Sunday, November 29, 2015

Shopping for a mortgage - what do you need to know?

Buying a home involves two main shopping expeditions: one for the right home and one for the right financing. It’s important to know how much you can afford to spend on homeownership.

Most prospective Canadian homeowners talk to a few lending institutions, such as banks, trust companies, or credit unions, or work through a mortgage broker, to get pre-approval for a mortgage before hunting for the actual home.

Getting pre-approval doesn’t guarantee that you’ll be approved for a mortgage loan, but it gives you a good idea of what you can afford. Also, the realtors you work with will often want to know whether you’ve been pre-approved.

Before pre-approving you for a mortgage, your lender will want to know whether you can handle the additional cost of home ownership. So, you’ll first need to understand what your budget is: What is your current monthly income? What are your regular household expenses (bills, groceries, services, etc.)? How much debt are you carrying (student loans, credit cards, car loans), and what are the monthly payments on it?

Your lender will also want to know how well you have paid your debts and bills in the past; a solid credit history will help you secure a mortgage.

So you will need a credit report, which you can obtain from a credit-reporting agency (Equifax Canada Inc. and TransUnion of Canada are the two main ones in Canada).

Once you have a good understanding of your finances, you can start looking at the price range for a home that will leave enough room in your budget for all your other expenses.

Two simple rules can help you figure out how much you can realistically pay for a home. The first is that your monthly housing costs — including monthly mortgage payments, property taxes and heating expenses — shouldn’t amount to more than 32 per cent of your monthly income. Lenders use these figures to determine pre-approval, so it’s good to take a look at them first.

The second rule is to look at your total debt load — including your existing debt and that of the house — and ensure that servicing it will not take more than 40 per cent of your monthly income.

If either of these percentages come out too high, you may have difficulty securing a mortgage. You can improve your situation by paying down some of your existing debts, trimming your household spending, or looking for a more modest home.

To pre-approve you for a mortgage, your lender needs you to document many of the details about your finances: your sources of income, financial assets, and debts. For example, you can document your income with a letter from your employer that confirms your salary.

Your lender will then determine the amount of mortgage that you can afford, and present you with a mortgage loan for a certain amount at a specified interest rate.

There are usually options available to fit your needs including different amortization periods or payment schedules.

Once you have agreed on the terms, the lender provides you with a written confirmation, or certificate, for a fixed interest rate.

Wednesday, November 25, 2015

Canadian home sales rebound in October

According to statistics released recently by The Canadian Real Estate Association (CREA), national home sales increased in October 2015 from the previous month.

  • National home sales rose by 1.8% from September to October.
  • Actual (not seasonally adjusted) activity was little changed (+0.1%) compared to October 2014.
  • The number of newly listed homes was up 0.9% from September to October.
  • The Canadian housing market remains balanced overall.
  • The MLS® Home Price Index (HPI) rose 6.7% year-over-year in October.
  • The national average sale price rose 8.3% on a year-over-year basis in October; excluding Greater Vancouver and Greater Toronto, it increased by 2.5%.
The number of homes trading hands via MLS® Systems of Canadian real estate Boards and Associations rose by 1.8 percent in October 2015 compared to September. As a result, national activity stood near the peak recorded earlier this year and reached the second-highest monthly level in almost six years.

Saturday, November 14, 2015

Canadian housing market a leader in global trend

A new report shows the year-over-year rise in the price of Canada’s housing in the second quarter of 2015 is one of the highest in the developed world and, while the low Canadian dollar is fueling foreign demand for Canadian real estate, that’s not what is driving up prices.

In a Scotiabank report on global property trends, Canada’s 8.3 per cent rise lags behind markets such as Ireland (13.3 per cent) or Sweden (10.1 per cent), but is well ahead of the U.S. (5.4 per cent) and the U.K. (5.6 per cent).

According to Scotiabank economist Adrienne Warren, though, it’s not foreign buyers who are driving up prices, but rather Canadians who are chasing after a limited supply, especially of single-family homes.

“The housing market in Canada has held up stronger than most of us expected over the past year, but then you have to keep in mind it's primarily because of the hot Vancouver and Toronto market that's driving up prices,” she told CBC News.

“People want to live closer to where the jobs are and they don't want to take on long commutes.”

Canadian housing demand has defied general weakness in the economy, in part because of low interest rates, she said, but the market is very uneven from city to city.

Weakening currency is not only making Canadian housing cheap, but also in Australia, said Warren.

“Foreign exchange considerations are taking on a bigger role, increasing the attractiveness of properties in countries whose currencies have weakened at the expense of relatively stronger currency markets in the U.S. and the U.K.”

Australia has seen an escalation of housing prices this year, especially in big urban markets such as Sydney and Melbourne.

Sydney now has the same affordability crisis that Vancouver is experiencing, with the median house price over $1 million Australian.

Monday, November 9, 2015

Autumn Maintenance for Home Owners

Autumn is upon us, and with the change of seasons comes the fall to-do list that must be completed before the arrival of winter weather.

Many outdoor jobs are best completed before temperatures drop, while others can be tackled indoors to help save energy and prepare for increased time spent inside the home.

Outdoor cleanup Autumn means leaves are falling from trees and littering landscapes. Cleaning up leaves can be a time-consuming task, but it's necessary to promote the health of lawns and other plants.

