More Mortgage Legislation Changes Impacting Home Buyers (to be in effect by December 31, 2013)

When purchasing a property, the key areas that impact whether you qualify for a mortgage at all and for how much, are based on your income, credit and debts including your new mortgage payments and available down payment. 

In July 2012 there were some significant mortgage legislation changes that impacted qualifying for a mortgage including using a higher interest rate to qualify depending on the term you select, more income verification and down payment for the self-employed as well as lowering the amortization to 25 years.  All these changes impacted mostly those that have less than 20% down payment and therefore require default insurance (CMHC, Genworth or Canada Guaranty).

Unfortunately, there is more to come that has already taken effect with some lenders now, and others by December 31st, 2013.  All these changes are intended to curb consumer debt accumulation over and above income levels and to reinforce the importance of ensuring that borrowers do not over extend themselves financially with more debt than they can handle.

Overall, these changes are a good thing to ensure consumers don’t overspend and become “house rich and cash poor”; meaning being a home owner but living pay cheque to pay cheque with so much debt (including credit cards, loans, lines of credit etc.) that there is no extra cash for savings to build a financial cushion should there be an income loss in the future.

The downside is that these changes are impacting the ability for many to qualify to purchase a home, especially impacting first time home buyers who are struggling to find an affordable property that they qualify for close to where they live and work.

So what are the new changes coming into effect by December 31^st, 2013 and how will they affect your borrowing and purchasing power?  The changes fall into three categories which are focused on your debt to income ratios and this will determine how much of a mortgage you qualify for;

Debt; The payment that must be considered when calculating how much you qualify for is now a minimum of 3% of the outstanding balance on all unsecured lines of credit and credit cards that you have.  Even if you have a lower minimum monthly payment required by the creditor, this will no longer be used. 

For secured lines of credit that are registered against real estate, a minimum monthly payment that is to be factored into your qualifying is now the outstanding balance calculated over a 25 year amortization using either the benchmark rate (5.34% as of Sept 12^th, 2013) , or the actual interest you are paying.  Even though your secured line of credit might only have a minimum payment of interest only, you now have to qualify using a much higher payment.  Some lenders are taking this one step further and using the “credit limit” instead of the outstanding balance.

How to overcome this challenge; if you pay your entire balance off each month, and can provide confirmation of this, then you will not be impacted by this change.  Work with me on your personal household budget so we can create a plan to pay down your existing debt to a point where you qualify for the mortgage you require

2.    Guarantors; if you can’t qualify for a mortgage on your own, often a guarantor can be added to your application.  The guarantor is not on title but is on the mortgage and typically doesn’t live in the property with you.  The new changes mean that you can no longer use the income of the guarantor to help qualify for the mortgage unless they will be living in the property with you.  You will now be required to prove you can afford the property without using your guarantors income as well.

How to overcome this challenge:  Ensure that you purchase a home and obtain a mortgage that you can actually afford to pay back on your own without any financial contribution from a guarantor.   You may have to adjust your wish list a bit, or purchase a more affordable home to get you onto the property ladder.

3.    Heating Costs; using about $75 to $100 per month to calculate the cost of heat in your qualifying has been the norm till now.  Changes now require that a higher amount than this be used as determined by the lender and will be based on the the purchase price, size of the property and location. 

How to overcome this challenge:  The reality is you are most likely going to be paying more than $100 per month on heat and utilities anyway so ensuring you can afford these bills is a good thing before you buy the home.  When you find a property you want to buy, ask the existing home owners for copies of the utility bills over the last twelve months so you can see what it will actually cost to heat your home thru the entire year.  Of course, your usage might change from the existing home owners but at least you will have an idea.  Again, ensuring you can actually afford to pay the utility bills before you purchase the home is good.

These changes, along with recent rising interest rates, are impacting the amount borrowers qualify for which in turn determines the purchase price of a home. 

So what happens next?  Firstly, don’t panic as these changes may not impact your particular situation at all.  If you are considering either moving and purchasing a bigger home or purchasing your first home, call me for a free consultation to see exactly how these changes may impact your qualifying for a mortgage.  There are many strategies we can discuss together to make your dreams of home ownership an affordable reality.

Be prepared for these changes so you we can create a clear plan and path to home ownership for you.

10 worst home upgrades for resale

Find out which home upgrades are least likely to return their full investment when you sell your home.

Some renovation upgrades, such as kitchens and bathrooms, are usually fairly reliable for adding to a home’s resale value. But there are others (and if you’ve gone househunting in the last few years, perhaps you’ve seen a few) that are just plain bone-headed. What’s worth the cost and what isn’t? Some of her answers might surprise you.

