Tag Archives: young buyers

The Benefits and Risks of Co-Signing for a Mortgage

 

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

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

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

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

A co-signer can make all the difference

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

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

Under the microscope

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

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

What makes a strong co-signer?

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

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

Co-signer options

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

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

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

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

Tips from a real estate lawyer

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

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

Following are five key suggestions from Mohan:

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

Source – Canadian Mortgage Trends – ROSS TAYLOR 

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Everything you need to know about CMHC’s First-Time Home Buyer Incentive

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The federal government wants to make home ownership more affordable for young people and to do that it’s introducing the First-Time Home Buyer Incentive (FTHBI) this September. The $1.25 billion program, announced as part of the March federal budget, involves the government buying equity stakes in homes purchased by qualified home buyers, allowing for smaller mortgages that will keep monthly payments lower.

But how will the plan work? Below, we break down all the key details and take a look at who this new program is right for.

How the FTHBI works

The program will be administered by Canada’s housing agency, Canada Mortgage and Housing Corp. (CMHC), which will pay 5% of the purchase price for an existing home, and up to 10% for the value of a new home, in exchange for an equity stake. Once the homeowner sells, they’re obligated to repay the CMHC.

The fine print includes the following:

  • To qualify, you must be a first-time home buyer.
  • Buyers must have a down payment of at least 5% of the total purchase price, up to 20%.
  • The household’s income must be under $120,000, and the mortgage and incentive amount together can’t be more than four times the household income.
  • Only insured mortgages will be eligible, meaning this will be restricted to those with a down payment worth less than 20% of the purchase price.
  • Buyers will not be exempt from federal “stress test” regulations (a mandatory mortgage qualification using the five-year benchmark rate published by the Bank of Canada or the customer’s mortgage interest rate plus 2%)

Who is this for?

The program is for purchasers looking for a starter home but aren’t able to afford the monthly payments needed for a mortgage below $500,000. To qualify for mortgages in the $400,000 – $500,000 range, the household income would have to be close to six figures. Buyers would have to be willing to give up at least 5% of the value of their home to the federal government in exchange for lower monthly payments.

As an example, a couple earning up to the household income cap of $120,000 with a down payment of 5% on a new home would be entitled to an additional $48,000 provided by CMHC, as below:

Couple earning $120,000
$480,000 total purchase
-$24,000 down payment
-$48,000 matched by CMHC (10% for a new home)
= $408,000 mortgage

As both the household income and total purchase price are capped under the program, it’s worth noting that buyers with good credit and low debt might actually be able to borrow more money than the FTHBI would allow.

In this scenario, “the program forces you to buy less home than you otherwise would be able to. Whether consumers are disciplined enough to take part of that or not is the real question,” says Paul Taylor, president and CEO of Mortgage Professionals of Canada.

Buyers in the program will also want to consider the future value of their home over time. Is the neighborhood likely to increase in value? With a 5-10% equity stake in the home, CMHC will be along for the ride, both in the case of depreciation or appreciated value of the home.

“Vancouver North Shore is a great example. Now, it’s very much an outlier but if you bought the home in 1986 for $250,000 it’s probably worth $4 million now,” says Taylor.

Comparing markets

The most expensive home you can buy would be about $565,000 a government official told the CBC, which all but disqualifies purchases of detached homes or upscale condos in downtown Vancouver and Toronto. For example, the average home price in the Greater Toronto Area as of May 2019 was $838,540, according to the Toronto Real Estate Board.

CMHC acknowledged earlier this year that the average home in these markets won’t be within reach.

“It may not be a condo in Yaletown or a house in Riverdale, but there are options in both metropolitan areas to accommodate this program,” CMHC said in a press release in April. “In fact, around 23% of transactions in Toronto are for homes under $500,000 and 10% in Vancouver.”

This means that potential buyers will want to be comfortable living in the outer suburbs like Langley or Surrey in Vancouver, or Brampton and Mississauga in Toronto.

Recent residential listings for $472,000 (the average price for a home in Canada) 
*Compiled using listings found on Realtor.ca during the week of May 26th

Downtown Toronto Less than 30 listings
Downtown Vancouver Less than 100 listings
Calgary More than 600 listings
Winnipeg More than 2,000 listings

The program would seem to favour first-time buyers in smaller cities across Canada, at least when comparing options for buyers that tend to want to live in large cities downtown.

What you get for $490,000-$505,000

While this program can get you property up to $565,000 if you put the maximum down payment allowed for an insured mortgage (about 19.99%), we expect many who use this program will have the minimum 5% down payment and are looking to get into the property market sooner with help from the CMHC.