Grass that is completely matted down with leaves can become starved for light and moisture, and lawns may even rot when forced to spend winter beneath fallen leaves. One eco-friendly timesaver is to shred leaves with a mower (a manual mower is preferable) and leave them as topdressing for the lawn.

As long as the grass blades can be seen within the leaves, the lawn should be fine. Shredded leaves will decompose and add necessary nutrients and organic matter to the soil naturally.

Leaves also can be used in annual flower and vegetable gardens to improve the soil. Mulch made from shredded leaves can be placed on the soil around trees and shrubs.

This helps to reduce weed problems and protects root systems from harsh temperature fluctuations.

Clothing donations It's time to pack away summer clothing and once again fill closets and drawers with sweaters and jeans.

Before packing away your summer wardrobe, conduct an inventory to determine if there are any items you no longer use. Donate these items or use them as rags when cleaning.

Keep some short-sleeved shirts accessible so you can layer them under sweatshirts and sweaters.

The heat from layering will be trapped against your body and keep you cozier, reducing your reliance on HVAC systems to stay warm.

Home repairs Check the roof for any missing shingles. In addition, look for spots where animals or insects may be able to gain entry into your home. Seal these areas and repair any leaks.

This will make your home more efficient later on when winter hits its stride.

Remove window air conditioners for the winter. If they can't be removed, seal them with caulking or tape and cover them with an airtight, insulated jacket.

If you have forced-air systems, move furniture away from the vents so that air can flow better around the home and keep it comfortable.

Check weatherstripping around windows and doors and make the necessary adjustments. Installing additional insulation also can help reduce energy consumption.

Tuesday, November 3, 2015

It's time for many Canadians to abandon the 20% down-payment rule

This one’s for the housing true believers out there.

You’re the buyers who keep pushing house prices higher in cities such as Vancouver, Toronto, Hamilton, to name a few. Incomes are edging higher in these cities, prices are surging. If you’re primed to buy anyway, then listen up. Stop trying to save a 20-per-cent down payment and get into the market now.

A popular and sensible bit of financial advice is that you should ideally wait to buy a house until you have a down payment of at least 20 per cent and thus are excused from buying mortgage default insurance. But if it takes a few years to save that much, you may find that soaring prices more than offset the savings on mortgage insurance.

This insurance got a little more expensive in some cases this summer, so it’s time for a fresh look at the case for avoiding the cost of buying it.

Background for housing rookies: If you have a down payment of less than 20 per cent, you have to pay a hefty premium to insure your lender in case you default on your payments. The amount is usually added to your mortgage principal, which means it’s out of sight and out of mind. But it still costs you.

With a down payment of less than 10 per cent (5 per cent is the minimum), the cost of mortgage insurance rose in June to 3.6 per cent of the purchase price from 3.15 per cent. Larger down payments short of 20 per cent were unaffected and range from 2.4 per cent down to 1.8 per cent. You’ll pay provincial sales tax on those amounts in Manitoba, Ontario and Quebec. More importantly, you’ll incur extra interest charges by adding these amounts to your mortgage balance.

Let’s use the average resale house price in Canada to illustrate how much mortgage insurance adds to your costs when buying a first home. The average price in August was $433,367 – a calculator from Canada Mortgage and Housing Corp., a supplier of mortgage insurance, shows that a 10-per-cent down payment would trigger a mortgage insurance premium of $9,361. With that amount added to the mortgage, monthly payments on a five-year fixed mortgage at 2.59 per cent would be $1,807 per month.

With a 20-per-cent down payment, monthly costs on this mortgage fall to $1,569. Total interest over the five-year term of the mortgage falls to $41,390 from $47,681, a difference of $6,291. But would it really be worth postponing your purchase by three years to put 20 per cent down? With the market rising at 5 per cent annually (less than recent increases in Vancouver, Toronto and Hamilton), the chart that goes with this column shows you’d actually end up paying more per month.

Mortgage rates also have to figure into your thinking on whether to buy now or wait and save more. If we assume 4 per cent average annual price increases over three years and a rise in mortgage rates of one percentage point, you’d have to pay substantially more than if you bought now and paid for mortgage insurance.

If you live in a city with a slow real estate market, it pays to wait and save more. If you waited three years to double your down payment to 20 per cent on the average-priced house and prices rose 2 per cent annually, you’d come out ahead by more than $140 per month.

A June study issued by the Canadian Association of Accredited Mortgage Professionals said the average house down payment for first-time buyers was $67,000. That represents a 21 per cent down payment on the average $318,000 spent by first-timers, and a 15.5-per-cent down payment on the overall average price of $433,367.

The CAAMP study found that 18 per cent of first-time buyers received gifts or loans from family. A thought for parents who want to help their kids get into the market: Try topping up their down payment to reach the 20 per cent threshold. Warning: Parents should avoid this type of financial help if they have to go into debt to provide it, or if it greases the way for their kids to buy a house they can’t properly afford to carry.

Down payments are one of the least strategized parts of home buying, and yet they can have a big impact on your total long-term cost of owning a house. The conventional wisdom about 20-per-cent down payments is right on the money, but not if you’re set on buying in a hot market. Either jump in now or resolve to wait and save indefinitely for sanity to return.

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