Toronto Condo and Real Estate Blog

Canadian Press: David Paddon

TORONTO (CP) - House shoppers on a tight budget may be faced with the realization that the only properties that they can afford are, to put it gently, something only the Munsters could love - dirty, broken and dismally out-of-date.

With a little bit of sprucing up, however, that fixer upper can become not only a comfortable place to live but a more valuable asset.

One option to consider is the “purchase plus improvement” type of mortgage, which allows the qualified purchaser to borrow additional money from the mortgage lender to pay for those renovations.

With this type of mortgage, a lender is willing to take into account the improvements made by the new owner and give credit based on the increased value of the property, up to 10% of the purchase price.

For example, a house that costs $200,000 to buy would be eligible for a mortgage based on a property valued at up to $220,000 - provided the borrower meets the right criteria.

Rob Regan-Pollock, an independent Invis mortgage broker in Vancouver, says this is an option that may appeal for buyers shopping for a first home - especially in a hot real estate market where modestly priced houses get snapped up quickly.

A purchase plus improvement mortgage can give such a buyer more ammunition in a competitive real estate market, so they don’t have to settle for something that’s not right for them, he says.

“If they like the location and the property has good bones, they can take the 10% additional value that the purchase-plus-improvement plans allows, so that they can put in cosmetic renovations,” Regan-Pollock says.

By cosmetic, Regan-Pollock means paint, new carpeting, perhaps new bathroom fixtures or kitchen cabinetry rather than a major job that entails structural changes.

“Basically spruce it up so they feel like they’re getting a customized living arrangement, without having to find a new home per se.”

Mortgage planners or mortgage brokers can help consumers’ comfort level and explore the different financing options available to them.

There are five factors that lenders look at when determining how much a consumer can borrow for their mortgage: the income of applicants, their credit history, the amount of down payment available, their net worth and the type of home they’re buying.

The fifth point provides the lender with security if, for some reason, the borrower defaults and the property must be sold to cover the debt.

“So, if push comes to shove and they have to foreclose, how marketable is that property?” Regan-Pollock says.

With the purchase plus improvement type of mortgage, the lender recognizes that the marketability or resale value of the house can be increased by making a few well-chosen renovations.

In other words, prove to the lender’s satisfaction with documentation and an inspection that you’ve spent $20,000 to renovate that $200,000 house and the size of the mortgage can be increased proportionately.

“That’s the nice thing. They’re willing to do dollar-for-dollar on the improvement that you’re planning to put into the property,” Regan-Pollock says.

But there are a few catches.

For instance, no matter how you slice it, the buyer is taking on a heavier debt load and that can have repercussions for the fees they must pay and the amount that lenders will provide towards the purchase.

Buyers who can’t afford a down payment equal to at least 25% of the purchase price must pay for mortgage insurance, available through Canada Mortgage and Housing Corp., which is a federal Crown corporation, and Genworth Financial Canada, a private-sector alternative.

These insurers protect the lenders, such as banks and trust companies, from the impact of borrowers that default on the mortgage payments. In turn, the insurers charge consumers an upfront fee or premium when they close their purchase.

However, a smaller downpayment could also bump up the amount the buyer must spend on the mortgage insurance premium.

Regan-Pollock suggests that buyers get a pre-approved mortgage before putting an offer on a house, so they know how much they can afford.

Another hurdle that buyers should note when it comes to a purchase plus improvement mortgage is that the mortgage lenders don’t provide the fix-up money up front.

“They’ll basically refund it to the client after the renos are done.”

For buyers with limited financial resources of their own, that can also be a challenge, Regan-Pollock admits.

Sometimes that means getting a helping hand from family, who can pay some of the upfront costs.

In other cases, home improvement retailers or contractors might be willing to extend credit and provide time for the home owners to pay for the materials or work supplied by them.

“Those actually fit quite nicely within the program,” Regan-Pollock said.

As long as the contractors or the retailers do the work quickly and efficiently “we can then get the inspector in at the end to verify the work was done, as outlined, and the bank will then release the money to the consumer who can then pay off Home Depot, or Rona or the contractor or their parents.”

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Final few suites remain at Daniels’ successful community that makes home ownership easy and affordable!

From the Condo Guide Magazine

Time is growing short for those seeking affordable home ownership in a premier locale. WAVE Lakeshore West, a Daniels FirstHome community, has attracted a tidal wave of interest since The Daniels Corporation launched sales this past October. Incredible pricing, Daniels’ renowned quality, a fabulous south Etobicoke location and unprecedented programs to assist with the down payment and enhance affordability have proven to be a tremendous success – and WAVE is now about 80% sold!

With incredible prices on two-bedroom suites starting from $195,900, and three-bedroom townhomes from $314,900, WAVE is truly a home ownership opportunity that is second to none.

WAVE Lakeshore West is nearing completion at Lakeshore Boulevard and 12th Street, just west of Islington and adjacent to Garnett Janes Park. Owners will live close to absolutely everything in this up-and-coming neighbourhood, including numerous schools, plus shopping on Lakeshore and at fabulous Sherway Gardens. It’s a quick walk to the TTC, neighbourhood shops and restaurants along Lakeshore Boulevard, as well as the parks, walking paths and marinas along Lake Ontario. The QEW and GO Transit are also close by, and downtown Toronto is only a 15-minute drive away.