Based on that idea, we’ve compiled a look at some properties you can get in four major housing markets in Canada in the $490,000 to $505,000 price range. Take a look.

In Toronto: No houses listed but one-bedroom condos are available, typically 600-1,000 sq feet. Condos have more rooms and additional bathrooms as you get away from the city core. There is almost no supply below $300,000.

Here’s an example of what you might be able to get in the downtown core (one bedroom) in that price range.

 

 

In Vancouver: No houses listed but one-bedroom condos are available, typically 600-1,000 sq feet. More rooms and additional bathrooms as you get away from the city core.

Here’s an example of what you might be able to get (one bedroom).

In Calgary: You can find listings for two-bedroom bungalow houses downtown, along with two-bedroom condos over 900 square feet.

Here’s an example.

In Winnipeg: Limited supply at this price range. Detached houses are available however, with two-plus stories and multiple rooms. Large condos over 1,000 sq feet are available closer to a $300,00 price point.

Here’s an example.

Listing photos courtesy of Realtor.ca.

Source – LowestRates.ca –  Mike Winters on June 17, 2019

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It’s going to be hard to own a home in Toronto if you are not part of the 10%: report

In Toronto, you need more than $160,000 to buy a house; meanwhile, in Regina, the most affordable city, you only need $70,000

The Canadian dream of home ownership is slipping away: Tim Hudak5:17

Canadians looking for a home in major cities will likely have to look elsewhere, unless they count themselves among the country’s richest.

New analysis from RateSupermarket.ca shows that only those in the top income bracket can afford to buy homes in many of Canada’s major cities like Toronto, Vancouver and Montreal.

It cites a recent study from Zoocasa, a Canadian real estate website, which places the benchmark prices for Toronto at $873,100 and Vancouver at $1,441,000. Only the top 10 per cent can afford to live in Toronto and only the top 1 per cent can live in Vancouver.

Jacob Black, managing editor of RateSupermarket.ca, had this advice for potential homeowners: “Step one is to have a realistic idea of what you can spend. Step two is look outside the box that you might have looked in before,” said Black. “We’ve seen a trend develop in terms of cohabitation, multi-family homes, looking at options like condos, smaller apartments outside of the major city area.”

The RateSupermarket analysis compares these benchmark prices against the household income needed in order to afford a home in 12 Canadian citiesincluding Victoria, Hamilton, Kitchener-Waterloo, Calgary, Ottawa-Gatineau, London, Edmonton, Saskatoon and Regina.

RateSupermarket’s criteria for determining household income was to assume a 3.25 per cent five-year fixed mortgage rate, $10,000 in debt, a monthly lease vehicle payment of $300, a down payment of 20 per cent, and amortization of 25 years.

Using these figures, one’s household income in Vancouver would need to be above $240,000 in order to afford a home. In Toronto, a household would need more than $160,000.

A surprising result for Black was the difference between Toronto and Hamilton — a city that’s 70 kilometres away, which requires a more ‘reasonable’ $120,000 household income for a $630,000 home.

“I think that really highlights that there are opportunities in thriving vibrant areas,” said Black. “It’s just not necessarily in the same traditional areas you’ve been looking in or that you’d be expecting.”

This seemingly insurmountable unaffordability applies to starter homes as well. With these homes in Vancouver, only income earners in the top 25 per cent can afford them. The benchmark unit price is $656,900. Toronto is not far behind at $522,300.

Above all else, Black stresses a wise use of resources when it comes to the property market.

“I don’t see (the market) reversing. I don’t see a correction, but I think it’s important people do what they can with the resources they’ve got,” said Black.

Regina emerged as the most affordable city in the study, with a benchmark price of a home of $275,900 and a minimum household income of $70,000.

Here’s the full list:

  • Vancouver: House price: $1,441,000. Household income needed: $240,000
  • Toronto: House price: $873,100. Household income needed: $160,000
  • Victoria: House price: $741,000. Household income needed: $140,000
  • Hamilton: House price: $630,000. Household income needed: $120,000
  • Kitchener-Waterloo: House price: $523,720. Household income needed: $110,000
  • Calgary: House price: $467,600. Household income needed: $100,000.
  • Ottawa-Gatineau: House price: $444,500. Household income needed: $90,000
  • London: House price: $426,236. Household income needed: $90,000
  • Montreal: House price: $375,000. Household income needed: $80,000
  • Edmonton: House price: $372,100. Household income needed: $80,000
  • Saskatoon: House price: $301,900. Household income needed: $70,000
  • Regina: House price: $275,900. Household income needed: $70,000
Source: Financial Post Staff Nicholas Sokic May 30, 2019

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A first-time buyer’s guide to choosing a mortgage plan that’s right for you

I used to think I had a pretty good understanding of mortgages — you contribute a downpayment (a minimum of five percent of the property value if you’re in Canada) and someone (usually a bank) lends you the rest. If you fail to pay your mortgage back, your lender can take your house away. Ouch.

