Tag Archives: first-time buyers

SHOULD MY FIRST HOME BE A MULTI-FAMILY OR SINGLE FAMILY?

SHOULD MY FIRST HOME BE A MULTI-FAMILY OR SINGLE FAMILY?

More than three decades ago, my mentor suggested I purchase a multi-family home as my first home. He had purchased two multi families before he bought himself the home in a neighbourhood he wanted to live in. Needless to say, I didn’t follow his advice. Over the years as a mortgage professional, I have suggested the same approach to owning real estate to most of my clients. Some took the advice – and those who did have networths that are possibly 4 times as much as those who did not.

Pros To Owning A Multi-Family Home

  • You could qualify for a larger mortgage, because lenders may take the potential income from the rental unit into consideration. You’ll need to research rental rates in the area. And as long as you are an owner-occupant, you can qualify for low-down-payment options as you would with a single-family home.
  • Build equity faster. If you cannot afford a home now in your dream neighborhood, buying a duplex in a more affordable neighborhood can help you build equity faster and move up to your dream house later – at a faster rate than building your savings while renting.
  • Rental income may cover half the mortgage. Depending on your location, the rental income may cover all or most of the monthly mortgage payment.
  • Tax benefits. If you itemize deductions on your tax return, you can write off various expenses related to the rental portion of the property, like repairs and utility costs.
  • Vacation rental potential. If your municipal bylaws allow it, you could make even more money renting out your units on the vacation.
  • Real estate experience. If you think you might be interested in real estate investment in the long term, a multi-family can be a great crash course in how to be a landlord.

Cons to owning a multi-family:

  • Being a landlord is not for everyone. You must learn the landlord-tenant laws in your province/state as well as the intricacies of leases and screening potential tenants. You must be available to your tenants 24 hours a day in case of emergency.
  • You’re responsible for all repairs to the rental units as well as your own. You can save money by handling repairs yourself – but if you are not handy and need to hire someone, this can eat into your savings. Make sure you have enough room in your budget to afford repairs and appliance replacements.
  • Limited locations. Looking for a duplex may limit your location options. Not all neighborhoods in every city offers a mix of single-family, duplex and multi-family units for sale.
  • Resale issues. Generally, there is less demand for duplexes than single-family homes, so reselling may take longer.
  • Property insurance rates are higher.
  • Appreciation is generally lower for duplexes.
  • Higher up-front cost. While you can qualify for low-down-payment options as mentioned above, you will likely spend more on the duplex than you would on a single-family home. So even if you only put 10% down, you may face higher up-front costs.
  • Rental income is not guaranteed. Just because you have a space to rent does not mean you will see that rental income each month.

All advice aside, the only person who can determine whether a mult-family or a single-family home is right for you – is you. So, do some soul-searching to see if it is a good option for you as a first-time home buyer.

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Canadian Cities Where It’s Cheaper to Buy a Home Today Vs. 5 Years Ago: REPORT

Canadian Cities Where It’s Cheaper to Buy a Home Today Vs. 5 Years Ago: REPORT

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National home sales and listings continued to climb in housing markets across the country this August, as some of the pressure from pent-up demand was released this summer when pandemic restrictions eased. Buyers returning to the market did so with refocused housing priorities; a growing number began looking to suburban and rural markets in search of greater square footage relative to what’s available in denser urban centres.

Despite the surge in demand, the Canada Housing and Mortgage Corporation (CMHC) recently reiterated their forecast that home prices are likely to dip in the coming months; citing pandemic-induced unemployment and slower in-bound migration weighing on demand, particularly in metropolitan cities like Toronto and Vancouver. 

To understand how current home prices compare to the past, Zoocasa used data from the Canadian Real Estate Association (CREA) to highlight trends in benchmark home prices for apartments and single-family houses in 15 Canadian regions over the past 5 years. We highlight the extent to which benchmark home prices grew or contracted in each region, offering a glimpse at regions where housing is more or less affordable today than it was 5 years ago. 

Overall, the Canadian benchmark apartment price rose a staggering 52% in 5 years, from $315,600 in August 2015 to $478,700 in August 2020. The benchmark price for single-family houses across Canada rose 40% from $486,800 to $683,400. That being said, a closer look at each area included in our analysis reveals that certain housing markets faced a much higher pace of price growth than others, with others noting benchmark price declines that resulted in housing becoming more affordable today than it was 5 years ago. 

Prairie Markets Including Calgary and Edmonton More Affordable Today Than 5 Years Ago

Overall, Prairie cities offer first-time home buyers some of the best affordability in the country, with benchmark prices under $250,000 for apartments and under $500,000 for single-family houses this August. In fact, the Prairies are one of the few regions where a benchmark apartment and single-family house is more affordable today than it was 5 years ago. 

In Calgary, Canada’s third most populous city, the benchmark apartment price was $248,500 in August 2020, dropping 14% or $41,900 since 2015. The benchmark single-family house in Calgary is now $466,000, which is 6% or $30,800 cheaper than the price 5 years ago. Similarly, in Edmonton, the benchmark apartment is 17%, or $37,300, cheaper than it was 5 years ago at $183,900 and the benchmark single-family house cost $377,300 in August this year, vs. $396,800 in August 2015, a drop of 5% or $19,500. 