Wall-to-wall broadloom

Once considered a selling feature, this is now a liability in many buyers’ eyes. Broadloom is incompatible with pets and people with allergies, and is perceived as hard to clean. If you have hardwood floors, have them refinished or consider installing them if you don’t.

Whirlpool baths, saunas and indoor hot tubs

Once considered chic, these are now often seen as just expensive, energy-guzzling extras. Kathy says she once saw a home with a hot tub installed in the living room! 

Expensive built-in sound systems and home theatres

Some buyers will be attracted to this, but not everyone is an audio/cinephile, nor will they pay a premium for a house with this feature.

Colourful bath fixtures

These went out with poodle skirts. Chances are the buyer will just see them as a renovation to-do and will plan to get rid of them after the purchase.

Ornate chandeliers, wallpaper and paint treatments

Taste is very individual and idiosyncratic decorating can turn buyers off; stick with neutral, simple decor.

Odd rooms and walls

A wall bisecting a large bedroom into two unusably small ones or a cramped powder room under the stairs or in a closet … many buyers will see these as merely a future renovation expense. (Same goes for inexplicably missing walls, such as a bathroom that is open to the adjacent bedroom.)

Overly fancy appliances

Stainless steel-finish appliances are worth paying a few more dollars for (compared to equivalent white or colour models), but six-burner professional stoves, double dishwashers and a fridge big enough for a restaurant rarely recoup their initial cost.

Cheap laminate or vinyl tile flooring

Some types of laminate are attractive and practical; others just look cheap and fake. Especially avoid peel-and-stick vinyl tiles or be prepared to replace them when you put the house on the market. For not much more money, choose hardwood, stone, bamboo or cork.

Swimming pool

There is some debate about this among realtors; to some buyers, a swimming pool is a selling feature. But a pool rarely recoups its entire cost, and it will reduce the number of potential buyers interested in your home.

Finally, number-one renovation no-no:

Turning a three-bedroom into a two-bedroom home

Even if that third bedroom is miniscule, it’s still a bedroom. No matter how spacious your newly enlarged master bedroom or how luxurious that new spa bath, the demand for two-bedroom homes is significantly smaller than for three-bedrooms, and they command considerably lower prices.

By Martha Uniacke Breen (http://www.styleathome.com) 

August 2013 Sales and Average Price Up Over 2012

Greater Toronto Area REALTORS® reported 7,569 residential transactions through the TorontoMLS system in August 2013. This represented a 21% increase compared to 6,249 sales in August 2012.

“Sales were up strongly this past August for all major home types compared to last year. Many households have accounted for the added costs brought on by stricter mortgage lending guidelines and have reactivated their search for a home. These households have found that a diversity of affordable ownership options exist throughout the GTA,” said Toronto Real Estate Board President Dianne Usher.

The average selling price for August 2013 was $503,094 – up by almost 5.5% compared to the average of $477,170 in August 2012. The MLS® Home Price Index (HPI) composite benchmark was up by 3.7 per cent over the same period.

“Despite an increase in borrowing costs during the spring and summer, an average priced home in the GTA has remained affordable for a household earning an average income. With this in mind, tight market conditions are expected to promote continued price growth through the remainder of 2013,” said Jason Mercer, TREB’s Senior Manager of Market Analysis.

Bank of Canada, any good news?

10:00 am EST, Wednesday September 4th, 2013, the Bank of Canada again did what we expected them to do … they continued to maintain their overnight rate.   What this means to you is that once again the prime rate on your mortgage, line of credit or student loan will not change and remains at 3.00%... a recurring theme as you can tell.  This of course is fabulous news but as always, I like to remind you to make the most of the low payments you still have as the rate will increase in the future.  If you haven’t done so already, give me a call and we can chat about helping you get set up with a great GIC, Tax Free Savings Account, or Retirement Savings Plan as your payments continue to remain low.    Maybe you are thinking of saving for a special occasion or expect a large expenditure in the near future (car, college/university, cottage or investment property purchase), and would like to chat about some budgeting and saving strategies – let me know as I would be happy to assist.

Here is an excerpt of the announcement from the Bank of Canada and what they had to say about their decision:

“The global economy continues to expand broadly as expected, but its dynamic has moderated. In the US, the process of normalization of long-term interest rates has begun in the context of stronger private domestic demand. Recent data, however, point to slightly less momentum overall than anticipated. In Europe, there are early signs of a recovery, and Japan’s situation remains promising. In a number of emerging market economies, financial volatility has increased, adding uncertainty to growth prospects, although China continues to grow at a solid pace. Commodity prices have been relatively stable, with geopolitical stresses putting some upward pressure on global oil prices.

