’s made it harder for some buyers to get into the market because what they can spend on a home now is a lot lower than what it was a year or two ago before the stress test,” says John Pasalis, Founder and President of Toronto-based brokerage Realosophy.

In other cases, desperate buyers are opting to avoid the stress test altogether by choosing to work with private lenders, who are not federally regulated by OSFI and offer much higher interest rates. Some have questioned the financial stability of the market with this increased presence of higher interest rate lenders.

“People are going to private lenders, and that brings on other risks,” says mortgage broker Elan Weintraub. “It brings on economic risks because if people are paying $4,000 a month for a private lender mortgage payment, they can’t go to restaurants, they can’t buy clothes, they can’t spend money on other things.”

If you’re a first-time buyer, don’t stress about the stress test. We turned to mortgage and real estate professionals to help answer key questions about the test.

Photo: CafeCredit.com

What does the stress test do?

All Canadian buyers are required to take the mortgage stress test, but how you are tested depends on the size of your down payment.

If you have a downpayment of less than 20 percent of the home purchase price, your mortgage is automatically insured. With the added insurance premiums, your payment rates are increased up to 4 percent higher. Insured mortgages will be tested between the interest rate offered by the regulated mortgage lender — typically, one of the top five banks of Canada — against the Bank of Canada’s conventional five-year mortgage rate (5.34 percent as of February 2019).
Those with uninsured mortgages and down payments greater than 20 percent, will be have their current rate tested, plus a two percent point increase, against the five-year bank rate. To pass the stress test, the calculated interest rate must meet the Bank of Canada’s qualifying rate or the contracted rate plus two percentage points, whichever is higher. For example, if your lender offers an interest rate of 2.99 percent for your uninsured mortgage, plus two percentage points, your calculated interest rate would need to meet the Bank of Canada’s minimum qualifying rate of 5.34 percent, since it is the greater of the two.

The mortgage stress test will consider elements such as your gross income, debt and expenses. A mortgage qualifier calculator can give you an idea how much income and down payment amount you’ll need to pass, but Pasalis recommends speaking with a mortgage broker before you begin the process.

“In the past, you could just go on some mortgage calculator and try to estimate yourself,” he says. “But with stress tests and all of these new mortgage rules, you want to go to a mortgage broker for them to tell you, in theory, what you qualify for, because that kind of really sets your expectation of what you can afford to spend on a home.”

Does it matter if I choose a variable or fixed-rate mortgage?

If you wish to secure a fixed-rate mortgage, the stress test may dash those hopes.

Fixed-rate mortgages are typically priced higher than variable-rate mortgages, as variable-rate payments fluctuate with interest rates and a higher proportion of a mortgage payment goes to principal. These higher fixed-rates can limit your options when applied to the stress test. As Weintraub describes, borrowers looking at a fixed-rate of 3.69 percent with an uninsured mortgage, plus two percentage points, wouldn’t qualify against the Bank of Canada’s rate.

“There are some clients who are so tight they can’t have a 5.69 [percent] stress test, they need a 5.34 [percent] stress test, so they have to get the variable rate even if they want fixed,” says Weintraub. “If you make a lot of money you can have both options, but if you have a very tight file, you might only have the option of variable.”

I want to change mortgage lenders. Will I have to retake the stress test?

A common criticism of the stress test is its tendency to trap borrowers with their current lenders. Buyers who purchased their home prior to the stress test are still required to participate. For those who won’t pass, it means staying with the same mortgage lender to avoid disqualification.

“Imagine that you want to renew your mortgage but you technically don’t qualify under the new stress test. You’re technically handcuffed with that same lender,” says Pasalis. “They can charge you eight percent interest and you can’t do anything about it.”

While OSFI ensures that the stress test, “contributes to public confidence in the Canadian financial system,” Weintraub questions whether this element of the policy benefits the market overall.

“If the bank knows the borrower cannot leave, how competitive are they going to be with their rates?” he says. “Some of my lowest interest rates are when their mortgage is expiring and I can move them to a new lender. But if they don’t pass the stress test, they’re basically forced to stay with their current lender, which doesn’t make sense.”

Photo: PlusLexia.com

Can I avoid the stress test?

If you’re a nervous test taker and want to sit out, then you do have the choice to not take the stress test — but at a cost.

