Tag Archives: family member
Have you started your kids’ condo fund?
The housing market is red hot and new condos are constantly changing Toronto’s skyline. New research shows parents are helping finance purchases for kids, partly as an investment
Garry Marr, Financial Post
Here’s one way to tackle the red-hot Canadian housing market: Get someone to buy you a home.
That someone would be your parents. According to a new survey from TD Canada Trust, 10% of Canadians are considering buying a condominium for their adult children. A year ago, only 5% of parents thought about buying the kids a condo.
“It could be something that the parents are looking at as a long-term source of income, letting their children live it in for now,” says Chris Wisniewski, associate vice-president of real estate and secured lending with TD.
It could also be that parents know condominium prices, like detached homes, have climbed to unprecedented levels, making it difficult for adult children to come up with a minimum 5% down payment, let alone the 20% needed to avoid costly mortgage default insurance.
Toronto condo research firm Urbanation Inc. says the average existing condominium in the city sold for $331,000 in the first quarter of 2010. Based on an average $369-per-square-foot price, that’s a 900-square-foot unit. For a new one, prices averaged $443 per square foot in the first quarter, so about $400,000 for that same-sized condo.
Ms. Wisniewski says low interest rates are convincing parents to step up and buy their children homes. The condominium represents an attractive alternative to those parents because the costs are stable.
“They know what the maintenance costs will be,” she says. “[Parents] are thinking, ‘I’m not worried my children are too young to accept the responsibilities of home ownership if I set them up in an apartment. They don’t have to recognize the responsibilities of maintenance in an apartment.’ “
Parents might also see a condominium as a way to get their kids to start a family. The survey found 36% of Canadians are willing to raise families in a condo.
“One of the reasons for that is affordability,” says Ms. Wisniewski. “Where are the new condominiums being built? They are being integrated in really nice existing neighbourhoods with all the infrastructure and all the schools and amenities.”
Brian Johnston, president of developer Monarch Corp.’s Canadian division, says he doubts families will ever be integrated into the condominium stock, but does agrees with the premise that parents are helping to buy housing for their children. He says parents often want to keep children close to them so they’ll chip in for a condominium in a nearby neighbourhood.
“How do we know they’re helping out? They tell us when they are writing the cheques for the deposit,” Mr. Johnston says.
Mr. Johnston said when it comes to recent immigrants to Canada, there is “lots of help” from family members to get that first home. “Condominiums are not inexpensive and they’re going to need that help, particularly if the younger ones have not had time to build up their finances.”
The builder has his own children and, based on today’s prices, he figures he’s going to have to lend a helping hand. “I don’t expect them to be able to buy a condo…before they are 30. That is just part of the deal [for parents],” says Mr. Johnston.
It’s not like Baby Boomers don’t have the cash. There have been endless studies that suggest the Boomers are set to inherit billions of dollars in the coming years from their parents.
Craig Alexander, deputy chief economist with TD Bank Financial Group, says there is no hard data to suggest how much parents are helping children, but they certainly have the financial capacity to lend a hand.
Canadians have $1.5-trillion invested in stocks and mutual funds with $500-billion of that figure in capital gains.
“The generation before the Baby Boomers were big savers and, as a consequence, there is a very large income transfer going to take place over time,” says Mr. Alexander, adding it makes sense that some of that money is going to end up in housing and real estate.
For first-time buyers facing rising rates and increasing prices, the helping hand couldn’t come at a better time – just ahead of tighter mortgage financing rules. Most of them probably hope their folks go from “considering” buying a condo to actually doing it.
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Contact the Jeffrey Team for more information - 416-388-1960
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Don’t let rising rates rush you into a bad decision
Chaya Cooperberg – Globe and Mail
When RBC announced a 25-basis point hike on fixed rate mortgages, the news triggered a flurry of calls to mortgage brokers around the country. Homebuyers are worried they’re running out of time to lock in to an affordable interest rate in a heated housing market.
“I say, don’t panic,” said Jeff Mayer, a mortgage broker with Mortgage Intelligence in Toronto. “People tend to have this theory that they won’t be able to buy, but there are a lot of options.”
The fear of rising rates is keeping Mr. Mayer’s office busy these days. “We were doing 40 deals a month about two months ago. Now we’re doing 75,” he says.
But the frenzy to buy can lead some to risk rushing the process and missing or misunderstanding important steps. First-time homebuyers are especially vulnerable.
“A lot of first-time buyers can’t wait to get out there and house hunt, but they need to understand that this is not a decision to enter into lightly,” says Mr. Mayer. “With things changing rapidly in the marketplace, it does get confusing and you have to make sure you’re prepared.”
He prepares first-time buyers by explaining all the steps in the process and pointing out the pitfalls.
Here are some of Mr. Mayer’s tips:
- Get your down payment and deposit ready. A down payment must come from your own resources, and in most cases must have been held in your account for at least 90 days. If you’re using a gift from your parents or other family member for a down payment, you’ll need a letter stating that it is actually a gift and does not need to be re-paid. These funds will likely need to be deposited in your account two weeks before your purchase closing date.
- First-time buyers shouldn’t forget that they have the ability to finance their homes through The Home Buyers‘ Plan. It allows you to withdraw up to $25,000 ($50,000 per couple) from your RRSP to buy or build a home.
- Figure out what you can afford. The best way to do this is get pre-approved for a mortgage. Not only will it help you figure out your monthly payments and home buying costs, the financial institution may also offer to lock-in the interest rate for up to 120 days.
“This is very helpful if you’re buying in a rising rate environment,” says Mr. Mayer, but he cautions that many lenders are not offering this lock-in option anymore.
