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With record-low interest rates and longer amortizations, some buyers are looking to move out of the centre and start their home-owning lives in a house
By Helen Morris, National Post
For many first-time buyers entering the Toronto market, the downtown condo has been a staple purchase. However, with record-low interest rates and longer amortizations, some buyers are looking to move out of the centre and start their home-owning lives in a house.
“I’ve had a lot of clients who’ve started out with a condo in downtown Toronto,” says Paula Roberts, a mortgage broker for Mortgage Intelligence in Unionville. “It’s a good starter home to build equity.” But Ms. Roberts says the monthly outlay on a $300,000 condo, including fees and taxes is currently similar to the payments on a $375,000 mortgage for a house.
“The $300,000 mark is going to afford you a large bachelor or a small one-bedroom with a den inside the city centre,” says Andrew Bodnar, sales representative with Re/ Max Condos Plus brokerage in Toronto. “For a home, for $375,000, I would think that you’re at least 45 minutes to an hour outside of the city.”
The similarities pretty much end at the basic monthly payments.
“With the condo you don’t have the maintenance for the exterior of the building, but you have condo fees. On the flip side, in a house you’re not paying the condo fees, but you’re entirely responsible for the condition of not only the interior but the exterior of the home as well,” Mr. Bodnar says. “A lot of time the price, the payments, could be the same but when you break it down, condo versus home ownership, the biggest difference is going to be lifestyle.”
Ms. Roberts agrees that lifestyle is key.
“It’s like a puzzle. We just have to put the best options for that client together because everybody is a little different,” Ms. Roberts says.
“That’s a key component whenever I work with first-time buyers, considering where they work, where their family lives, the places they’ll be travelling to frequently. That can have a direct correlation to the affordability of the property they’re looking for,” Mr. Bodnar says. “If you have to pick up the expenses for a vehicle, vehicle maintenance, gas, travel, that suddenly takes all the savings you thought you had by living out of town versus living in town.”
Mr. Bodnar adds that clients opting for a condo are more likely to find a place in their chosen neighbourhood.
“One city block in Toronto may contain condo buildings with an excess of 500 units,” Mr. Bodnar says. “Looking for that type of selection in freehold homes could take them outside their preferred living area.”
Ms. Roberts and Mr. Bodnar urge clients to try to look ahead.
“You need to know — or anticipate — where you’re going to be in five years. The rates are great for five years, but in five years’ time, you certainly want to still be able to afford that house,” Ms. Roberts says.
For many of her clients, she says the hope is that in five years their equity, and hopefully their income, will have risen.
“For a lot of our clients, the first home is always a little stepping stone,” Ms. Roberts says. “They’re not going to be in that 700-square-foot condo or that smaller property for 35 years.”
Contact the Jeffrey Team for more information – 416-388-1960
Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
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Condo buildings offer the option of buying a unit or renting one from an investor, depending on your lifestyle preferences
Helen Morris, National Post
Whether we own our own homes or pay rent, living costs make up a large portion of our monthly outgoings. The decision whether to rent or own a home may be as much to do with the kind of life you wish to lead as how your finances line up.
“When all parts are equal from an investment side of things, home ownership has to be more of a lifestyle decision,” says Trevor Le Drew, financial planning expert and regional director at Investors Group in Windsor. “Before I even get into the financial side, I always make sure that [ownership] is a good fit.”
Mr. Le Drew says location and facilities are key.
“Is it something that you get emotional joy from? Is your career going to accommodate it?” Mr. Le Drew asks clients. “Are you gardeners, do you like to have a workshop? Those are things you’ll have more control over if you actually own as opposed to rent.”
For those who like to travel a fair bit, Mr. Le Drew suggests that renting a small place and investing the money that would have gone toward a more expensive mortgage may be more practical than owning a home. Of course, regular voluntary cash investing probably takes more discipline than making a mortgage payment.
“There are still traditional values associated with owning a home. It’s forced savings, it’s tax-free growth. Just by going through life we end up creating a tremendous asset,” says Mr. Le Drew. “However, if measured over time, home ownership or property is not one of the best performing asset classes.”
Many of us are changing jobs, cities and even countries more often than in the past. The costs involved in buying and selling a home mean that, if we move frequently, any tax-free gain in the value of our home could be wiped out by real estate, legal fees and other moving costs.
With the decision that your lifestyle and financial plan favour homeownership, there may be some hard choices ahead.
“In Toronto, it’s not easy to purchase for [the same monthly outflow] you’re renting for,” says Lois Volk, mortgage broker with Invis. “If you’ve got a rent of, say, $1,600 a month, it could be very hard to keep it at that level and buy.”
A number of Ms. Volk’s clients are looking to buy a home prior to having children.
“Generally, they have to move out of the downtown core area anyway, depending on their income,” Ms. Volk says. “A lot of them want to start a family, so they’ll be down to one income for a while.”
Moving out of the downtown may allow for cheaper housing but there will be new costs.
“Living in downtown Toronto is a different lifestyle from commuting, for sure,” says Ben Melick, a mortgage broker with Mortgage Intelligence in Kitchener-Waterloo. “The biggest sacrifice that most people have to realize, if they plan on moving out this way, getting back and forth to the city [for work] is going to be a little bit of a stress and a demand on their time.”
Back to the lifestyle question: Does the time, money and stress of commuting balance owning versus renting?
“The problem is that a house in Toronto is probably double the price of a house here, if not more. It’s a huge difference,” Mr. Melick says. “You’d have to have dual incomes to purchase a property downtown whereas here you could at least get away with one income. It boils down to affordability and lifestyle really.”
If moving out of town is not for you, downsizing may be a way to move from being a renter to a homeowner.
“I’m finding a lot of people are being forced into buying condos if they want to live centrally because it’s all they can afford, or all they want to afford,” Ms. Volk says. “Weighing the difference in the value versus the time travelling and the travel costs is something to consider.”
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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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