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Tag: homeownership

Millennial’s Guide to Home Buying
The transition from rent to home ownership has many obstacles for millennials. We’ve put together this guide to help young people make home ownership work for them. Buying your first home is one of the biggest financial decisions you’ll ever make. For millennials struggling with lower income and savings, the dream of home ownership can appear out of reach in today’s market.

All hope is not lost. Low mortgage rates and a gradually improving job market are empowering millennials to invest in property rather than rent. By taking a few practical steps, you can be well on your way to buying your first home. Investing in your first home requires careful planning, effective judgement and setting reasonable expectations. Below is a six-step process for making that happen.
1. Shop within your means.
If you’re a millennial first-time buyer, the selection of homes you can afford is likely much smaller than established buyers. After all, you don’t have any equity yet, and will be relying purely on savings to invest in your first down payment. An important part of setting reasonable expectations is shopping within your means. Even if you qualify for a large mortgage, there’s no rule that says you must use it all. As a first-time home-buyer, your goal should be to finally start building equity. If you want a property but can’t afford it, you shouldn’t buy it. It’s as simple as that!
1. Make sure you have enough for a sizeable down payment.
In Canada, most professionals will advise you to make at least a 20% down payment on your property to avoid paying homeowner insurance. While this is recommended, it might not always be possible, especially if you don’t want to delay your first real estate investment. Even if you can’t pay at least 20%, you should still be prepared to make a decent down payment to minimize the total loan amount. In Canada, 5% is the absolute minimum you must put down.
1. Sort out your finances.
Home ownership carries significant expenses that extend beyond your down payment and monthly mortgage payment. Property tax, insurance, closing costs and utilities must all be factored into your decision both at the time of closing and after you’ve moved in. When deciding to enter the market, be sure you have enough money to cover the down payment and all the ancillary costs associated with closing your home. You’ll also want to budget carefully to make sure you can afford to pay your mortgage and living expenses after you’ve moved in.
1. Compare neighbourhoods and regions.
Most home-buyers are limited by geography in shopping around for property. For millennials living in the big city, this can make affordability a greater challenge. That’s why it’s essential to compare neighbourhoods and property types. It’s equally important to consider location and whether you are willing to commute to work each day. Proximity to your job may be convenient, but will likely be more expensive, especially if you live in a big city. Working with a real estate agent can help you develop a better view of property values based on location and property type.
1. Use a Mortgage Broker.
Financing a home can be a complicated process. That’s why more and more Canadians are turning to mortgage brokers to steer them in the right direction. It used to be the case that most people went straight to their bank to finance their mortgage. Now, many people visit a mortgage broker first. That’s because a broker is tasked with one job: finding you the best deal possible. They work with the big banks as well as non-traditional lenders to match you with the best interest rate and lending terms on the market.
1. Maximize your benefits.
The government has made it a little easier for first-time home-buyers to enter the market. If you’re a first-time buyer, you can use your RRSP account to finance your down payment tax-free up to a maximum of $25,000. This means you can take up to $20,000 from your RRSP account and put it toward a down payment with no tax penalty. The First-Time Home-buyer Credit can also help you reduce the amount of taxes you owe. Various provinces, such as Ontario, also have a land transfer tax refund that will greatly reduce the amount of land transfer tax you owe.

As a millennial, shopping around for your first home can be both rewarding and challenging. This six-step process will help you make the most out of your experience.
December 5, 2018
Homeowners Worried About Paying Down Debt as Rates Increase

Younger homeowners have never experienced a significant rise in interest rates. Many Canadian homeowners are worried about rising interest rates and how they will impact their budget, a new CBC Research survey finds. Thanks to years of access to cheap money, household debt has ballooned in Canada. Now that interest rates are rising, there are mounting concerns over how people will continue to pay down mountains of debt.

Out of 1,000 Canadian homeowners surveyed online between October 5 -11, almost three-quarters of those with debt on their home, mainly mortgages, confessed they’re worried about rate hikes. It won’t take much for most of them to feel the pinch: 58% of respondents said an increase of more than $100 in their monthly debt payments would force them to change their spending habits to make ends meet.

Certified financial planner Shannon Lee Simmons says many people who come to her for help are in a similar predicament. “I see that on a daily basis from clients who make relatively normal living wages, but everything is just budgeted to the dollar,” she said.

“If you were to ask them, ‘Can you save $100 bucks a month?’ they might fail at that.” Simmons says part of the problem is some homeowners have never experienced a significant rise in interest rates. If you’re 40 right now and you bought your house at 30, you’ve pretty much had a decade of relatively low rates and that’s all you’ve experienced.

Certified financial planner Shannon Lee Simmons says homeowners need to prepare for the true cost of rising interest rates. Indeed, a 40-year-old would have been a toddler in 1981 when Canadian banks’ prime lending rate shot up above 20%. Conversely, since 2009, it has ranged between 3.70 and 5.75%. Banks use the prime rate as a base to set their lending rates. Failing to budget for heftier mortgage payments could lead to even more hardships, such as homeowners digging into their savings or turning to credit cards to make ends meet.