Daniels is making home ownership even easier with their innovative down payment assistance program. Recognizing that the down payment is one of the biggest hurdles in purchasing a new home, Daniels did some creative thinking and came up with a great solution. Qualified buyers will be eligible for Daniels’ Triple 5 Downpayment Assistance Program. This innovative new program allows qualified purchasers to put down five per cent of their new-home purchase price and Daniels will match it with an additional five per cent loan, (payment free for five years and payable at the end of that period with five per cent interest). To assist homebuyers further, the Federal and Provincial governments are providing an additional five per cent loan towards the downpayment, payment free for 20 years with the principal forgiven at that time at no interest. Qualified purchasers can also take advantage of CMHC’s 35-year mortgage amortization, resulting in a further saving of approximately $100 per month in after-tax dollars.

In addition to all of this, for a limited time, purchasers can buy a new condo at WAVE with only $500 down! By choosing to take this option of incredible affordability, buyers pay $500 at the time of purchase and then continue to pay $500 each month until final closing. By doing this, Daniels is eliminating the interim occupancy step of purchasing a new home – the value that is accumulated from your $500 payments each month then goes towards your down payment.

A good selection of choice suites with five appliances and designer-inspired features and finishes is still available – but you’ll have to hurry. With closings available early in 2007, and a limited-time offer of one year free maintenance, WAVE is sure to sell out quickly!

The Condo Guide Magazine is an excellent source of housing information for those looking for information on new condos in Ontario, Canada. We offer the most up-to-date information on new condominiums across the greater Toronto area.

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TORONTO, March 15, 2007 — Canada’s overall housing affordability improved in the fourth quarter of 2006, according to the latest Housing Affordability report released today by RBC Economics.

“The improvement was driven by faster income growth, slowing real estate price increases, a small decline in mortgage rates and lower utility bills,” said Derek Holt, assistant chief economist, RBC. “Overall, there is the potential for better housing affordability conditions in 2007, especially in Western Canada, as the market moves into more balanced territory.”

RBC notes that while there were significant variations in the pace of the current real estate market slowdown across the country, the common trends in the fourth quarter were a weaker pace in resale activity, an increase of homes on the market, and more moderate price growth.

The RBC Affordability report captures the proportion of pre-tax household income needed to service the costs of owning a home. The most affordable housing class remains the standard condo, requiring 27.5% of income. A standard townhouse is next at 31.7%, followed by a detached bungalow at 39.4%. A standard two-storey home, while improving, remains the least affordable housing type at 44.9%.

According to the RBC report, the western provinces continue to show signs of price growth topping out, with British Columbia, Alberta and Saskatchewan having likely reached the peak of price appreciation. These provinces, along with Manitoba, reported some affordability improvements. In fact, Alberta’s housing affordability deteriorated for the fifth consecutive quarter, but appears to have slowed significantly. In Central and Eastern Canada, housing affordability improved across-the-board as housing markets continued to soften alongside weaker economic growth.

RBC’s Affordability measure for detached bungalows in Canada’s largest cities is as follows: Vancouver 68.5%, Toronto 42.6%, Calgary 40.9%, Montreal 35.3% and Ottawa 30%.

Also included in the report are housing affordability conditions for a broader sampling of smaller cities across the country. For these smaller cities, RBC has used a narrower measure of housing affordability that only takes mortgage payments relative to incomes into account.

The Housing Affordability measure, which RBC has compiled since 1985, is based on the costs of owning a detached bungalow, a reasonable property benchmark for the housing market. Alternative housing types are also presented including a standard two-storey home, a standard townhouse and a standard condo. The higher the reading, the more costly it is to afford a home. For example, an Affordability reading of 50% means that homeownership costs, including mortgage payments, utilities and property taxes, take up 50% of a typical household’s monthly pre-tax income.

Highlights from across Canada:

* British Columbia: The final quarter of 2006 provided some relief for B.C. homeowners with affordability improving for the two-storey and detached bungalow segments. However, condos and townhomes continued a fifth straight quarter of deterioration. Overall, B.C.’s housing affordability should continue to improve over the next year.

* Alberta: Since the start of 2005, housing affordability across Alberta has been eroding at an aggressive pace. While the most recent quarter reported another across-the-board deterioration, the pace of erosion appears to have topped out and has slowed significantly.

* Saskatchewan: For a fifth consecutive quarter, affordability eroded in three out of four home classes - detached bungalow, townhouse and condo. Saskatchewan’s annual house price gains, which are in the 10 per cent range, outweighed any mortgage rate relief or household income growth that would have helped offset costs.

* Manitoba: After declining affordability in the first half of 2006, Manitoba saw a marked improvement for the second half of the year. The strongest improvement came from the condo sector, reversing much of the deterioration that occurred in the early part of 2006.

* Ontario: As Ontario’s housing market continued to cool, affordability improved across all classes. Softer price growth, a decline in mortgage rates and lower utility bills combined to bring monthly payments down by one to two per cent for all four housing segments.

* Quebec: Led by improvement in two-storey homes, housing affordability recovered significantly for the first time in over a year as the long-anticipated soft landing continues to unfold. Supply and demand fundamentals in Quebec’s housing market are cooling off in tandem and the effects are overflowing to improve affordability conditions for prospective homeowners.

* Atlantic region: Strong household income growth, lower monthly utility bills and a modest drop in mortgage rates contributed to improve conditions across Atlantic Canada.

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Contact the Jeffrey Team for more information