Tag Archives: home buyers

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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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

 

1
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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Renting Versus Buying: A Real Estate Expert Breaks It Down for Us

The renting versus buying dilemma is one my friends have started to face since they’ve begun leaving Manhattan and escaping to the suburbs (I’m still not there yet, but when I think about how much money I “throw away” each year on rent, it’s actually cringe-worthy). But, maybe it’s true when they say the grass is always greener. Buying doesn’t come without its own set of problems, considering both sets of my friends who recently purchased homes faced movers damaging their patio, gas leaks, and even a broken washing machine within the first week. (They’ve confided in me that their bank accounts are still recovering.)

Since we’re no experts on the topics, we decided to tap Scott McGillivray, a real estate/renovation expert and TV host, to get his professional take. “Neither renting or buying is intrinsically right or wrong,” he says. “It basically comes down to your goals and your lifestyle.” That being said, he encourages getting into the real estate market once you feel financially prepared to do so. And what if you’re worried about going all in? McGillivray suggests trying a practice mortgage in which for one year while you’re renting, you put aside the amount you’d have to pay as a homeowner (mortgage, property tax, potential repairs). This gives you a realistic idea of how your lifestyle and budget will be affected if you buy.

“If you can manage, go for it,” the expert says. “And the bonus is that at the end you’ll have some extra cash for a down payment.” Since renting versus buying is no small debate, we asked McGillivray to break down all the pros and cons for each. Keep reading to get the full scoop.

 

 

Source: MyDomaine.com – by 

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Immigrants prefer single-detached homes less than local buyers

Immigrants prefer single-detached homes less than local buyers 

Immigrants are not as enticed by single-detached residences as their Canadian-born counterparts, fresh numbers from Statistics Canada indicated.

From 2016 to 2017, immigrants accounted for 46% of Toronto’s population total, and 41% that of Vancouver.

The cohort accounted for 43% of residential ownership in Toronto, and 37% in Vancouver. However, the proportion of single-detached homes that immigrants possessed showed a marked difference in the two red-hot markets.

Toronto has approximately half of its immigrant-owned properties as detached properties, while the figure was 60% for owners born in Canada, Yahoo! Finance Canada reported.

Meanwhile, Vancouver’s single-detached homes represented 39% of the city’s immigrant-owned properties, compared with 48% for domestic owners.

“These data show that there is ongoing opportunity to reduce taxes on earnings for typical residents, and especially younger folks and renters who are particularly harmed by the current housing market, by taxing high home values more when owned by foreigners, immigrants and locally-born residents.” UBC professor Paul Kershaw said in an interview.

“Just focusing on wealth brought by immigrants will miss an important, and large, piece of the housing unaffordability puzzle.”

 

An early January analysis by the Altus Group stated that intensified immigration will boost Toronto’s population growth, and in turn feed into greater residential sales activity.

“Markets in the Greater Golden Horseshoe, including the GTA, have the most upside potential for an increase in sales activity in 2019 given the depth of the decline in 2018 and building off of the sales recovery noted in the back half of 2018,” Altus wrote in its market outlook for this year.

Vancouver might not fare as well, however, given that higher borrowing costs and growing construction costs are expected to discourage would-be buyers, Canadian-born or otherwise.

“A key challenge that has become more apparent as of late in Vancouver has been the price sensitivity of consumers, with higher priced projects, or those priced above the competition, experiencing below average sales rates.”

Source: Mortgage Broker News – by Ephraim Vecina 31 Jan 2019

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The State of the Mortgage Market

 

Mortgage Professionals Canada released its marquis State of the Mortgage Market report last week.

While much of the media focus was on the report’s assessment of the mortgage stress test and its ramifications, the annual report was once again chock-full of enlightening statistics that help paint a picture of the current state of the mortgage market.

Author Will Dunning, Chief Economist of MPC, noted that consumer confidence is expected to dampen due to a “depressed” resale housing market and constrained house price growth.

“Housing markets across Canada were due to slow to some extent as a result of higher interest rates, but the reductions in activity that have occurred have been much larger than should have been expected, due to the mortgage stress tests, on top of prior policy changes that have constrained home buying,” he wrote.

We’ve extracted the most relevant findings below. (Data points of special interest appear in blue.)