When I started looking into buying a cottage, I realized my mortgage knowledge fell seriously short (by the way, the cottage is the inspiration behind our brand new newsletter called The Ladder, about the climb on and up the property ladder). Early on, I jumped on an online calculator and immediately had a lot of questions. How can these interest rates vary so wildly? What is a fixed versus variable mortgage? What does amortization mean? If I put down less than 20 percent will terrible things happen to me and everyone I love? They don’t teach this stuff in school and I learned there is no one-size-fits-all mortgage plan that will work for everyone.

Photo: Romain Toornier 

Enter Matt Yakabuski, an Ontario-based mortgage broker — here to break it all down and help you, me, all of us— understand the variables to help pick the best mortgage plan. If you’re Oprah, or just won the lottery — feel free to stop reading. Everyone else, buckle in!

And if you’re curious, I’ll be sharing more about my cottage mortgage in the next newsletter, landing in your inbox on Wednesday, April 3rd — sign up here!

Um, where do I get a mortgage?

Mortgages usually come from either a bank or a broker.

Think of your mortgage broker as your personal mortgage shopper — they are provincially licensed professionals who have access to multiple lenders, including all of the major banks. They will listen to your needs and goals, analyze the numbers, help you through the qualifying process and find a mortgage product that fits just so.

“Online, you’ll get an idea of what the rates are generally, but they vary based on the downpayment amount, the location, your credit, your income and more. No two deals are alike, no two clients are alike, no two properties are alike,” says Yakabuski.

Banks are trusted, federally regulated lenders that can only access and offer you their own rates and products. You can also get a mortgage from a credit union (an increasingly popular option ever since the mortgage stress test was introduced) or a non-traditional Mortgage Investment Corporation. MICs are typically used by Canadians who have not qualified with traditional lenders and are willing to gobble higher interest rates to get into the property game.

Photo: CreditRepairExpert

How do I qualify for a mortgage?

To qualify for a mortgage, you have to prove to your lender that you can afford it and have a steady stream of income to keep up with payments. They will take a look at your income before taxes, living expenses, your credit score and all of the debts you carry. They will also look at your downpayment amount and the terms of your mortgage.

“Your debt servicing ratio is the main measure we use to qualify people for their mortgage,” says Yakabuski. “Depending on your credit score, you’re allowed to put a maximum of 44 percent of your total income towards debt servicing. This covers your mortgage, your property tax, credit card bills, car loans and any lines of credit.” If your debt eats up more than 44 percent of your income, you won’t be approved by traditional lenders.

Will I pass the mortgage stress test?

As of January 1st, 2018, you also have to pass the mortgage stress test — a calculation used by federally regulated lenders to determine if homebuyers can keep up with their mortgage payments if interest rates were to rise. If you can demonstrate that you can withstand your mortgage at the Bank of Canada’s benchmark qualifying rate (at 5.34 percent at the time of writing) or your interest rate plus two points — whichever amount is greater — you pass.

The mortgage stress test has reduced purchasing power by just under 20 percent. But as Yakabuski puts it, “If interest rates do go up, you know you can afford it.”

Photo: adventures_of_pippa_and_clark/Instagram

Should I take the biggest loan I can get?

Your lender will tell you the maximum loan you can qualify for (and they can help you find ways to increase that amount). But the maximum isn’t necessarily the loan you should take.

“Instead of my clients asking me what they can afford, I ask them what they’re comfortable spending on a monthly basis on their mortgage, property tax, heat, hydro, that kind of thing. And then we’ll work backwards,” explains Yakabuski.

Everyone has different comfort levels. “Some people are conservative and some people just want to hit their maximum,” he says. In the end, it all comes down to budgeting and making sure you don’t completely wipe out your bank account and end up house poor. If you have to beg your in-laws to cover the closing costs, can’t afford to hire movers or even get the nice coffee beans you like — you may want to consider getting less house than you can actually qualify for, but more financial freedom.