Given their proximity to the Canadian Rockies, both Calgary and Edmonton offer good opportunities for buyers with remote-working flexibility seeking greater square footage and green space. Comparatively, the benchmark apartment price in Toronto is nearly double the price of the benchmark apartment in Calgary, and the benchmark single-family house in Toronto is more than double Calgary. Additionally, both Calgary and Edmonton have a much lower population density at approx. 1,900 people per square kilometer in Calgary and 1,400 people per square kilometer in Edmonton versus 4,700 people per square kilometer in Toronto.  

Elsewhere in the Prairies, compared to 5 years ago, the benchmark apartment price is 21% lower in Regina ($174,800), 13% lower in Saskatoon ($180,200), and 3% lower in Winnipeg ($196,800). Compared to 5 years ago, single-family house prices are 3% lower in Regina ($286,900) and Saskatoon ($319,400), but up 17% in Winnipeg to $300,500.

Benchmark Apartment Prices Rose Over 50% in 7 Markets Over the Past 5 Years 

Of the 15 markets included in our analysis, the benchmark price for apartments rose by more than 50% in 7 markets. Fraser Valley, BC, where the benchmark price increased 104% to $437,300, led the country in terms of the increase in benchmark prices for apartments over the past 5 years. 

Fraser Valley  was followed by a number of markets in Southern Ontario. Niagara Region led price growth in the area, with the benchmark price growing 87% to $354,400. This was followed by Greater Toronto where the benchmark price rose 78% to $592,900, Hamilton-Burlington where the price rose 74% to $471,100 and Guelph where there was a 73% increase in the benchmark apartment price to $379,000. 

This was followed by Victoria, where the benchmark apartment price grew 65% to $504,900 and Greater Vancouver where it rose 63% to $685,800. Although Greater Vancouver didn’t see the highest percentage growth in benchmark apartment price, it experienced the largest increase in dollar amount at +$265,100. 

Ottawa and Montreal also saw gains in the benchmark apartment price since five years ago, but at 46% and 35%, respectively.

Benchmark Prices for Single-Family Houses Grew 50% or more in 7 Regions Over the Past 5 Years 

7 out of 15 markets included in our analysis also noted a 50% or higher increase in the benchmark price for single-family houses. 

Niagara Region experienced the highest growth, with the benchmark price for single-family houses almost doubling, with a staggering 95% increase in 5 years to $490,500. This was followed by Hamilton-Burligton (71%), Guelph (63%), Fraser Valley (62%), Ottawa (53%), Greater Toronto (51%), and Victoria (50%). 

Montreal, Greater Vancouver and Winnipeg single-family benchmark prices also rose, but at 46%, 28% and 17% respectively. 

Our infographic below maps and compares benchmark prices for apartments and single-family houses for each region included in our analysis in August 2020 and August 2015, noting the extent to which prices changed in each region. Further below, find a list of the top regions where it is cheaper to buy an apartment and a single-family house today than it was 5 years ago, and a list of the regions where benchmark prices for apartments and single-family houses have risen the most since August 2015.

Top 3 Regions Where it’s Cheaper to Purchase the Benchmark Apartment Today vs. 5 Years Ago (Based on %)

1. Regina 

Benchmark Apartment Price, August 2020: $174,800

5-Year % Difference: -21%

5-Year $ Difference: -$46,900

2. Edmonton

Benchmark Apartment Price, August 2020: $183,900

5-Year % Difference: -17%

5-Year $ Difference: -$37,300

3. St. John’s 

Benchmark Apartment Price, August 2020: $236,200

5-Year % Difference: -16%

5-Year $ Difference: -$43,700

Top 3 Regions Where it’s Cheaper to Purchase the Benchmark Single-Family House Today vs. 5 Years Ago (Based on %)

1. Calgary 

Benchmark Single-Family House Price, August 2020: $466,000

5-Year % Difference: -6%

5-Year $ Difference: -$30,800

2. St John’s

Benchmark Single-Family House Price, August 2020: $271,600

5-Year % Difference: -6%

5-Year $ Difference: -$17,600

3. Edmonton

Benchmark Single-Family House Price, August 2020: $377,300

5-Year % Difference: -5%

5-Year $ Difference: -$19,500

Top 3 Regions Where it’s More Expensive to Purchase the Benchmark Apartment Today vs. 5 Years Ago (Based on %) 

1. Fraser Valley

Benchmark Apartment Price, August 2020: $437,300

5-Year % Difference: +104%

5-Year $ Difference: +$223,400

2. Niagara Region

Benchmark Apartment Price, August 2020: $354,400

5-Year % Difference: +87%

5-Year $ Difference: +$165,100

3. Greater Toronto

Benchmark Apartment Price, August 2020: $592,900

5-Year % Difference: +78%

5-Year $ Difference: +$259,800

Top 3 Regions Where it’s More Expensive to Purchase the Benchmark Single-Family House Today vs. 5 Years Ago (Based on %) 

1. Niagara Region

Benchmark Single-Family House Price, August 2020: $490,500

5-Year % Difference: +95%

5-Year $ Difference: +$239,300

2. Hamilton-Burlington

Benchmark Single-Family House Price, August 2020: $751,300

5-Year % Difference: +71%

5-Year $ Difference: +$311,300

3. Guelph

Benchmark Single-Family House Price, August 2020: $651,600

5-Year % Difference: +63%

5-Year $ Difference: +$251,000

Sources

Benchmark apartment and benchmark single-family house prices were sourced from the Canadian Real Estate Association. 

