Good afternoon everyone;
What a glorious Saturday we are having in mid-October. I wanted to send this out before the weekend got away from me. Enjoy.
In the GTA Real Estate Market
The market continues to be brisk. No real inventory surge has occurred so far this fall and I expect the October numbers to continue on the same story line of the past year. I.e. Increase in pricing with stable transaction growth. A slight increase in interest rates has led to a slight spike of buyers trying to take advantage of lower pre-approval rates before they expire. Remember a lower interest rate is great but not at the expense of overpaying for a home. You still will be out of pocket. Guidance from your realtor, mortgage professional and accountant is key to a smart home purchase.
Stricter Mortgage Rules Coming – Prepared by Lee Welbanks Mortgage Broker
When purchasing a home, there are a number of important considerations that will determine if you qualify for a mortgage and how much. These are based on your income, your cash flow factoring in any debts including the new mortgage payments, and the down payment.
There were significant legislative changes tabled on July 2012 that restricted mortgage acceptance which included: using a higher interest rate to qualify depending on the term selected; more income verification and down payment for self-employed; and, lowering the amortization to 25 years. All these changes mostly impacted those with less than 20% down and therefore required default insurance (from CMHC, Genworth or Canada Guaranty) to protect the lender.
As noted above, the first wave of changes has already occurred with the second wave coming no later than December 31st, 2013. (Some lenders have jumped the gun having already adopted the changes.) The new rules are designed to curtail debt accumulation so borrowers do not over extend themselves with more debt than they can afford.
Overall, these changes were developed to protect consumers from themselves, from becoming “house rich and cash poor” as a home owner living from pay cheque to pay cheque. Ideally there should be enough money left over at the end of the month to provide for emergencies and other rainy-day needs, not to mention retirement planning.
The next wave of changes will further affect borrowing and purchasing power. These changes fall into three categories which focus on debt to income ratios and ultimately determine the amount of mortgage a person will qualify for:
1. Debt. In terms of credit cards and lines of credit, a payment of 3% of the outstanding balance must now be used in mortgage calculations. Even if there is a lower monthly payment, it is not valid. For a real estate secured line of credit, the outstanding balance will be amortized over 25-years using either the Bank of Canada benchmark rate (5.34% as of October 8, 2013) or the actual interest paid. As such, even though a secured line of credit might only have a minimum payment of interest only, people must now qualify using a much higher payment. Some lenders are taking this one step further using ‘credit limit’ instead of the outstanding balance.
Solution: If you pay your entire balance off monthly, and can confirm this, there will be no impact on you! Working together on your personal household budget, we can create a plan to pay down your existing debt so that you can qualify for the mortgage you want.
2. Guarantors. If a person cannot qualify for a mortgage on their own, often a guarantor is added to the application. The guarantor is not on title but is on the mortgage and typically does not live in the subject property. Under the new rules, the income of a guarantor cannot be used to help qualify for the mortgage unless they live in the property. In other words, a person will be required to prove they can afford the property without the benefit of a guarantor’s income.
Solution: Purchase a home and obtain a mortgage that you can afford to pay off on your own with no help from a third party. This may force you to adjust your wish list, or purchase a more affordable home to get you started.
3. Heating/Utility Costs. The general practice in the past was to use $75 to $100 per month to calculate the cost of heat/utilities in your ratios. Changes now require that a higher amount be used based on the purchase price, size of property and location.
Solution: The reality is that heating/utility costs are likely more than $100 per month so ensuring that you can afford these bills is a good thing, before you buy the home. When you find a property you want to purchase ask the existing home owners for copies of heating/utility bills over the past 12 months so you can see the actual annual cost. Of course, usage can change from family-to-family but at least you have an idea. Again, ensuring that you can afford to pay these bills before you purchase is the key.
These changes, along with rising interest rates, are having an impact on the amount that borrowers qualify for which in turn determines an individual’s purchase price.
What’s next? Do not panic as these changes may not affect you at all. Those who are considering either moving or purchasing a bigger home or buying their first home can contact me for a free consultation to understand exactly how these changes may impact your mortgage. There are many strategies we can discuss to make your dream of home ownership a reality.
My best advice is to be prepared for the stricter mortgage rules coming so we can create a clear plan towards home ownership for you. Lee Welbanks.
Basement Reno Tips
Tip 1: Don’t Start to Work Until You Know It’s Dry
Before you do any kind of finished work on a basement, make sure there won’t be any water issues that could cause damage. Go outside and inspect the exterior walls for moisture problems. Make sure the ground is sloped away from the foundation walls. Also, check the downspouts, if they’re clogged, it could be create a lot of moisture and bring it into the basement.
Tip 2: Check the Code Before You Pound a Nail
Once you have a design plan and you’ve checked for moisture, the next thing you should do is find out whether you need to get a permit for the proposed renovation. Also, make sure that everything pertaining to electrical work is done to code.
Tip 3: Be Prepared to Shoot the Studs
You can use a hammer and nails, but most professionals use something called a shotgun. It looks like a gun, but it’s used for construction. You can buy “bullets” for it in different colors – yellow, red, brown, green; each color signifies the strength or caliber of the bullets.
Tip 4: Put Some Furring on Your Walls
Install furring strips on the wall so you’ll have a 1/2-inch of space between the interior wall and the moisture on the outside wall. You can use a Chicago bar, which is basically 1/2-inch thick metal strips.
Tip 5: Keep the Vapor Out and the Warmth In
Polyurethane sheeting is great for keeping moisture from seeping in. Consider insulation that’s completely enclosed in a vapor barrier, it is easy to work with since you don’t have to deal with itchy insulation fibers.
Tip 6: Suspend Your Ceiling Preconceptions
If you need to have access to electrical and plumbing systems in your ceiling, suspended ceiling tiles are the way to go. Otherwise, with a drywall ceiling, you’d have to create access panels.
Tip 7: Give Your Lighting a Recess
Recessed lighting is great for basements since you don’t want fixtures hanging from a low ceiling. Because there’s limited natural light, basement lighting is essential to brighten up the place.
Tip 8: Add Some Warmth at the Baseboards
Baseboard heating is an excellent choice for a basement. Normally the basement is the coolest room in the house, so choose a heating method wisely.
Tip 9: The Furnace Room is Not for Finishing
Leave the boiler room and the laundry room unfinished to save money. There is code for framing around those items, a certain clearance has to be maintained between the wall and the unit. Generally there should be at least two feet of space all the way around the unit.
Tip 10: Build Up the Floor Before You Lay Anything Down
Since the basement is below ground, it gets a lot of coolness and moisture, so you need to warm it up. Put down a vapor barrier to protect the space between the wood and the cement. Next, lay 2x4s and frame it every 16 inches. Lay a strip, and between the 2x4s, place an insulation board and a piece of 3/4″ plywood on top. This type of floor is giving and resilient, and it’s warm enough that you can walk barefoot on it.
Have a wonderful Thanksgiving long weekend, Anthony