How Much You Need to Make To Buy Average House In This Canada

Construction Draw Mortgage

Have you ever though of building your own home or cottage? Here is some information on how to finance construction 

Key Features:

Customers receive funds at various stages of completion of the construction of a new owner occupied home

A first advance is available to assist with the purchase of vacant land or as equity take-out when the lot is already owned (up to 65% of the property lending value of vacant land – uninsured only)

Purpose

Customers purchasing land or requiring equity take-out on land for immediate construction of a principal residence or cottage and leisure home for their own personal use

Customers who already own their land and require funds to cover immediate construction costs prior to the first construction advance being available at the airtight stage.

Term

18 Months

Maximum 15 Month Construction Period - Construction must be completed within 15 months from the date of the 1st advance

Pricing

Prime Rate plus 1.00%

Interest Only payments (based on the amount advanced)

End of 15 Month Construction Period

Amount advanced to date will be renewed into a fixed rate or variable rate mortgage

Maximum Loan to Value Ratio

Uninsured: Up to 80% LVR

Insured 1-2 Units: Up to 95% LVR

Insured 3-4 Units: Up to 90%LVR (CMHC Only)

Eligible Properties

Land must be zoned for residential or vacation home use

Owner-occupied or Rental with a maximum of 4 units (CMHC Insured: owner-occupied only; Genworth Insured: owner-occupied only - maximum of 2 units)

Fees

Appraisal and progress inspection fees may be deducted from each draw

Amortization

Insured: Maximum 25 years

Uninsured: Maximum 30 years

Qualifying Rate

Qualifying Interest Rate will be the 5-year benchmark rate

Advances

Optional First Advance Prior to Start of Construction (Uninsured Only): 65% of the lending value of the vacant land

Optional 15% First Advance (Insured Only): At 15% complete; Excavation and foundation complete

40% First Advance Received: At least 40% complete; Roof is on, the building is weather protected (i.e. airtight, access secured)

65% Second Advance Received: At least 65% complete; Plumbing and wiring is started, plaster/drywall is complete, furnace installed, exterior wall cladding complete, etc.

85% Third Advance Received: At least 85% complete; Kitchen cupboards installed, bathroom completed, doors have been hung, etc.

100% Fourth Advance Received: 100% complete

Don't let credit blemishes sideline investment

The first deal is generally the hardest when investing in real estate. In fact, concerns about winning financing can stop many from taking the leap from idealist to investor. But that doesn’t have to be the case, and much of the fear can be alleviated by the confidence a good credit score can provide.

Before you apply for that first loan, take some time to review your credit report. You’ll want to look for any mistakes that could be adversely affecting your score and correct them as soon as possible. Many consumers have mistakes in their credit histories that they are not even aware of, it pays to check your credit report regularly. Common mistakes to keep an eye out for are:

•    Clerical errors such as the misspelling of your name. This could mean that you have the credit score of someone else.
•    An incorrect social security number
•    Incorrectly entered payments, including payments that you have made but are not recorded.
•    Unreported remedied accounts – sometimes credit agencies neglect to record accounts which have had their delinquencies remedied.

If you notice old accounts that are inactive in your credit report, keep them open. Closing them will shorten your credit history, which will increase your credit score. Having incorrect information in your credit report might just not make it difficult for you to secure a loan, but subject you to higher interest rates as well. A difference of 40 points in your credit score could cost you tens of thousands of dollars in interest over the course of a 30 year loan.

If you find that your credit score is on the low side and might make it difficult for you to secure a loan, at least at decent rates, you might want to consider an investment partner. You’ll be surprised how many people are interested in taking the plunge, but lack the moral support to do so. You might also consider a private loan, as although the interest rates might be on the high side, it could be worth it if you are able to sell the property quickly or refinance later on.

Ethel Wilson is a blogger and researcher for Credit Score Resource.

Renting out your home? The no change of use election might help.

If your home is your principal residence and you’re looking to rent it out, your tax situation would look something like this: When you begin collecting rental income, the use of your property changes.  For tax purposes the property is treated as if it were sold as your principal residence and then purchased again as an investment property.  Since it was originally your principal residence, no taxes will be owning on any appreciation from the time it was purchased (or designated as your principal residence) to the day the use changed.  If you were to leave it as an  investment property, you can deduct the tax on the interest portion of the mortgage.  You can also claim depreciation, known as the capital cost allowance.  On the downside, your rental income is fully taxable.