Data use to calculate population density was sourced from Calgary Economic Development, City of Edmonton and City of Toronto.  

Source: Zoocasa – BY JANNINE RANE September 29, 2020

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New Home Checklist: 6 To-Do’s Before Settling In

A locksmith changing a door lock.

Moving into a new home is exciting–it represents a fresh start with new rooms to decorate, and a new neighbourhood to explore. However, setting up your house can also be exhausting and stressful. But don’t worry–we’ve compiled a helpful checklist of things to cross off before you settle in. And if you’re moving to a new city, your REALTOR® is a great resource for advice about tasks to take care of, who to tap for help and how tofind the best schools for your kids.

A man in a red shirt contemplates his finances.

1. Update your address and transfer utilities

Before you move in, you’ll need to update your address, which is linked to everything from your driver’s license to your health card. Be sure to inform everyone–your bank, insurance company, credit cards and loyalty programs–so you won’t miss important notices. You may also want to set up temporary mail-forwarding with Canada Post. While you’re at it, get in touch with utility companies several weeks before the move, so they can transfer and activate your electricity, gas, telephone and internet accounts over to the new place. 

A locksmith changing a door lock.

2. Change your locks and codes

Get some peace of mind–who knows how many keys to your house the previous owners gave out–by installing new deadbolts yourself for as little as $30 per lock, or calling a locksmith for about $100 for a service call. Make extra sets of keys for trusted family members or friends, in case you get locked out or need them to check the property when you’re away. Change your garage door and alarm codes, too.

A person replacing the battery in a smoke alarm.

3. Test your smoke and carbon monoxide detectors

Home safety experts recommend checking your home’s smoke and carbon monoxide detectors every six months, and changing the batteries then, too. Be sure there’s one on each floor of the house. Many local fire departments offer free inspections and testing, so ask your REALTOR® about this.

A family washing windows.

4. Get your home squeaky clean

Before moving all your belongings in, take some time to deep clean all the nooks and crannies, or hire a professional to do it for you for about $100. Don’t forget to get your carpets steamed–cleaning services charge about $65 an hour, or you can rent a machine for about $80 and do it yourself. This is also a great time to put on a fresh coat of paint throughout the house and get rid of an lingering pet smells.

5. Get to know your new home’s systems

Becoming a homeowner means understanding how everything works so you can maintain your investment. Know where your property’s HVAC (air conditioning and heating) system, circuit-breaker and main water shut-off valves are located, plus how to turn them on and off in an emergency. It’s a good idea to get your home’s systems inspected (if your home inspector didn’t already do so). 

Pro tip: Check your water meter at the beginning and end of a two-hour period during which no water is being used. If the reading changes, you likely have a leak that needs fixing.

A man taking out his garbage.

6. Make a home maintenance schedule

Your home inspection report might contain suggestions for repairs to carry out, as well as tips for when and how to perform seasonal maintenance checks to your house.  Set up a filing system for manuals and instructions, and create a to-do list you can refer to throughout the year. It’s recommended you save about 1% of your home’s purchase price each year for repairs. Since you’ll probably need the services of a plumber, electrician, exterminator or landscaper at some point, research local businesses. 

Your REALTOR® can also help you navigate the whole moving process and also recommend reputable tradespeople, so don’t hesitate to reach out so all your questions get answered as you celebrate this new chapter in your life.

Source: Realtor.ca –  Wendy Helfenbaum

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5 Steps to Buying a Home That Won’t Bust Your Budget

A new homeowner holding out the keys to her house while looking at her budget.

It’s easy to feel overwhelmed by all the decisions that go into buying a new home. Brand new or existing? Cottage or McMansion? Fixer-upper or move-in ready? City or country? After all, a home is a big purchase, and you want it to be a blessing for many years to come.

But one question holds the key to home-buying success: how much home can you afford?

Lucky for you, you don’t need a degree in rocket science to find the answer. You just need to know how to budget. Here are five steps to buying a home Dave Ramsey recommends to make the process smoother.

Step 1: Add Up Your Income

You can’t make a budget if you don’t know how much you can spend. So sit down and add up every source of income you receive each month.

Let’s crunch numbers based on a two-earner household. In our example, John brings home two paychecks a month, while his wife Jane receives one.

John’s Paycheck 1 = $1,600
John’s Paycheck 2 = $1,600
Jane’s Paycheck = $2,800

Total Monthly Income = $6,000

Step 2: List Your Household Expenses

Next, write down every place your dollars go each month. Find expert agents to help you buy your home.