The mortgage stress test does not apply to unregulated mortgage finances companies, called MFCs. While provincially regulated, these lenders operate in the private market, which makes loan approvals easier to obtain, but at higher rates. Weintraub suggests that an MFC lender should be reserved for short-term loan options.

“If you’re a first time buyer dying to buy a place and you go to a private lender, I don’t necessarily know if that’s the right solution,” says Weintraub. “I think private lenders are meant for very short term solutions, to help someone in a very specific situation, and then to get out of that situation ideally in 12 months or less.”

Pasalis says that MFCs tend to take on riskier borrowers, so higher interest rates compensate for that liability. But these higher payments, Weintraub says, can push new buyers into being house poor.

“It’s meant to be a stop gap, it’s not meant to be a long-term, sustainable way to borrow money, because it’s very expensive,” he says.

What happens if I fail the stress test?

Flunking the stress test is not the end — you can always retry later with a higher down payment or increased income. Weintraub says that the Bank of Mom and Dad could be available for some buyers looking for a mortgage co-signer or a boost in down payment funds. However, he recommends evaluating whether homeownership is truly worth it if this is the case.

“I would say that buying is not for everyone and sometimes we get into this whole, ‘I need to buy, I need to buy,’ mentality,” says Weintraub. “But there are certain situations where renting is a great option.”

While there has been increasing pressure for OSFI to provide policy relief for those in expensive markets, they remain firm on preventing “relaxed mortgage underwriting standards.” Pasalis says that there is always future potential for first-time buyer relief, but overall, exceptions to a national policy are unlikely to be made for individual market conditions.

“They can’t craft out different policies for Vancouver and Toronto and by municipalities,” he says. “I think the market will adjust to it.”

Source: Livabl.com –   

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Rental market braces for influx of tenants

 

Rising interest and strict mortgage qualification resulted in fewer Canadians seeking homeownership than rental accommodations last year, and 2019 will bring more of the same.

“It’s going to continue,” said Marcus & Millichap’s Vice President and Broker of Record Mark Paterson. “People will continue renting rather than dealing with residential mortgages. The rental market right now can barely keep up with the vacancy rate in Toronto, for example, being around 1%.”

Competition for rentals will be even fiercer this year in urban centres and that will push rents upward, creating a spillover effect into satellite markets.

“The rental market will see an increase of 8-10% because of demand,” said Paterson. “Unfortunately for people trying to find affordable housing, they’re looking elsewhere in secondary markets. They’re priced out of city centres, and that means the talent pool for jobs will end up in secondary markets.”

The Marcus & Millichap’s 2019 Multifamily Investment Forecast Report notes that apartment projects have become more financially viable, as evidenced by 60,000 units in the pipeline countrywide. However, that’s little relief given how few vacancies there are.

“The number of occupied units grew by 50,000 last year, outpacing supply growth nationally just as 37,000 new apartments came online,” read the report. “The national vacancy rate declined to 2.4%, the lowest reading since 2002. A shortage of construction workers, a long approval process and higher development and financing costs are slowing the delivery schedule this year, curbing completions by roughly 2,000 units from last year’s total.”

“Historically, Canada has been heavily reliant on condominium owners to supply the rental market, filling the void that purpose-built rentals have not been able to close. Prices have climbed substantially for condo investors, though, slowing this practice… and pushing more residents in search of housing to the apartment market.”

While secondary markets will enjoy the dregs of Toronto’s renter pool, the city will remain popular with renters. As the city has matured into a leading North American tech hub, the vacancy rate is under even more pressure.

“Microsoft, Intel, Uber and other companies have plans to increase operations in the city and bring on new workers,” continued the report. “Amid its solid reputation as a top innovator in tech and a mature ecosystem that supports the industry, the GTA will attract young professionals in greater numbers this year. Many new residents choose to rent, not only due to barriers to homeownership, but for greater mobility and to be near local employers, restaurants and nightlife.”

Source: Mortgage Broker News – by Neil Sharma 31 Jan 2019

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3 reasons high household debt in Canada won’t contribute to a US-style housing crash

Photo: BasicGov/Flickr

By one measure, conditions in Canada are reminiscent of those present in the US right before a stateside housing bubble burst, yet a repeat performance to the north is unlikely.

Oxford Economics notes that the Canadian rate of debt to disposable income reached a record 167 percent last year, meaning for each dollar of disposable income households in Canada had, they owed $1.67.