Photo: mandimakes/Instagram

Finding the “best rate” is not as easy as it looks

You may have seen a low rate on a website or on the window at the bank, but not every rate is for you and you have to read the fine print. There are rates for refinancing, rates for rental properties, rates if you’re putting more than 20 percent down (uninsured) and rates if you’re putting less (insured), and on and on.

“Your friend who got a 2.49 percent interest rate six months ago, sorry to say — that’s just not available today — and even if it was, it doesn’t mean you could have gotten it. If you find a rate that seems like a much better deal than everywhere else, there’s probably a reason for that,” explains Yakabuski.

For example, restricted mortgages, which often have lower rates but inflict painful penalties if you break them and prohibit you from refinancing elsewhere before your term is up. “If I sell you a restricted mortgage and then in two years, you have to sell the property, I don’t want to say, ‘Sorry, your penalty is going to be triple the amount of a regular penalty because it was a restricted deal.’ Anyone who is looking out for your best interest is going to take into consideration the portability of the mortgage.”

Photo: James Bombales

How long should my term and amortization be?

The term you choose will have a direct impact on your mortgage rate and how long you’re locked in to the rate, lender, and various terms and conditions of your mortgage product.

“A shorter term length has historically proven to have a lower interest rate. Right now, not so much,” explains Yakabuski. Terms can range from six months to 10 years. “Most people choose a five-year because it’s often the longest term for the best rate.”

Your mortgage amortization period is the length of time it will take you to pay off your entire loan. In Canada, the maximum amortization period is 35 years — but you’ll only have access to this timeframe if you’re putting down more than 20 percent. If you’re putting down less than 20 percent and have an insured mortgage, the maximum amortization period is 25 years.

If you go with a longer amortization period, you will have smaller monthly payments, but keep in mind: you’ll pay more in the long run in interest over the life of your mortgage.

Depending on your mortgage commitment, lenders will only allow you to pay so much extra towards a mortgage before they start penalizing you. How’s it’s calculated depends on the product you’re in and what lender you’re with, but in many cases you will have the opportunity to make lump-sum payments towards your mortgage, to double up payments or to increase the payment amount.

“I suggest taking the highest amortization possible, but if you have the affordability to pay more, make sure you do,” says Yakabuski. “Even with a longer amortization, you effectively could pay at the rate of a 15- or 20-year amortization, saving you thousands of dollars in interest by paying the principal off that much quicker. But should your financial situation change, you could scale back your payments all the way to the 25-year if you have to.”

Photo: James Bombales

Should I get a fixed or variable mortgage?

Fixed mortgages mean the rate you settle on will be your rate for the entire term of your mortgage. A variable rate is going to fluctuate based on what the prime rate is doing (at the time of writing, it’s currently sitting at 3.95 percent). If the prime rate goes down, your rate and payment will go down and vice versa. With a variable rate, there is often an opportunity to save money, but you have to be comfortable with some risk.

Choosing the right strategy often comes down to flexibility. Many Canadians default to a five-year fixed rate mortgage, but if there’s a possibility you may be moving on before then, the penalty for breaking the term can get costly, whereas a variable mortgage will cost you three months of interest.

“Variable is a good option because they traditionally have a lower interest rate and you have flexibility should you need to get rid of it quicker with the smallest penalty possible,” says Yakabuski.

Should I go for an open or closed mortgage?

Let’s say you come into a large inheritance and want to pay off your mortgage in full or you unexpectedly have to ditch your property before the term is up.

With a closed mortgage, you cannot repay, renew or renegotiate before the term is up without incurring penalties. With an open mortgage, you can do all of the above without penalty — but the interest rates are often much higher.

“I rarely recommend an open mortgage, even when people say they’re going to flip the property,” says Yakabuski. “The reason is because an open mortgage right now has an interest rate of about six percent (all open terms are variable). Whereas the interest on a closed, variable mortgage is, let’s say, three percent less. If you’re going to sell the place inside two, maybe three months, then open makes sense. But if you’re going to keep it for four months plus, generally the three-month interest penalty on breaking a closed, variable mortgage can save you thousands in just six months.”

Photo: alyssacloud_/Instagram

Now for the fun part — finding a home

Before you even start looking at properties, it’s important to get your finances in order so you can crunch the numbers when you do find places you like. You’ve saved for a downpayment, qualified for a loan and have chosen a mortgage plan that is right for you. You’re officially a mortgage badass and it’s time to start house hunting. You’ve got this.