John and Jane rent a one-bedroom apartment in the heart of town so they can be close to work. A big chunk of their budget goes toward saving for retirement and a down payment on their new home. Here’s how their current budget looks:

John and Jane’s Pre-Home Budget
Charitable Gifts = $600
Savings = $2,200
Rent = $900
Utilities = $300
Food = $400
Clothing = $100
Transportation = $450
Medical = $400
Personal = $450
Recreation = $200

Total Expenses = $6,000

Of course, everybody’s budget is going to be different. We’ve assumed some things in this sample. If some of these categories don’t fit, feel free to make them your own.

Step 3: Calculate Home-Ownership Costs

Dave Ramsey recommends your housing payment, including property taxes and insurance, to be no more than 25% of your take-home income. 

To maximize your savings, you should get a 15-year, fixed rate mortgage.

That means the maximum amount John and Jane should spend on their home payment each month is $1,500. Of course, home ownership isn’t limited to a house note. John and Jane make room for expenses like HOA fees, maintenance and repair, furniture and décor, and lawn care in their budget. They also add extra heft to utilities and transportation since they’ll have more square footage and a longer commute in their new home.

John and Jane’s down-payment goal will be complete when they purchase a home, so they reduce the amount they allot to savings.

If you need help figuring out how much house you can afford, we suggest using our mortgage calculator

John and Jane’s Budget: Changes Made With Home Ownership in Mind
Savings = $2,200 $900
Rent Mortgage = $900 $1,500
Other Housing Expenses = $250
Utilities = $300 $400
Transportation = $450 $550

Total Expenses = $6,000 $5,750

With these adjustments, John and Jane still have money left over—but the budgeting doesn’t stop here.

Step 4: Give Your Budget Room to Grow

Life is going to happen in the years you occupy your home. Before you get married to a mortgage, look ahead and consider events that might increase your living expenses down the road.

John and Jane don’t have children yet but hope to start a family next year. Guess what? Kids cost money! According to the USDA, a middle-income married couple spends an average of $727 a month on non-housing expenses in a child’s first years of life. Depending on what you make or where you live, it could be more, it could be less.

John and Jane build cushion for Junior into their budget by parking an additional $750 into their savings account each month. That puts their savings total at $1,650 and bumps their monthly expenses up to $6,500.

John and Jane’s Budget: Changes Made With Junior in Mind
Savings = $900 $1,650

Total Expenses = $5,750 $6,500

Step 5: Make Adjustments

Right now, John and Jane’s expenses outweigh their income by $500, so they’ve got some balancing to do. John and Jane realize that spending 25% of their income on a mortgage will squeeze out their ability to afford diapers and daycare. So they aim for a more conservative home payment and tighten the purse strings in a few other areas.

John and Jane’s Final Home-Buying Budget
Charitable Gifts = $600
Savings = $1,650
Mortgage = $1,500 $1,250
Other Housing Expenses = $250
Utilities = $400
Food = $400
Clothing = $100 $50
Transportation = $550
Medical = $400
Personal = $450 $400
Recreation = $200 $50

Total Expenses = $6,600 $6,000

When income minus outgo equals zero, your job is done because every dollar has a name.

$6,000 – $6,000 = $0

Success!

That means you can feel confident buying a home that won’t bust your budget. Just keep your mortgage to 25%—or less!—of your monthly income and don’t borrow so much that you can’t breathe if life changes down the road.

Boost Your Buying Power

Now that you know the secret to being a happy homeowner, it’s time to go out and get the most home for your money! All you need is an expert negotiator by your side. A buyer’s agent brings your best interests to the table so you can get the best deal on a home that’s right for you and your budget.

Source: DaveRamsey.com

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HOUSE HUNTING IN THE MIDST OF A GLOBAL PANDEMIC

Raymond C. McMillan, BA., Mortgage and Real Estate Advisor – June 27, 2020

I read somewhere many years ago that “where there is a crisis, there is always opportunity”. You may be wondering where to find this opportunity. Covid 19, completely obliterated the spring housing market and will probably do the same for the summer market. These are possibly the two busiest period for homebuyers and sellers. With the recent physical and social distancing guidelines introduced and enforced by all levels of government, it has certainly crippled the real estate sector and change the way sellers and buyers engage each other. However, all is not lost as we discover new ways to house hunt and view homes.

Savvy realtors have quickly figured out how to market homes online and are doing virtual tours that allow potential home buyers to get a real life feeling of homes they are interested in viewing or purchasing. New home builders have also quickly adapted and have also made the virtual home buying experience very user friendly and interactive. Many of the floor plans can be configured by you to show the placement of furniture and appliances to get a sense of the available space. With resale homes, you can use the placement of furniture and appliances by the current owner and occupant as a guide. In the event the home is empty, it could be a bit more challenging to get a good sense of the space as a first-time home buyer, but a good realtor should be able to help you with this.