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The Mortgage Market:

  • 6.03 million: The number of homeowners with mortgages (out of a total of 9.8 million homeowners in Canada)
  • 1.6 million: The number of Home Equity Line of Credit (HELOC) holders
  • 11%: The percentage drop in resale activity compared to 2017
    • Resale activity is down 15% from the all-time record set in 2016.

Mortgage Types and Amortization Periods

  • 68%: Percentage of mortgages in Canada that have fixed interest rates (The percentage is the same for mortgages taken out in 2018)
  • 27%: Percentage of mortgages that have variable or adjustable rates (30% for mortgages taken out in 2018)
  • 5%: Percentage that are a combination of fixed and variable, known as “hybrid” mortgages (2% for purchases in 2018)
  • 89%: Percentage of mortgages with an amortization period of 25 years or less (84% for homes purchased between 2015 and 2018)
  • 11%: Percentage with extended amortizations of more than 25 years (16% for recent purchases between 2015 and 2018)
  • 22.2 years: The average amortization period

Actions that Accelerate Repayment

  • ~33%: Percentage of mortgage holders who voluntarily take action to shorten their amortization periods (unchanged from recent years)
  • Among all mortgage holders:
    • 15% made a lump-sum payment (the average payment was $22,100)
    • 16% increased the amount of their payment (the average amount was $450 more a month)
    • 8% increased payment frequency

Mortgage Sources

  • 62%: Percentage of borrowers who took out a new mortgage during 2017 or 2018 who obtained the mortgage from a Canadian bank
  • 28%: Percentage of recent mortgages that were arranged by a mortgage broker
    • This is down substantially from 39% reported in the previous report in 2017 (and 43% in 2016; 42% in 2015). While Dunning says the latest 2018 figure could be the result of a statistical anomaly, he also surmises that broker share may in fact be down. “The lending environment has become more challenging for brokers, especially since changes to mortgage insurance regulations are making it much more difficult for small lenders to raise funds via mortgage-backed securities,” he wrote. “It also appears that some of the large banks are becoming less reliant on the broker channel.”
  • 5%: Percentage of recent borrowers who obtained their mortgage through a credit union (vs. 7% of all mortgages)

Interest Rates

  • 3.09%: The average mortgage interest rate in Canada
    • This is up from the 2.96% average recorded in 2017
  • 3.31%: The average interest rate for mortgages on homes purchased during 2018
  • 3.28%: The average rate for mortgages renewed in 2018
  • 68%: Of those who renewed in 2018, percentage who saw their interest rate rise
    • Among all borrowers who renewed in 2017, their rates dropped an average of 0.19%
  • 3.40%: The average actual rate for a 5-year fixed mortgage in 2018, about two percentage points lower than the posted rate, which averaged 5.26%

Mortgage Arrears

  • 0.24%: The current mortgage arrears rate in Canada (as of September 2018)
    • “The arrears rate… ( 1-in-424 borrowers)…is very low in historic terms,” Dunning wrote.

Equity

  • 74%: The average home equity of Canadian homeowners, as a percentage of home value
  • 4%: The percentage of mortgage-holders with less than 15% home equity.
  • 56%: The average percentage of home equity for homeowners who have a mortgage but no HELOC
  • 58%: The average equity ratio for owners with both a mortgage and a HELOC
  • 80%: The equity ratio for those without a mortgage but with a HELOC
  • 92%: Percentage of homeowners who have 25% or more equity in their homes
  • 50%: Among recent buyers who bought their home from 2015 to 2018, the percentage with 25% or more equity in their homes

Equity Takeout

  • 10% (960,000): Percentage of homeowners who took equity out of their home in the past year (up slightly from 9% in 2017)
  • $74,000: The average amount of equity taken out (up substantially from $54,500 in 2017)
  • $72 billion: The total equity takeout over the past year (up from $47 billion in 2017)
  • $38 billion was via mortgages and $34 billion was via HELOCs (the HELOC portion is up from $17 billion in 2016/17)
  • Most common uses for the funds include:
    • $23.8 billion: For investments
    • $17 billion: For home renovation and repair
      • 55% of homeowners have done some kind of renovation at some point. 27% renovated between 2015 and 2018 with an average spend of $41,000.
    • $16.4 billion: For debt consolidation and repayment
    • $8.6 billion: For purchases
    • $6.2 billion): For “other” purposes
    • Equity takeout was most common among homeowners who purchased their home during 2000 to 2004

Sources of Down payments

  • 20%: The average down payment made by first-time buyers in recent years, as a percentage of home price
  • The top sources of these down payment funds for all first-time buyers:
    • 52%: Personal savings (vs. 45% for those who purchased between 2015 and 2019)
    • 20%: Funds from parents or other family members (vs. 16% over the last four years)
    • 19%: Loan from a financial institution
    • 9%: Withdrawal from RRSP (this has been trending down over the last decade)
  • 98 weeks: The amount of working time at the average wage needed to amass a 20% down payment on an average-priced home
    • This is down from 105 weeks in 2017, but nearly double the figure from the 1990s.