What if the change is temporary?  Say you know you’re going to be out of town for a year or so, but don’t want to sell your home or deal with the some of the future capital gains that would be incurred by changing the use.  The income tax act addresses this issue in section 45(2).  You can defer the gain for up to 4 years, by writing a letter to the CRA stating what you are doing, siting this part of the income tax act and including it with your tax return.  Here are some of the rules:

-         You need to own the property

-         You must have inhabited it as your principal residence

-         The ‘no change of use election’ is a written letter filed with your tax return, signed by the home owner.  It must be filed the year of the change of use and ever year subsequent.

-         You can elect to ‘not change’ the use for up to 4 years.  If after 4 years, you do not change it back to your principal residence, a deemed disposition will occur at its fair market value and any appreciation from that date going forward will be taxable.

-         You can’t claim the capital cost allowance (deprecation).  To do so voids the election.  You also can’t deduct the interest portion of your mortgage, as you have requested that this not be considered an investment property.

-         If you’ve already begun to rent out your property and want to file the election retroactively, fees will be charged.

-         You must remain a resident of Canada during this period of time.

-         A family can only have one principal residence at any time.  If you own more than one property, only one will qualify as your principal residence during any given period of time.

Subsection 54(1) will let you elect to keep the principal residence status on your home for more than 4 years, if you or your spouse were required to move for work.  For this to take effect, your principal residence has to be a minimum of 40 kms further from your new place of employment than the place to which you re-located.

Please note that this works best if you intend to keep house as your principal residence.  This election doesn’t do away with the gain, rather defers it. Here is a link to the CRA website showing what qualifies as capital cost allowance and how to calculate it for an investment property.

You might also want to read CRA's Changing all your principal residence to a rental or business property

Prime rate - no change (yet again)!

The Bank of Canada did what we expected them to do (AGAIN!)… they did NOT change their Overnight Rate which means variable rates or lines of credit will not change and are still at fab low rates as much as 2.35%.  Fixed term rates have also dropped below the 2.84% mark which is amazing – back to where we were this time last year. 

Buying with less than 20% down payment? You will pay more for your insurance now.

Canada Mortgage and Housing Corporation (CMHC) announced an increase to their default insurance rates recently. Anyone purchasing their home with less than a 20% down payment is required to have their mortgage insured against default. 

The premium charged for owner occupied 1 – 4 unit mortgage will increase by approximately 15%, on average, for all loan-to-value ranges.

Loan-to-Value Ratio	Standard Premium (Current)	Standard Premium (Effective May 1st, 2014)
Up to and including 65%	0.50%	0.60%
Up to and including 75%	0.65%	0.75%
Up to and including 80%	1.00%	1.25%
Up to and including 85%	1.75%	1.80%
Up to and including 90%	2.00%	2.40%
Up to and including 95%	2.75%	3.15%
90.01% to 95% – Non-Traditional Down Payment	2.90%	3.35%

What this means is that on a $450,000 mortgage, the fee CMHC charges up front and often tacked onto the mortgage, would rise from $12,375 to $14,175 which will increase in your monthly mortgage payment.

CMHC controls about 70% of the mortgage default insurance market in Canada with private players Genworth Canada and Canada Guaranty holding the rest.

Genworth announced it too would raise premiums across the board by an average of 15%. Its increases will take effect May 1 too.
The good news is that this doesn't come into effect until May 1, 2014. As long as you arrange your mortgage prior to May 1, 2014 (closing date can be after May 1, 2014) you won’t be subject to this increase. 

Prime rate - no change expected till 2015

As you know, your variable rate mortgage, line of credit and/or student loans are all based on the Prime Rate and here is your personal update from me on the recent Bank of Canada announcement on changes to their Overnight Rate which in most cases impacts your Prime Rate.

At 10:00 am EST, Wednesday March 5th, 2014 the Bank of Canada again 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%.  This is fabulous news but don’t forget 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.   

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

“Inflation in Canada has moved further belowPrime rate the 2% target, owing largely to significant excess supply in the economy and heightened competition in the retail sector.  Global growth is expected to strengthen over the next two years with the US leading this acceleration, aided by diminishing fiscal drag, accommodative monetary policy and stronger household balance sheets. The improving U.S. outlook is affecting global bond, equity, and currency markets. Growth in other regions is evolving largely as projected.  In Canada, growth improved in the second half of 2013. However, there have been few signs of the anticipated rebalancing towards exports and business investment. Stronger U.S. demand, as well as the recent depreciation of the Canadian dollar, should help to boost exports and, in turn, business confidence and investment”.

Based on this news, the Bank still does not expect to increase their rate in the foreseeable future with any change most likely to occur late 2014 or even not until 2015!   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 dropped just slightly since the last announcement to around 3.19% to 3.39% 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 April 16th, 2014 at which time I’ll be in touch again.

Want To Have Solar Panels for Free?