In areas where home showings are still permitted, and if you are comfortable doing them, you mayt want to exercise extreme caution when visiting homes for sale to avoid being exposed or infected by Covid 19. A few of my recommendations to keep yourself safe and reduce exposure are:

  1. Always wear a mask and gloves.
  2. If you have a pre-existing health condition, I would recommend avoid doing in-house viewings
  3. Only visit homes where the current owners or occupants have vacated the homes to allow for the viewing.
  4. Avoid touching personal items and appliances as much as possible.
  5. Do not under any circumstances view a home at the same time with another individual or family not connected to you
  6. Ensure your realtor is also wearing personal protective equipment and maintaining physical and social distancing guidelines.
  7. Practice the necessary hygiene once you have completed your viewing and returned home to eradicate any potential exposure.

If you are uncomfortable with doing in-house viewings stick to virtual viewings. There are many homes being offered that way, and you are sure to find one in your preferred neighborhood, at your desired price that you absolutely love. So be patient and enjoy the home buying journey.

The writer: Raymond McMillan is a mortgage and real estate consultant who has been in the banking, mortgage and real estate industry since 1994. He has been licensed as a mortgage broker since 1999 and has helped many people purchase their homes and invest in real estate. You can reach him at 1-866-883-0885 or visit www.TheMcMillanGroupInc.com

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HOUSE HUNTING IN THE MIDST OF A GLOBAL PANDEMIC

Raymond C. McMillan, BA., Mortgage and Real Estate Advisor – June 27, 2020

I read somewhere many years ago that “where there is a crisis, there is always opportunity”. You may be wondering where to find this opportunity. Covid 19, completely obliterated the spring housing market and will probably do the same for the summer market. These are possibly the two busiest period for homebuyers and sellers. With the recent physical and social distancing guidelines introduced and enforced by all levels of government, it has certainly crippled the real estate sector and change the way sellers and buyers engage each other. However, all is not lost as we discover new ways to house hunt and view homes.

Savvy realtors have quickly figured out how to market homes online and are doing virtual tours that allow potential home buyers to get a real life feeling of homes they are interested in viewing or purchasing. New home builders have also quickly adapted and have also made the virtual home buying experience very user friendly and interactive. Many of the floor plans can be configured by you to show the placement of furniture and appliances to get a sense of the available space. With resale homes, you can use the placement of furniture and appliances by the current owner and occupant as a guide. In the event the home is empty, it could be a bit more challenging to get a good sense of the space as a first-time home buyer, but a good realtor should be able to help you with this.

In areas where home showings are still permitted, and if you are comfortable doing them, you mayt want to exercise extreme caution when visiting homes for sale to avoid being exposed or infected by Covid 19. A few of my recommendations to keep yourself safe and reduce exposure are:

  1. Always wear a mask and gloves.
  2. If you have a pre-existing health condition, I would recommend avoid doing in-house viewings
  3. Only visit homes where the current owners or occupants have vacated the homes to allow for the viewing.
  4. Avoid touching personal items and appliances as much as possible.
  5. Do not under any circumstances view a home at the same time with another individual or family not connected to you
  6. Ensure your realtor is also wearing personal protective equipment and maintaining physical and social distancing guidelines.
  7. Practice the necessary hygiene once you have completed your viewing and returned home to eradicate any potential exposure.

If you are uncomfortable with doing in-house viewings stick to virtual viewings. There are many homes being offered that way, and you are sure to find one in your preferred neighborhood, at your desired price that you absolutely love. So be patient and enjoy the home buying journey.

The writer: Raymond McMillan is a mortgage broker and real estate consultant who has been in the banking, mortgage and real estate industry since 1994. He has been licensed as a mortgage broker since 1999 and has helped many people purchase their homes and invest in real estate. You can reach him at 1-866-883-0885 or visit www.TheMcMillanGroupInc.com

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Wave of homes could hit market when support programs end: RBC

Photo: James Bombales

Toronto, Vancouver and many other major markets across Canada began the year in seller’s market territory with high demand for housing and tight supply giving home sellers the upper hand in transactions.

The COVID-19 pandemic abruptly changed that, shifting the national market away from favouring sellers and into balanced territory. And more changes are coming, according to RBC, which published a housing report this week that predicted more listings will be coming online in the months ahead, potentially tilting the supply-demand balance into buyer’s market conditions.

In a note titled “Canada’s Housing Market Woke up in May,” RBC Senior Economist Robert Hogue wrote that, to date, listings supply and buyer demand have mostly ebbed in lockstep during the pandemic. This alignment has allowed the market to maintain balance and prices to remain steady, so far.

There were hints that this was shifting in national home sales data for May published by the Canadian Real Estate Association (CREA) this week. New listings spiked 69 percent in May from their April lowpoint while sales rose 57 percent. While this may not appear to be a significant mismatch, Hogue believes there’s further supply and demand “decoupling” ahead for the market.

“The delay in spring listings will likely boost supply during the summer at a time when homebuyer demand will still be soft — albeit recovering. The eventual winding down of financial support programs is also poised to bring more supply to market later this year,” Hogue wrote.

“Economic hardship is no doubt taking a toll on a number of current homeowners — including investors,” the economist continued. “Some of them could be running out of options once government support programs and mortgage payment deferrals end, and may be compelled to sell their property.”