Homeownership as “Forced Saving”

  • ~43%: Approximate percentage of the first mortgage payment that goes towards principal repayment (based on current rates)
    • Down from ~50% in 2017, but up from 25% 10 years ago
    • Dunning notes that rapid repayment of principal means that “once the mortgage loan is made, risk diminishes rapidly”
    • He added that “net cost” of homeownership, “which should include interest costs, but not the principal repayment,” is low in historic terms when considering incomes and relative to the cost of renting equivalent accommodations. “This goes a long way to explaining the continued strength of housing activity in Canada, despite rapid growth of house prices,” Dunning writes.

A Falling Homeownership Rate

  • 67.8%: The homeownership rate in Canada in 2016 (the latest data available)
    • Down from 69% in 2011

Consumer Sentiment

  • 90%: The percentage of homeowners who are happy with their decision to buy a home
  • 7%: Of those who regret their decision to buy, the regret pertains to the particular property purchased
  • Just 4% regret their decision to buy in general

Outlook for the Mortgage Market

  • Data on housing starts suggests housing completions in 2019 will decrease slightly compared to 2018. “The data on housing starts tells us that housing completions in 2019 will be slightly lower than in 2018, but will still be at a level that results in a significant requirement for new financing,” Dunning writes.
  • “Another factor in the past has been that low interest rates mean that consumers pay less for interest and, therefore, are able to pay off principal more rapidly,” he adds. “Recent rises in interest rates are resulting in a slight reduction in the ability to make additional repayment efforts, and this will tend to fractionally raise the growth rate for outstanding mortgage principals.”
  • 3.5%: The current year-over-year rate of mortgage credit growth (as of September 2018)
    • Vs. an average rate of 7.3% per year over the past 12 years
    • Dunning expects outstanding mortgage credit to rise to $1.60 trillion by the end of 2019, from $1.55 trillion at the end of 2018

Source: Canadian Mortgage Trends – Steve Huebl Mortgage Industry Reports

Survey details: This report was compiled based on online responses compiled in November 2018 from 2,023 Canadians, including homeowners with mortgages, homeowners without mortgages, renters and those living with family.

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A first-time homebuyer’s guide to Canadian government programs and incentives

FTHB_Programs1b

Photos: James Bombales

Whether you want to stop paying skyrocketing rental rates, start building equity, or own property that can be passed down to your children, purchasing a home is likely a long-term goal of yours. However, with rising home costs and the mortgage stress test introduced in 2018, achieving that goal can be a challenge for many Canadians. Fortunately, there are a number of programs and incentives offered by the federal government that first-time homebuyers can apply for.

“First-time homebuyers in Canada have the opportunity to take advantage of some great federal government programs to assist them when purchasing their first home,” says Michael Therriault, Financial Advisor at Scotiabank. “They can apply for multiple programs as long as they are eligible, so it is strongly recommended for potential first-time homebuyers to meet with a financial advisor at their bank to go over their individual circumstances and to help determine the best program(s) for them.”

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1. Home Buyer’s Plan

Early withdrawals from an RRSP are usually considered taxable income, but with the Government Home Buyer’s Plan, you can apply your RRSP savings toward the price of your home — tax free.

“The Home Buyer’s Plan (HBP) is a program that allows you to withdraw up to $25,000 ($50,000 per couple) in a calendar year from your registered retirement savings plans (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability,” says Olga Coulter, Senior Account Manager at the Canada Mortgage and Housing Corporation (CMHC). “To be eligible, you must be a first-time homebuyer (ie. you haven’t purchased a home or lived in a spouse’s home within the last four years) and have a written agreement to buy or build a qualifying home for yourself or for a related person with a disability.”