He also warns that a pre-approved mortgage is not a guarantee that the financial institution will actually lend you the money. Your application will still be subject to a full review when it comes time to sign the papers. Even if your application is approved, you need to be careful not to change your debt-to-income ratio, through a job change or a large purchase, or you may no longer qualify for the mortgage.
“Until you close and the money is transferred, you’re not fully approved. The bank can always pull that approval.”
- Get in touch with the professionals. A lot of work goes into getting you into a new home. You will need a team of people, which may include a mortgage broker, a real estate agent, real estate lawyer, home inspector and home insurance agent.
- Mr. Mayer insists that buyers step up and take responsibility for the process early on. “Don’t go into it blind assuming everyone else will do everything for you. People spend more time planning a wedding, which is $40,000, than on their house. The client needs to spend more time. It’s a very big investment.”
- Choose the right property. Many people fall in love with the look and feel of a home and realize too late that it needs a new roof and is too close to the railway tracks. Mr. Mayer provides his clients with a checklist covering the basics – such as square footage measurements and the age of the furnace – to help buyers stay objective when viewing a house. “Look at the location and educate yourself on the property. Make sure it’s a property you can grow into and not grow out of.”
- Come up with an offer strategy. In competitive real estate markets, it is common for vendors to put off accepting offers until a particular date. This means buyers may be bidding for a home along with several other parties. It’s easy to get caught up in the emotion, so it is important to decide on a maximum price before bidding and to stick to it.
- Get ready to close. When buying a home, it pays to learn about closing costs, which can represent up to three% of the purchase price, including land transfer tax, lawyer’s fees, appraisal fees, title insurance and home inspection fees. A mortgage professional can help estimate how much these will cost and offer ideas for how you can cover these costs.
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Contact the Jeffrey Team for more information - 416-388-1960
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Five simple ways to start saving for a down payment in 2010
By Parmida Modiri
Accredited Mortgage Professional
Signature Service Financial
Saving up for a home isn’t easy. It takes dedication and some financial planning to be able to afford a property. In order to obtain the best available interest rates Canadian mortgage lenders require at least 5% down payment. With recent comments by Jim Flaherty, Finance Minister, we may even start seeing 10% down payment requirements in future. This means that saving money for a down payment is crucial.
Here are 5 ways to help you start saving towards a down payment:
1. Aim towards stability
Being in the working world isn’t easy, especially contending with competition from other prospective employees. To qualify for a mortgage, it is important to have a stable job, making a sustainable income. Individuals that jump from job to job are more likely to appear risky, so whenever possible, try and keep a consistent job history.
If you find yourself having trouble putting money away, there are few options. You can always start searching for another job with a better pay rate. As well, you can ask your employer for a pay raise. Both can be intimidating situations to be in, but if you find yourself struggling to keep up with household costs, it will be much more difficult to save up for a down payment.
2. Gifts are lovely!
This cannot apply to everyone, but having a family member give a gift of money can greatly help with a down payment of a home. Gifts of money are typically most commonly seen in newlywed couples, who are just starting their lives together looking for a home. Of course, this is not always the case.
Just remember there are some stipulations on gift letters and getting approved for a mortgage. The gift must come from a direct relative (mother, father, sister, etc) and must be deposited in your own bank account prior to closing date of your home purchase.
3. Open a savings account
One of the best ways to save money is to open a savings account and if possible, label it “DOWN PAYMENT”. By depositing regular installments of some extra money into that account, you start saving without even really realizing it. Banks even offer automatic deposit; therefore you don’t even have to think about the money being set aside. As well, you can adjust the amount of money going into this account. For example, if you recently got a raise at work and can afford to put in $100/week, you can find yourself with $5,200 by the end of 2010.
The Government of Canada has recently introduced a new Tax Free Savings Account, which allows Canadian residents to put in up to $5,000 per year. The money withdrawn is tax free and does not need to be repaid into the account (which is different from the Home Buyer’s Plan). For more information on the Tax Free Savings Account, please click here.
4. RRSPs are not just for retirement
Well, actually they are – but the Home Buyer’s plan allows you to use your RRSPs towards your first home purchase. The Home Buyer’s plan is a good way for those first time home buyers with RRSPs to be able to put money down without any income tax deduction. From RRSPs, one is allowed to withdraw up to $25,000 towards the purchase of a home. This money has to be paid back into the RRSP over an extended period of time. If you pay the entire withdrawn amount within 15 years, the original withdrawn amount is tax free.
If you are not a first time home buyer, you can still deduct from your RRSP, up to your deduction limit. The limit is different for every individual. A quick way to find out what your deduction limit is can be done by looking at your latest Notice of Assessment. For 2010, the maximum deduction limit is $22,000. Some individuals may find that they have a larger limit due to the fact that they have not withdrawn any amount from their RRSPs in the last 20 years.
5. Mutual Funds/GICS/Canada Savings Bonds
Putting some of your hard earned money away so you can’t touch it makes it harder for you to spend it. For example, a high interest savings account typically has high charges associated with taking out money. This savings account can even allow automatic deposits to be made on a specific schedule. It makes it less tempting to take out that money for other things.
Other types of bonds have different options as to whether they are lockable or not. But again, these offer sure ways of investing your money and keeping it safe. Although interest rates are low right now, even gaining a small amount of extra money on them are beneficial ways to save up more.
Having sufficient down payment is one of the most important ways of being approved for obtaining a mortgage. With the possibility of stricter requirements, including a 10% down payment requirement, it is important to start planning ahead this year.
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Contact the Jeffrey Team for more information - 416-388-1960
————————————————————————————————————
Incoming search terms
Related posts:
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