The federal government announced this week that the Canadian Emergency Relief Benefit (CERB) would be extended for another two months, with the scheduled end date now pushed back to early September. The maximum period that one can receive CERB payments was increased from 16 weeks to 24 weeks. Mortgage deferral programs being run by Canada’s large banks are also set to end in the fall.

In commentary published yesterday, Capital Economics’ Senior Canada Economist Stephen Brown wrote that the huge sums paid out through CERB since March have seemingly offset the losses to household income suffered during the same period. This will allow for a stronger economic recovery than was previously anticipated, he wrote.

But even in his relatively upbeat take, Brown said that household income is likely to still fall eventually as employment will remain lower than its pre-pandemic level even when CERB ends in September. He went on to point out that high-earners who lost jobs during the pandemic and are now receiving CERB will have certainly taken a hit to household income, which will bode poorly for the housing market.

When it comes to the anticipated shift from balanced conditions to a buyer’s market for Canadian real estate, Hogue predicted that the timing will be different depending on the market.

“We expect the increase in supply to tip the scale in favour of buyers in many markets across Canada, some sooner than others,” Hogue wrote.

“Vancouver and other BC markets, for example, could see buyers calling the shots as early as this summer. It could take a little longer in Ontario, Quebec and parts of the Atlantic Provinces. Buyers already rule in Alberta and Newfoundland and Labrador.”

Nationally, Hogue predicted a seven percent decline in benchmark home prices from pre-pandemic levels by mid-2021. However, he wrote, “a widespread collapse in property values is unlikely.”

Source: Livabl.com – Sean MacKay Jun 17, 20200

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Genworth and Canada Guaranty Won’t Adopt CMHC’s New Mortgage Rules


Following the announcement of CMHC’s new mortgage rules last week, Canada’s other two mortgage insurers, Genworth Canada and Canada Guaranty, confirmed today they will not be following CMHC’s lead.

“Genworth MI Canada Inc….confirms that it has no plans to change its underwriting policy related to debt service ratio limits, minimum credit score and down payment requirements,” the company said in a release.

Similarly, Canada Guaranty said it “confirms that no changes to underwriting policy are contemplated as a result of recent industry announcements.”

To recap CMHC’s mortgage rule changes, the following will apply to insured mortgages (those with less than 20% down payment) as of July 1, 2020:

  • Maximum Gross Debt Service (GDS) ratios will be lowered to 35% (from 39%)
  • Maximum Total Debt Service (TDS) ratios will be lowered to 42% (from 44%)
  • The minimum credit score needed to qualify will rise to 680 (from 600) for at least one household borrower
  • Many non-traditional sources of down payment that “increase indebtedness” will be banned
    • It has been confirmed, however, that borrowers will continue to be able to use a loan from their RRSP through the Home Buyers Plan, a home equity line of credit (HELOC) on one of their second properties, or a HELOC on a property owned by their parents if the money is gifted.

“We acknowledge the potential ‘pro-cyclical’ negative impacts on housing markets of CMHC’s decision to tighten underwriting,” CMHC CEO Evan Siddall wrote on Twitter in response to criticism. “However, the benefits of preventing over-borrowing far exceed these costs. Not acting also exposes young families to the tragic prospect of foreclosure.”

Why the Other Insurers Won’t Adopt the New Rules

In explaining its decision, Genworth Canada President and CEO Stuart Levings said the company’s current underwriting policies for insured mortgages already allow it to “prudently” manage its risk exposure.

“Genworth Canada believes that its risk management framework, its dynamic underwriting policies and processes and its ongoing monitoring of conditions and market developments allow it to prudently adjudicate and manage its mortgage insurance exposure,” Levings noted, “including its exposure to this segment of borrowers with lower credit scores or higher debt service ratios.”

Similarly, Canada Guaranty said it has been well-served by its existing underwriting criteria over the years and sees no need to make adjustments now.

“Canada Guaranty utilizes a dynamic underwriting process where our underwriting policies are consistently updated to reflect evolving economic environments and emerging mortgage default patterns,” Mary Putnam, VP, Sales and Marketing of Canada Guaranty, said in a release, adding this has resulted in the lowest loss ratio in the industry.

“Recent insurer announcements relating to down payment and minimum credit score represent a very small component of Canada Guaranty’s business, and we will continue to be prudent in these areas,” she said. “Given implementation of the qualifying stress test and historic default patterns, Canada Guaranty does not anticipate borrower debt service ratios at time of origination to be a significant predictor of mortgage defaults.”

Observers saw the announcements as a positive for borrowers who will continue to have some options in the markets should they not be able to meet CMHC’s stricter qualification standards.

“We like this decision,” noted National Bank of Canada analyst Jaeme Gloyn. “The decision will help soften potential negative impacts to the housing/mortgage market as we argued against tinkering with mortgage underwriting criteria in light of the COVID-driven housing market slowdown.”

NBC had estimated that CMHC’s new rules relating to debt service ratios and credit scores could have impacted up to 20% of CMHC-insured borrowers.