Source: Livabl.com –  

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Homebuyers to get new mortgage incentive, Home Buyer’s Plan boost under 2019 budget

Homebuyers to get new mortgage incentive, Home Buyer’s Plan boost under 2019 budget

 

 

 

WATCH: Federal budget 2019: Incentives for first-time home buyers, skills training

– A A +

Can’t afford to buy a house? The government may take on part of the cost.

That is the gist of the boldest proposal that Budget 2019 puts forth to help more middle-income Canadians fulfill their homeownership dream.

Under the new CMHC First-Time Home Buyer Incentive, the Canada Mortgage and Housing Corporation would use up to $1.25 billion over three years to help lower mortgage costs for eligible Canadians.

 

The money would go to first-time home buyers applying for insured mortgages. Borrowers would still have to pony up a down payment of at least five per cent of the home purchase price. On top of that, though, they would receive an incentive of up to 10 per cent of the house price, which would lower the amount of their mortgage.

For example, say you’re hoping to buy a $400,000 home with the minimum required five per cent down payment, which works out to $20,000. With the new incentive, you could receive up to $40,000 through the CMHC. Now, instead of taking out a $380,000 mortgage, you’d need to borrow only $340,000. This would lower your monthly mortgage bill from over $1,970 to less than $1,750.

The incentive would be 10 per cent for buyers purchasing a newly built home and 5 per cent for existing homes. Only households with an annual income under $120,000 would be able to participate in the program.

Watch: Finance Minister Bill Morneau presented the 2019 federal budget in the House of Commons Tuesday.


Home owners would eventually have to repay the incentive, possibly at re-sale, though it’s unclear yet how that would work.

Also, mortgage applicants still have to qualify under the federal stress test, which ensures that borrowers will be able to keep up with their debt repayments even at higher interest rates.

However, the incentive would essentially lower the bar for test takers, as applicants would have to qualify for a lower mortgage.

On the other hand, the amount of the insured mortgage plus the CMHC incentive would be capped at four times the home buyers’ annual incomes, or up to $480,000.

This means the most expensive homes Canadians would be able to buy this way would be worth around $500,000 ($480,000 max in insured mortgage and incentive, plus the down payment amount).

The government is hoping to have the program up and running by September.

Home Buyer’s Plan gets a boost

As was widely anticipated, the government would also enhance the Home Buyer’s Plan (HBP), which currently allows first-time buyers to take out up to $25,000 from their registered retirement savings plan (RRSP) to finance the purchase of a home, without having to pay tax on the withdrawal. The budget proposes raising that cap to $35,000.

The new limit would apply to HBP withdrawals made after March 19, 2019.

New measures would encourage more borrowing, possibly drive up home prices

Economists said the new CMHC incentive and the enhanced HBP would encourage Canadians to take on more debt, stimulate housing demand, and possibly push up housing prices.

“It’s a different kind of borrowing,” David Macdonald, senior economist at the Canadian Centre for Policy Alternatives, said of the CMHC incentive.

And with a home-price limit of around $500,000, the program is unlikely to help middle-class millennials buy homes in Vancouver and Toronto, where average property values are far higher, said TD economist Brain De Pratto.

 

Those taking advantage of the higher HBP limit, on the other hand, would have to keep in mind that the government is not extending the program’s repayment timeline, said Doug Carroll, a tax and financial planning expert at Meridian.

Home buyers must put the money back into their RRSP over 15 years to avoid their HBP withdrawal being added to their taxable income. Now Canadians will have to repay a maximum of $35,000 – instead of $25,000 – over the same period, Carroll noted.

In general, the economists and financial experts Global News spoke to saw the budget as being focused on demand-side housing measures, rather than policies that would encourage the construction of new homes.

And while the budget does earmark $10 billion over nine years for new rental homes, it does not propose major tax breaks for homebuilders.

Tax incentives proved to be an effective way to stimulate residential construction in the past, said Don Carson, tax partner at MNP.

“They really drove supply,” he said.

Source: Global News –

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How Much You Need to Earn to Buy a Home in America Today

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

National Averages

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

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

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

Least Affordable Markets

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

San Jose, California

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

San Francisco, California

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

San Diego, California

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

Los Angeles, California

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

Boston, Massachusetts

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

Most Affordable Markets

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

Pittsburgh, Pennsylvania

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

Cleveland, Ohio

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

Oklahoma City, Oklahoma

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

Memphis, Tenessee

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

Indianapolis, Indianapolis

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

Millennials Getting Burned

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

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

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

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

 

Source: News Republic – March 11, 2019 

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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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