Uncertain global economic conditions appear to be delaying the anticipated rotation of demand in Canada towards exports and investment. While the housing sector has been slightly stronger than anticipated, household credit growth has continued to slow and mortgage interest rates are higher” 

Based on this news and the continued subdued inflation, the Bank does not expect to increase their rate in the foreseeable future with any change most likely to occur well into 2014!   Remember, that any increase to the prime rate since 1992 has only been by 0.25% at any ONE time, so you won’t see a large significant increase all at once.

Fixed rates have gone as the bond market has rallied over the last few weeks, at around 3.49% to 3.69% for a five year fixed term.

Based on this recent announcement, and the anticipation that the prime rate will still remain low for a while now, unless you feel otherwise, I’d recommend that you remain with your current variable rate product as the interest is lower than a fixed term rate right now.  However, if having a fixed payment is important to you, call me so I can calculate what your new payment would look like and also if it is suitable for you. The next announcement on any change to the prime rate is October 23rd, 2013 at which time I’ll be in touch again.

What You Need to Know BEFORE Mortgage Your Property

There are some things to remember and keep in mind when you are purchasing a property or waiting for your mortgage to fund.  It is very important that you consider all of the following to ensure that there aren’t any preventable issues that arise.  You will find that everyone is an expert at telling you what-to-do when you purchase a home or shop for a mortgage.  I also think it is just as important to let you know what you shouldn’t do.  As your professional mortgage agent, I will do everything I can to ensure a smooth closing for you and your family.  Here’s a list of things that you might not realize could impact your mortgage approval – remember, right up until closing day, the lender has the right to cancel your mortgage approval if there are any material changes to your application or situation…. Firstly…. - Please don’t tell untruths to a mortgage brocker, it won’t help you get a mortgage! -  Please do not forget to tell  a mortgage brocker everything on your application including any other real estate that you currently own Income and Employment Changes Any change to your income or employment, means you might not be able to qualify for the mortgage or prove your ability to repay it back so…. - Avoid losing your job - do not resign - If you are on probation with your employer, let me know -  Do not reduce your income level -  Do not change the status of your employment from full-time to part-time -  If you are currently on maternity or paternity leave, or think you will be shortly, let  a mortgage brocker know -  Don’t forget to disclose if you are currently on short-term or long-term disability -  If you receive other income such as Canadian Child Tax Credit, and it’s going to stop soon, let mortgage broker know Down Payment and Closing Costs, remember.. -  Do not spend your down payment on other things! -  Avoid surprises, by making sure you have enough money for ALL closing costs that we discuss -  That there are property tax holdbacks and adjustments to be included in closing costs -  Try not to let your investments slip to a lower value -  If you are using your RRSP, it can take a while to complete the withdrawal process so plan ahead -  Provide mortgage broker with proof of your down payment as soon as possible -  Try not to pack documents that may be required to verify your down payment -  Be prepared to explain large deposits that you show in your bank account to comply with Money Laundering Regulations Things that might affect your Credit Rating…. A lender reserves the right to review your credit rating just before the closing date of your mortgage - if there have been any material changes in your rating, they could withdraw their mortgage approval, avoid this happening by… - Not increasing your debt load unless we have talked about it -  Not buying big ticket items like a new vehicle without talking to  a mortgage brocker first! -  Not volunteering to guarantee or co-sign on a loan or mortgage for anyone else -  Not applying for new credit cards or loans -  Not opening a “don’t-pay-for-a-year” account -  Not closing any accounts unless I advise you to -  Not stopping to pay your bills including your current mortgage -  Trying to fix your credit rating unless we have discussed it -  Remembering that a car lease payment is also an obligation that I need to know about -  Telling mortgage broker about any student loans you have -  Telling mortgage broker about any credit problems or issues you have had in the past And finally… -  If your closing dates are not on the same day, you might need bridge financing! -  Don’t change your closing date without telling me -  Make sure you provide mortgage broker with all the documentation I request at your earliest convenience -  Don’t wait until the last minute to arrange for property (fire) insurance. -  Don’t just accept the life insurance package offered by the financial institution -  Don’t ignore telephone calls from your lawyer, realtor, or mortgage broker! Shopping Around.. Everyone will be excited about your new home purchase, but please don’t believe everything you hear.  Everyone you talk to might think they are a mortgage expert.  Just remember, that if you ask too many people their opinion, confusion might well set in.  If you feel the need to shop around for another option, remember that too many applications to other lenders can impact your credit rating negatively – talk to mortgage broker so we can discuss this.