Do you want to be friendly to the environment by switching to solar energy AND saving some money? Under the MicroFIT Program of the Green Energy Act, you can have solar panels installed on the roof of your home (or apartment building) in Ontario and pay absolutely nothing. The energy company will actually pay you for the electricity these panels will generate! Sounds too good to be true? Well let's see if it is or it isn't.

Pure Energies offers you to install and insure panels at no charge if you meet certain requirements, such as a home with a roof younger than 5 years, a south or west facing roof, ideally 400 sq.ft or more and no tree cover. The main catch - panels will have to stay on for 20 years. You can sell this property and they will transfer the contract, but there is pretty much no way out of this contract.

Because your roof will be covered with panels, you will have very limited access for repairs on one hand, but on another roof will wear much less and last longer. To address that Pure Energies offers to remove and install panels back free of charge once in 20-year period. This way you can replace the roof without extra cost. Anything beyond this one-time action is on you.

One important thing to consider is your property insurance. Check with your insurance company if they will still cover your building. Even if they will, the rate might change.

Will you save/make any money on this? Well it's important to understand that you will not be using energy that is produced over your head. It will be sold to the power company at premium rate set by the government (and NOT subject to change over 20 years) and then you will buy it back at regular price that is valid at the time. It is unclear if there will be delivery charge FROM your home, but there will be one for sure for delivery TO you (just as you can see on your bill now).

Keep in mind that it is unlikely panels will produce much electricity in the winter, because they will be covered in snow.

Based on feedback we were able to find, average household receives a check for $300-$500 every year (issued annually). Energy company receives $2000-$3000 worth of electricity from these homes.

A few hundred bucks might be a good additional stream of income from the property, but you have to committed to this project.

No change in prime rate... yet again

As you know, your variable rate mortgage, line of credit and/or student loans are all based on the Prime Rate and here is your personal update from me on the recent Bank of Canada announcement on changes to their Overnight Rate which in most cases impacts your Prime Rate. 

At 10:00 am EST, Wednesday January 22nd, 2014 the Bank of Canada again 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%.  This is fabulous news but don’t forget to make the most of the low payments you still have, as the rate will increase in the future.  

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

“Inflation in Canada has moved further below the 2% target, owing largely to significant excess supply in the economy and heightened competition in the retail sector. Global growth is expected to strengthen over the next two years with the US leading this acceleration, aided by diminishing fiscal drag, accommodative monetary policy and stronger household balance sheets. The improving U.S. outlook is affecting global bond, equity, and currency markets. Growth in other regions is evolving largely as projected. In Canada, growth improved in the second half of 2013. However, there have been few signs of the anticipated rebalancing towards exports and business investment. Stronger U.S. demand, as well as the recent depreciation of the Canadian dollar, should help to boost exports and, in turn, business confidence and investment”. 

Based on this news, the Bank still does not expect to increase their rate in the foreseeable future with any change most likely to occur late 2014 or even not until 2015!   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.  

The next announcement on any change to the prime rate is March 5th, 2014 at which time I’ll be in touch again.

No change in prime rate, yet again

As you know, your variable rate mortgage, line of credit and/or student loans are all based on the Prime Rate and here is your personal update from me on the recent Bank of Canada announcement on changes to their Overnight Rate which in most cases impacts your Prime Rate.

At 10:00 am EST, Wednesday December 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%.  This is fabulous news but don’t forget 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.    The holiday season is upon us which often means our personal spending on gifts and celebrations will potentially blow our budgets as we spend more than we maybe should… let me help you get back on track with a review of your financial situation which might be a savings plan, purchasing an income property or debt consolidation to pay off high interest loans or credit cards.  If you 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 is expanding at a modest rate, as the Bank expected. Although growth in several emerging markets has continued to ease, growth in the United States during the third quarter of 2013 was stronger than forecast. Even if some of this pickup was due to temporary factors, the data are consistent with the Bank’s view of gathering momentum in the U.S. economy.  In Canada, the housing sector has been stronger than expected but is consistent with updated demographic data and a pulling forward of home purchases in light of favourable financing conditions. The Bank continues to expect a soft landing in the housing market. Non-commodity exports continue to disappoint and the price of oil produced in Canada has eased further. Business investment spending is up from previous low levels, but is still recovering more slowly than anticipated. On balance, the Bank sees no reason to adjust its expectation of a gradual return to full production capacity around the end of 2015”.

Based on this news and continued slower level of economic activity in Canada, the Bank does not expect to increase their rate in the foreseeable future with any change most likely to occur late 2014 or even not until 2015!   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 did go up but then have gone down a bit since 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 January 22^nd, 2014 at which time I’ll be in touch again.

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.

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.