In 2008 — ahead of the housing crash and financial crisis — the ratio was at 163 percent in the US.

However, there are a number of reasons that similarity isn’t likely a sign that Canadian households are stretched to the breaking point or US-style housing crash is imminent, Oxford Economics, a firm that specializes in economic forecasting and analysis, explains.

In economies with a higher share of indebted households, a few factors stand in the way of consumers defaulting on loans en masse. “In any leveraged economy, the key factors preventing defaults and rapid deleveraging include solid income growth, low interest rates, free-flowing and high-quality credit, and solid balance sheets,” writes Tony Stillo, Oxford Economics’ director of Canada Economics, in a Research Briefing.

“In that regard, there are some positive trends in Canada’s household finances,” Stillo continues, before homing in on three positive factors in a general climate of rising interest rates.

Canadian household income growth expected to continue

It’s not difficult to see why declining or stagnating incomes would be an issue for households dealing with rising debt levels.

Fortunately for Canadian households, Oxford Economics projects personal disposable income in Canada will increase by 12 percent from 2018 to 2020. “This will help households manage payment increases with higher [interest] rates,” Stillo says.

Debt quality in Canada is not a major concern

Citing Bank of Canada numbers, Stillo suggests big banks are approving fewer mortgages for borrowers with high levels of debt. Another possible positive is mortgage stress testing introduced a year ago.

The tests have now been expanded to force uninsured-mortgage applicants to approve for their loan at a higher rate than they are signing on for. This should be better prepared to handle higher borrowing costs in the future.

Mortgage arrears are still low in Canada

The share of mortgages in arrears (that’s at least three months of missed payments) in Canada sits at 0.24 percent, notes Oxford Economics. And in Ontario and BC, home to the country’s priciest markets, the rates are much lower. According to the Canadian Bankers association, 0.09 percent of Ontario-originated mortgages were arrears, while the rate was 0.14 in BC.

 

Source: – Livabl.com –  

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Can a single person afford to buy a place in Toronto?

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On a recent evening, I was scrolling through some images of George Nelson wall sconces on my phone. (If you’re about to Google it, I ask that you not judge my extravagant taste).

I was fantasizing about how great they’d look beside my bed — but oh yeah, that would require drilling into the wall. And as a renter, I have to consider whether they’d be practical in the layout of my next place, let alone whether I’d even be allowed to drill there.

If I owned a condo I wouldn’t have to think about stuff like that.

Truth be told, I’m getting a little impatient. I want the same privileges homeowners enjoy. No surprise, then, that I woke up on my birthday last year wondering: am I really going to deal with landlords and roommates for the rest of my life?

Sure, my apartment has its charms — built-in cabinetry, surprisingly spacious bedrooms, proximity to both a pizza joint and a wine store — but every day on my way to work, I pass a brand new condo building with large wrap-around concrete balconies; that’s something my turn-of-the-century apartment building lacks. I feel a twinge of envy.

There’s a ton of pressure in Toronto’s housing market (where I hope to buy) to get in — and get in quickly. Why? Because housing prices have been going up every year.

Even housing experts are encouraging people not to wait.

“In the end, the history shows that it is more likely that the market will go up in the future. if you want to purchase you might as well do it as soon as possible,” Louis Phillipe-Menard, director of mortgage products at National Bank, told me when I called him up for his professional opinion.

The thing is, I’m single.

Based on the metrics that lenders consider, it’s less likely that a household with only one income would be able to service a mortgage for a Toronto property.

Mortgage lenders will generally only lend customers a mortgage amount that’s worth five times their annual salary (the maximum amount Canadian banks are allowed to loan you).

According to the 2016 census, the median total household income in Toronto is around $65,829. In December, the Toronto Real Estate Board reported that the median sale price of a condo was $594,381 up 11.4% from the year before. (Forget buying a house in the city — the average price for a detached home was $1.15 million.)

On a salary of that size, it’s unlikely you’ll qualify for a mortgage — unless you’ve got $100,000 saved up as a down payment.

And that’s just the sale price. There are lots of other factors that could make or break your dreams of becoming a condo owner.

The metrics lenders look at to decide if you’re loan-worthy include the gross debt service ratio, which measures the percentage of your pre-tax income needed to pay your housing costs on top of the mortgage (like taxes, insurance, utilities, and condo fees). They also look at the total debt service ratio, which measures how much of your income will go to covering existing debts.