The CBC survey findings come at a time when the Bank of Canada has already hiked the key interest rate four times since July 2017, from .50 to 1.50%. The key rate influences the rate that banks charge for consumer loans and mortgages. Many homeowners likely haven’t yet felt the full effects of the rate hikes because they’re still locked into a fixed mortgage, the most common type in Canada. When their mortgage is up for renewal, ‘they might be in for a bit of a shock,” Simmons said. The market expects another rate hike sometime in October, and some economists predict three more rate hikes in 2019.

Bank of Canada governor Stephen Poloz says he believes Canada’s debt risk can be managed successfully. Meanwhile, the amount of debt Canadian households owe has been on the rise for about three decades, totalling just over $2 trillion in August. Mortgages make up close to three quarters of that debt. For years, the Bank of Canada has expressed concern over rising household debt levels. In 2011, Federal Finance Minister Jim Flaherty tried to temper borrowing habits with tighter mortgage rules. They included lowering the maximum amortization period and requiring borrowers to qualify for a five-year, fixed-rate mortgage, even if they chose a variable mortgage with a lower rate. But interest rates remained low and Canadians continued to pile on debt.

According to credit agency TransUnion, Canadians owed an average $260,547 in mortgage debt in the second quarter of 2018 — a 4.76% jump compared to the same period in 2017. In the CBC survey, 36% of respondents said they had no debt on their home. 42% said they owed between $50,000 and just under $400,000 when combining both a mortgage and lines of credit. Most respondents said they are very or somewhat comfortable with their current monthly payments. However, as the survey shows, for many, that level of comfort diminishes when faced with the prospect of higher rates.

And the impact could be more severe than some people think: When presented with a couple mortgage scenarios, less than a quarter of respondents were able to correctly estimate the added cost of a 2% interest rate hike. Take, for example, a $400,000 mortgage with a 20-year amortization and a fixed five-year rate of 3.3%. With just a 2% rate increase, monthly payments would go up by about $400 a month.

Simmons says many people find making the calculations daunting, but that homeowners need to understand the true cost of rising rates. “Everyone is aware they’re going up, I just think that people aren’t necessarily prepared for how that impacts their daily life.” It’s important to note that even with a projected rise in interest rates in 2019, they’ll still be relatively low compared to previous decades. The Bank of Canada raises the country’s key interest rate to keep inflation in check, but governor Stephen Poloz, said in May that the bank will make rate decisions cautiously, considering the amount of debt households are still carrying.

November 2, 2018
Are You Ready for Homeownership?

Are you ready for homeownership? Is purchasing a home on your list of goals? If so, assess how close you are to making your real estate dreams come true. This basic, Yes/No quiz will tell you if you’re ready for homeownership.

1. Are you familiar with the housing market in your preferred neighbourhood?
Start perusing the real estate pages and Realtor.ca well in advance of your house-hunt, so you know what properties sell for. There’s nothing worse than meeting an agent, only to discover the average price of homes in your preferred community is double what you were hoping.

2. Do you know how much you can afford to spend on your first home?
You want to start your home search pre-approved for a mortgage. Find out ahead of time how much that mortgage will most likely be by using Genworth Canada’s How Much Can I Afford calculator which factors your income, debt and other expenses into mortgage and monthly payment amounts.

3. Have you saved at least a 5% down payment towards your first home?
The good news is you don’t need a sizeable down payment to buy your first home. Conventional mortgages require a down payment of 20% of the purchase price, but mortgage insurance, you can buy with as little as 5% down.

4. Do you have regular income, whether you are salaried or self-employed?
Conventional lenders favour borrowers with salaried income, but we recognize many Canadians are self-employed. We have many lenders that are geared towards self-employed borrowers. If you’ve got a two-year history of managing your credit and finances responsibly, you can qualify without traditional income verification.

5. Have you got a handle on your consumer debt?
If you’re carrying a high debt load, it could hinder your ability to meet your financial obligations as a homeowner. Your monthly debt repayments (housing, car, credit cards, lines of credit etc…) should not exceed 40% of your household’s gross monthly income. If you’re carrying more than that, be aggressive about paying it down so you’re set up for success when you do buy your first home.

6. Do you have credit history?
Lenders look at your credit history to determine if you’re a reliable borrower. Refraining from credit cards altogether is counter-productive. If you’re hoping to buy your first home this year, establish good credit history by acquiring a standard credit card. Use it for small purchases and pay off the full balance each month.

7. Do you have a healthy credit score?
Poor credit history makes it harder to get mortgage approval. Always meet your monthly minimum payments on time, but don’t stop there. Be aggressive about clearing your credit card debt, or at least bringing each credit card balance to under 35% of its credit limit. If you’re recovering from bankruptcy, apply for a secured card to help re-establish a pattern of responsible borrowing.

Scoring:

If you answered YES to 4 or more, you’re probably ready to start your home search! If you scored under 4, you may need a bit more time to prepare yourself for homeownership.

December 1, 2016