Impact of CMHC’s New Mortgage Rules

So what are the impacts of CMHC’s new rules on borrowers shopping for high-ratio mortgages?

CIBC’s Benjamin Tal estimates the change will mean about 5% of homebuyers will no longer be able to qualify for a mortgage.

For those who can, it will mean a reduction in their buying power.

“Fewer people will qualify for a mortgage, and if they do, the maximum they can borrow will be around 10% or more less than it is right now, ” wrote Ross Taylor, a mortgage agent with Concierge Mortgage Group.

Taylor notes that a household earning $120,000 would currently qualify for a mortgage of around $565,000 plus insurance. With CMHC’s stricter rules, that same household would only qualify for a mortgage of approximately $502,000 plus insurance costs.

“…keeping good credit hygiene is more important than ever if you want to buy a home, especially if you need mortgage insurance,” Taylor adds.

Source: Steve Huebl· News Mortgage Regulations·June 8, 2020

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Industry Reaction to CMHC’s New Mortgage Rules


Obtaining mortgage insurance for a home purchase is about to become more challenging on July 1, particularly for first-time buyers.

The Canada Mortgage and Housing Corporation (CMHC), Canada’s national mortgage insurance provider, unveiled stricter underwriting policies on Thursday for insured mortgages. The measures include:

  • Limiting Gross Debt Service (GDS) ratios to 35% (from 39%)
  • Limiting Total Debt Service (TDS) ratios to 42% (from 44%)
  • Raising the minimum credit score to 680 (from 600) for at least one borrower
  • Banning non-traditional sources of down payment that “increase indebtedness”

“COVID-19 has exposed long-standing vulnerabilities in our financial markets, and we must act now to protect the economic futures of Canadians,” said CMHC CEO Evan Siddall in a statement.

“These actions will protect homebuyers, reduce government and taxpayer risk and support the stability of housing markets while curtailing excessive demand and unsustainable house price growth.”

What do the Changes Mean for Buyers?

CMHC’s changes will effectively reduce homebuyers’ purchasing power by up to 11%, according to RateSpy.com.

“Someone earning $60,000 with no other debt and 5% down could afford approximately 10.9% less home under CMHC’s new rules,” the site noted. “That’s like jacking up the minimum stress test rate from 4.94% (where it lies today) to 6.30%!”

Roughly 18% of CMHC’s high loan-to-value originations had a Gross Debt Ratio of more than 35%, according to a report from RBC Economics.

And about 5% of CMHC’s originations had credit scores of less than 680, according to data from Mortgage Professionals Canada.

CMHC Going It Alone?

One of the biggest questions since a leak of the new rules made the rounds on Thursday has been whether CMHC’s competitors, Canada Guaranty and Genworth Canada, would have to adopt the stricter underwriting measures as well.

According to the RBC Economics report, they won’t, at least not for now.

“Genworth Canada (MIC) and Canada Guaranty (CG) confirmed to us that they have not been told to adopt any or all of the same underwriting changes,” the report notes. “…although we would not be surprised if they were to eventually adopt some (e.g., down payment sources, credit score) or even all of the changes.”

For what it’s worth, that same report notes that it’s “interesting” that CMHC delivered the announcement, since mortgage insurance market changes have historically been announced by the Department of Finance.

Mortgage Industry Reaction

The announcement elicited wide-ranging opinions from throughout the mortgage industry. Here are some of them…

“I think the changes are well-intentioned, but poorly timed. I understand the rationale, but the people most at risk of default are already in their first home and insured. Disqualifying purchasers now won’t improve the quality of the portfolio already at risk,” Mortgage Professionals Canada CEO Paul Taylor told CMT.

“If house prices do soften, from a public policy perspective, that’s precisely the time to bolster support for first-time buyers. Making homes more difficult to finance will, once again, reserve properties for purchase by the already well-capitalized.”

Taylor added that the timing of the announcement, in the midst of a global pandemic, could further slow the market, on top of the 9-18% home price reductions forecast by CMHC.

“The Federal government is spending billions of dollars to support a struggling economy,” Taylor said. “These changes actively suppress activity.”

Ron Butler of Butler Mortgages Inc. also understands CMHC’s motive, acting essentially as an insurance company.

“They must be prudent in the face of an economic disaster,” he said. “It’s hard to argue against better credit scores when you’re insuring a $940K mortgage. (And) 680 is simply a proper credit score.”

And while first-time buyers may face the brunt of this policy change, Butler noted they can easily choose a lower-cost property, which may be easier in certain regions compared to others.

“Ultimately, I’ll  take these changes over a 10% minimum down payment any day,” Butler said, referring to the policy change floated by Siddall several weeks ago.

Wrong Time to “Tinker” With Policy

While many understand where the policy adjustments are coming from, others are adamant that now is the worst time to implement such changes.

“I would argue against tinkering with mortgage underwriting criteria in light of the pandemic-driven housing market slowdown,” True North Mortgage Founder and CEO Dan Eisner told CMT. “Some of these changes may be needed, but the timing is questionable…it’s as silly as buying an umbrella after a flood. Now is the time to be encouraging economic activity.”