So, even if you make an above-average salary, if you have large debts, you may not be able to get a mortgage.

Those are a lot of expenses for one person to carry. Obviously, two incomes in such a scenario are better than one. At this point, I’m thinking that my chances for homeownership are slim.

But despite those mind-boggling expenses, I keep finding people who insist that there are singletons out there living my dream.

Megan Sheppard, a real estate agent in Toronto whose clientele includes lots of single people, warns that every year you stay out of the market, you miss out on your home’s appreciation.

“If you look at the price of what you’re paying [for rent] and the [price and] appreciation of a condo, [the difference is] like a tip at a restaurant for a good meal,” says Sheppard.

Assuming the value of a condo worth $450,000 goes up in value by 6% each year, that’s an appreciation of $27,000 a year. Or, as Sheppard puts it: “Every year you rent, you’re losing the $27,000.”

Of course, past performance doesn’t equal future returns. And now buying any property has become a lot harder after the federal government imposed new rules on mortgage lenders last year. The new “stress test rule,” brought to you by the Office of the Superintendent of Financial Institution, went into effect in January 2018.

The new rule means that anyone who wants a mortgage must be able to show they can afford payments that are two percentage points higher than their quoted rate, or their bank’s five-year average rate — whichever one is higher.

Right now, you can put as little as 5% down when buying a home. Doing that also means you’ll have to buy insurance from the Canada Mortgage and Housing Corp., which can add tens of thousands of dollars annually in payments to the total cost of your mortgage.

Ironically, you’re more likely to get a lower mortgage rate from your lender when you put 5% down. Why? Because your mortgage is insured — by the federal government. Meaning, the government’s left holding the bag if you default, not the bank.

Even though it’s impossible to say for sure where the market is headed, both Phillipe-Menard and Sheppard predict that for Toronto home prices, the only way is up. “Everyone wants to be here,” says Sheppard. And unless that changes, you can bet that Toronto prices are going to stay expensive.

But buying a place leads to expenses that renting doesn’t — things like interest payments, lawyer’s fees, home insurance premiums, maintenance and renovation costs, and last but not least, property taxes.

When you’re on your own, you’re on the hook for those things. Your mortgage lender doesn’t care if you lose your job.

That’s one of my biggest fears, so to assuage them, I set out to talk to another single woman who bought her own place. Thirty-one-year-old Janelle (who requested her last name not be used) bought her first house in a rural town by herself a decade ago. She knew from a young age that being a homeowner was important to her. To meet her goal, she worked while attending high school and then later college.

By the time she graduated college, she had a down payment of 20% on a home that cost roughly $120,000.

Buying a house with a down payment smaller than that is unimaginable to her — and me too, frankly.

“It baffles me that you’re paying your mortgage for 25, 30 years. If you’re only paying 5% into it, that’s another $20-25,000 in interest at the end of your mortgage,” she says.

At the end of the day, she adds, it’s still more expensive to be a homeowner.

“As soon as you get into a mortgage, a bill always seems to creep up when you least expect it. ‘I just had $1,000 saved, but oh, I have to install in a new shower.’ Once you get into a house it’s not like the bills stop,” says Janelle.

There are a few other variables you need to factor in, as well.

One is that salary growth has remained flat for most of us and it looks like it’s going to stay that way. The other one is that the Bank of Canada’s key interest rate has been rising steadily over the past two years, meaning the cost of borrowing money is going up.

Of course, your circumstances may change for the better. For renters who are stuck on the idea of one day buying a home, Sheppard advises asking yourself the following questions:

  • How much you can you currently afford in rent?
  • Do you have the potential for your income to increase?
  • Is there anyone else who can do this with you (like a parent)?

Sometimes the smartest, safest, and the most responsible option is not buying, says Sheppard. “Housing is a necessity but owning your real estate is wealth and it’s a long-term investment,” says Sheppard.

Based on my circumstances, I’ve decided to continue renting while also putting away a few hundred dollars away each month. Right now it’s acting as an emergency savings account, but maybe one day I’ll take money out for a down payment. Maybe homeownership will happen for me one day.

At the very least, saving for a home will leave me with a nice pile of savings if I ever need it. Like if I want to get myself some fancy mid-century wall sconces.

Source; Lowestrates.ca – By: Alexandra Bosanac on January 11, 2019

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