Tag Archives: mortgage financing
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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Tracy Hanes – Toronto Star
For several years, Tanya Davio, 29, lived with her parents in Pickering, saving a down payment towards a home of her own. But when she decided to take the plunge earlier this year, there was a problem.
“I would ask to see a house the day it came on the market, then wouldn’t even get a chance to look at it because it would sell within a day,” she says.
That doesn’t surprise Shaun Hildebrand, a senior analyst with the Canada Mortgage and Housing Corp. He says Pickering had a high%age of first-time home buyers in 2009.
The very hottest areas for first-timers — with prices below the GTA average of $440,000 ($477,000 in the city; $408,000 in the 905 area) — were southwest and east Scarborough, downtown Toronto, Bayview Village, south Etobicoke, Milton, Willowdale West and Newmarket.
According to Jason Mercer, an analyst with the Toronto Real Estate Board, sales were brisk throughout the GTA in the first quarter of this year, as the economy picked up steam and there was pent-up demand, coupled with a shortage of listings. He expects conditions will moderate later this year, as the market becomes more balanced and more listings come on stream.
The east end of the GTA is where the cheapest prices can be found, although Hildebrand says buyers tend to buy closer to Toronto when interest rates are low, then move farther afield as affordability becomes an issue. Oshawa is the most affordable market in the GTA, with an average sale price of $255,808 in March, according to TREB figures.
Although Davio works downtown for the LCBO, she wanted to be close to her family and her horse, stabled just north of Pickering. But she eventually widened her search to next-door Ajax and found a two-year-old, 1,800-square-foot condominium townhouse with a garage and balcony.
She had her mortgage financing pre-approved, which turned out to be a savvy move when she placed her offer. Another potential buyer’s offer was higher, but Davio’s was accepted because there were no conditions on the financing.
Within the City of Toronto, neighbourhoods that have long proven to be hot such as the Beach, High Park and Bloor West Village remain so, says Toronto Real Estate Board president Tom Lebour. But the problem is that home prices start in the mid $400,000s for a modest semi or row house.
The luxury market has just started to rebound, says Hildebrand, with perennially popular areas such as High Park, Rosedale and Forest Hill remaining most desirable. But you’ll need at least half a million dollars to buy there.
“It’s more important to be able to spot emerging neighbourhoods, and there are two in particular up and coming,” he advises. “One is W6, Mimico and Long Branch. For years, it was considered a working class area, but no more. It has been gentrified and young buyers are recognizing the beauty of it. It’s close to the lake and hasn’t really caught on but is starting to.”
He notes that for the average GTA home price of $440,000, you can get a substantial entry-level home in Mimico, and you’re surrounded by high-end areas such as Bloor West Village and the Kingsway.
“There are condos along the water, townhouses and fixer-upper detached homes,” agrees Hildebrand, who also considers Mimico an area with good potential.
The second neighbourhood Lebour cites is a little pocket north of the Danforth between the Don Valley Parkway and Scarborough.
“It has some affordable homes and it’s close to the subway. More and more couples are looking for access to public transit so they don’t have to maintain a vehicle,” he says.
Downtown is a hot market, but Lebour says first-timers may have to settle for minuscule condo suites to keep within their budgets. CityPlace, the neighbourhood near the Rogers Centre, is popular with people who don’t own cars.
Other established “vertical cities” include the Distillery District and Liberty Village, as well as the King West district for more affluent buyers.
Lebour says Etobicoke offers good buys in condos, with more space for the money, and downtown is just a 20-minute ride from the Kipling subway station.
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Even Canadian lenders are now requiring an increased amount of information and proof of income before approving mortgages.
Helen Morris, National Post
Whether you are planning to move from an existing home or are stepping into the property market for the first time, and unless you have a substantial supply of cash, you will likely require a mortgage.
Interest rates may be at historic lows but with uncertain and changing market conditions, lenders want to be doubly sure that borrowers can repay a mortgage. This has led to lenders placing more stringent conditions upon borrowers and demanding more detailed and verifiable proof of income and ability to pay.
A borrower’s income, expenses, credit history and down payment are all considered when assessing whether they qualify for a mortgage.
“Prior to eight months ago, for a standard salary individual, I could do the mortgage on a job letter,” says Jeff Mayer, a mortgage agent with the Mayer Group, part of the mortgage brokerage firm Mortgage Intelligence. “Now you need a job letter … then they want a pay stub … and a lot of times they’ll ask for two paystubs, then they’re going to want either a T-4 or a notice of assessment. The bank wants to make sure that you can afford the mortgage. It’s tough love; they want to make sure that you’re going to stay in your house.”
If you work overtime it is essential to check with the lender if this income can be counted towards your mortgage qualification.
“In a lot of situations, with unemployment rising, there is not as much overtime,” says Gary Siegle, a regional manager with the Invis mortgage brokerage firm. “Lenders are looking at that a little bit more carefully.”
Because of increased default rates in some communities, some lenders will now only consider a base salary when evaluating a mortgage application.
If you have a stable job, a decent-sized deposit and a good credit score, putting in the hard work at the application stage can secure you a good deal.
“With prices having softened due to the recession, housing has never been more affordable,” Mr. Siegle says. “It is a little more difficult to qualify when it comes to showing your income and proving different parts of [it], but it’s also much easier to qualify on the numbers because house prices are down and mortgage rates are on sale, really.”
However, mortgage qualification has become rather more testing for those with lower credit scores, smaller deposits or irregular income.
“Lower credit scores have become more difficult to get traditional financing for. You can still quite often get a mortgage but it’s just going to cost more,” Mr. Siegle says. “Those with very poor credit probably have much more difficulty today. If you’ve got bad credit and haven’t been proven to be able to manage it, maybe you need to get things fixed up before you get a mortgage.”
It has also become a lot tougher for self-employed individuals to get mortgage financing, Mr. Mayer says. Lenders are still allowing self-employed applicants to state their own income levels but the income stated must be deemed reasonable based on the size and type of business.
Many lenders, Mr. Siegle says, are demanding extensive documentary evidence from self-employed applicants and even then, lenders can refuse to provide a mortgage if they believe that disparities between taxable and real income are not reasonable.
It is not just borrowers buying their own homes who are facing tougher lending criteria.
For buyers of rental properties, Mr. Siegle says, lenders have become less generous when calculating how much rental income can be used to qualify a mortgage. Conventional lenders used to include up to 80% of the rental income when calculating how much homebuyers could borrow. However, due to a higher risk of default, now he says some lenders are including only 50% to 70% of the rental income.
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