Asked which measure will be the most restrictive for first-time buyers, Eisner said first-time buyers will be most-impacted by the increased income requirements.

“Keep in mind, this change arrives not too long after the Department of Finance implemented the qualifying rate stress test, which already pushed many homebuyers out of the market.”

Responding to critics, CMHC CEO Evan Siddall wrote on Twitter: “We acknowledge the potential ‘pro-cyclical’ negative impacts on housing markets of CMHC’s decision to tighten underwriting. However, the benefits of preventing over-borrowing far exceed these costs. Not acting also exposes young families to the tragic prospect of foreclosure.”

Some, including Butler, foresee a brief increase in home-buying as people rush to purchase before the new rules take effect.

“There will be a minor spike in sales based on this change, and then comes the September Cliff,” Butler said, referring to an expected drop in activity once the widespread mortgage deferral programs come to an end this fall.


Source: Steve Huebl · Mortgage Broker News · June 5, 2020

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FOUR STEPS TO BUYING YOUR FIRST HOME

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Raymond C. McMillan BA., Mortgage and Real Estate Advisor – May 4, 2020

A few years ago, I was listening to a program on a local television station and they were discussing the benefits of investing in the stock market and renting over buying your own home. The guest on the program believed it made more sense to pay rent and invest in the stock market, than purchase a home. Then the TV host asked him if he owned his own home, and he responded “yes”. At that point, I turned the television off.

Many will say that in some cases homeownership is overrated. I strongly disagree. Owning a home is one of the fastest ways to grow your net worth and start the journey to creating generational wealth. Not only is growing your net worth important but it is a proven fact that children who grow up in homes, display better overall social character traits.

Buying your first home is much easier than you think, if you have a plan. There are four basic steps in the journey of homeownership. These are: understanding your credit and debt, your down payment, your employment and sources of income, and finding the right home

Understanding Your Credit and Debt: Your credit plays an important role in purchasing your home. Your credit profile or credit report gives the lender a snapshot of the way you manage your finances which determines if you are a good or bad credit risk when it comes to lending you money. This is done by reviewing your credit report. Your credit report is made up of information collected by three agencies and is shared with lenders. The agencies are Equifax, TransUnion and Experian. The agencies use a scoring system to determine your credit worthiness. The score ranges from 360 to 850, with 360 being the worse score and 850 being the best. Ideally your score should be within the range of 620 to 750*. The credit score is determined by how well you pay your bills and how much is owed on credit cards and instalment loans. If your bills are not paid in a timely manner, and you carry high credit card balances, your credit score will be lower. If your bills are paid on time and you have low outstanding balances on your credit cards, you will have a higher credit score. To check your credit score, you can contact one of the three major credit reporting agencies: Equifax Phone: 800-685-1111, Experian Phone: 888- 397-3742 and TransUnion Phone: 800-909-8872.

Down Payment: The next step in the home purchasing journey is having your down payment. Your down payment is the required funds the lender needs you to have to qualify for the home you are purchasing. This can range from 3% – 20% of the home purchase price.  The minimum amount of down payment required is 3% of the purchase price of the home. Therefore, if you are purchasing a home for $300,000.00, your minimum required down payment will be a minimum of $9,000.00. Where do you get these funds? It could be a gift from family, money you saved over time or a loan. If it is a loan, you will have to ensure that you are still able to qualify for the mortgage with this additional debt. Once you decide to go house hunting you will be required to have this money readily available. Remember, you will also need money for your closing costs. These closing costs include but are not limited to your lender fees and title fees.

Employment and Sources of Income: The lender will look at are your income sources. This will allow them to understand your ability to pay for the home you intend to purchase. Prior to beginning your search for a home, you should examine your budget to determine how much you can comfortably afford to pay monthly for your mortgage. Remember, home ownership should be enjoyable, not a stressful experience. So, what are the main income sources? These include salary and hourly wages, commission income, self employed income, alimony and child support, investment income, pension income and income from a trust. Note any sources of income that are used for the mortgage application, will be validated by the lender.

Your Home: This is without a doubt the most exciting part of the home buying process, and the one that needs careful analysis. Now that you have knowledge of our credit rating, have your down payment and have been pre-approved based on your income, it is time to determine what home works best for you. My recommendation is to assess your needs. If you are single a condo may work best. If you have a young family, then it many be important to have a backyard for the children. If you work in the city, it may be important to be close to transit. There is much to be considered when determining where to buy your first home. You want to ensure the neighbourhood works for you, because you may be there for a while. Some things to consider are: is it close to transit? What are the schools like if you have school age children? How close or far it is from your family and friends? What is the crime statistics like? Is it a declining or improving neighbourhood? Are there parks and cycling and running trails close by? I am sure you have some of your own things to add to this list.

Now that the four steps have been outlined, it is now time to put your home buying team together.

 

The writer: Raymond McMillan is a mortgage broker and real estate consultant who has been in the banking, mortgage and real estate industry since 1994. He has been licensed as a mortgage broker since 1999 and has helped many people purchase their homes and invest in real estate. You can reach him at 1-866-883-0885 or visit www.TheMcMillanGroupInc.com

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