However, it’s important to note that that these funds must have been in your account for at least 90 days before the purchase of your home and they do have to be paid back within a 15-year timeframe. “Essentially, you are ‘borrowing’ these funds from your RRSP as they need to be repaid over a 15-year period beginning the second calendar year after the withdrawal,” adds Therriault.

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2. First-Time Home Buyers’ Tax Credit

Introduced in 2009, the First-Time Home Buyers’ (FTHB) Tax Credit helps to make purchasing a home more affordable by allowing Canadians to claim a portion of their home purchase on their personal tax return that same year. This helps to offset expenses like legal fees, home inspections and other closing costs.

“The FTHB Tax Credit offers a $5,000 non-refundable income tax credit amount on a qualifying home acquired after January 27, 2009,” says Coulter. “For an eligible individual, the credit will provide up to $750 in federal tax relief.”

To be eligible, you, your spouse or common-law partner must have acquired a qualifying home (a unit located in Canada purchased after January 27, 2009) and cannot have lived in another home you or your partner owned in the year of acquisition or in any of the four preceding years.

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3. GST/HST New Housing Rebate

If you are purchasing a new construction home, performing substantial renovations to an existing home, or rebuilding a home that was destroyed by fire, you will want to apply for the GST/HST New Housing Rebate. Filling in this form can save you thousands of dollars, as it recovers a portion of the goods and services tax (GST) or the federal part of the harmonized sales tax (HST) if all eligibility conditions are met.

“You may qualify for a rebate of part of the GST or HST that you paid on the purchase price or cost of building your new house, or on converting a non-residential property into a house,” explains Coulter. “You may also be eligible if you are doing substantial renovations or have hired someone to complete substantial renovations to an existing home, such as an addition.”

CMHC Mortgage Loan Insurance Programs

In addition to tax-related programs, first-time homebuyers have access to several CMHC Mortgage Loan Insurance Programs that can help them achieve the dream of homeownership. Listed below, these programs offer flexible terms and conditions to meet a variety of financing needs and are available throughout the country.

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4. CMHC Purchase

While it’s ideal to put at least 20 percent down, home prices in cities throughout Canada are rising faster than many homebuyers can save. “CMHC Purchase can help open the doors to homeownership by enabling homebuyers to buy a home with a minimum down payment of 5 percent,” says Coulter. “The premiums can either be paid up front in a lump sum or incorporated into an applicant’s mortgage loan payments.”

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5. CMHC Improvement

With such tight housing markets throughout the country, homebuyers may be interested in purchasing a fixer-upper that needs a little TLC. “CMHC Improvement allows the purchase of an existing residential property with improvements and new construction financing,” explains Coulter. “Features include flexible financing options with the option for CMHC to manage up to four advances at no cost to the borrower.”

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6. CMHC Newcomers

Obtaining a mortgage can be especially difficult for newcomers to Canada. If you’re a permanent resident with a strong credit rating you may be able to qualify for a typical bank mortgage, however, if you don’t meet all the criteria, the CMHC Newcomers program can help.

“We have helped newcomers with permanent resident status become homeowners with a minimum down payment starting at 5 percent – regardless of how long they have been in Canada,” says Coulter. “Non-permanent residents can also purchase a home with a minimum down payment of 10 percent of the value of the home.”

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7. CMHC Self-Employed

Homebuyers who are self-employed may have difficulty qualifying for a mortgage given that their monthly income may be less predictable. CMHC’s Self-Employed program allows business owners with proper documentation to access mortgage loan insurance under the same criteria and insurance premiums as those with more calculable income.

“Self-employed Canadians make up about 15 percent of Canada’s labour force,” says Coulter. “CMHC facilitates access to mortgage loan insurance for business owners by providing enhanced flexibility for satisfying income and employment requirements for all self-employed borrowers at no additional cost.”

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8. CMHC Green Home

“CMHC Green Home encourages homebuyers to choose more energy-efficient housing options to increase comfort and healthier living, while reducing greenhouse gas emissions,” says Coulter. “The program offers a partial premium refund of up to 25 percent directly to borrowers who either buy, build or renovate a home to make it more energy-efficient using CMHC insured financing.”

The amount of the refund varies depending on the level of energy-efficiency achieved by your home as assessed by Natural Resource Canada (NRCan). Condo buyers are also eligible for the CMHC Green Home refund if the building is built to the LEED Canada New Construction standard.

Source: Livabl.com –  

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