The Misleading Math Behind the Rent vs. Buy Calculation

Article originally published on www.realtor.com

| Feb 17, 2017

 

There’s about $13.1 trillion stashed away in the United States, in plain sight. Where? In our homes!

Do we have your attention yet?

That’s the total value of the equity held by over 75 million U.S. homeowners, according to the latest estimates from the Federal Reserve Board. And that works out to almost $175,000 per owning household.

This is unmistakable evidence that homeownership is a critical building block of household wealth. Owning a home is a key reason why the median net worth of a homeowner is almost $200,000 while the median net worth of a renting household is just over $5,000.

Sure, part of that is because owners were able to pony up a chunk of money to put down on a house, and to qualify for a mortgage. But the act of paying for a mortgage actually helps produce more wealth, by freezing payment amounts and building equity through forced savings.

The traditional rent versus buy argument compares the total monthly costs of buying a home with a mortgage with the corresponding rent. So that comparison is relevant when it comes to representing  the housing choice trade-off in clear cost terms.

Two years ago, that head-to-head heavily favored buying, thanks to very low mortgage rates and lower prices. Back then, more than three-quarters of the counties in the country saw lower buying costs than renting costs.

With prices and rates higher now, less than half of the counties in the country see math that favors buying.

But those raw numbers hide the fact that unlike a rent check, a percentage of every monthly mortgage payment—after the lender is paid interest—goes toward the owner’s home equity. That means it’s really a forced savings plan.

Over time, less of the mortgage payments go toward interest and more go toward equity, so the savings power is enhanced further.

Here’s how that works out for a median-price home of $250,000 bought in January with 20% down with a monthly payment of $976.

Before their first payment, the proud new homeowners had $50,000 in equity thanks to their down payment. (Actually, 20% down isn’t always typical or necessary, but, hey, it keeps this illustration simple.)

In the first year, an average of 29% of the monthly payments builds equity. After 12 payments, the homeowners have just over $3,400 in added equity.

By year 14, 50% of the monthly $976 payment goes toward equity. Don’t forget that the monthly payment hasn’t changed, because the interest rate was fixed.

At the end of the 14th year, just shy of $64,000 has been added to the initial $50,000 in equity.

In the final year of the 30-year mortgage, while the monthly payment remains $976, 98% of the monthly payments builds equity until that magic day when the home is owned free and clear.

Think you can beat that with rents? Researchers at Harvard put it this way:

“While studies simulating the financial returns to owning and renting find that renting is often more likely to be beneficial, in practice renters rarely accumulate any wealth. In no small part this seems traceable to the difficulties households face in trying to save absent either a clear goal or an automatic savings mechanism.”

So, you want a better rent versus buy illustration? First, find a place to rent for no more than $976—the same as our mortgage payment example above. If you can rent for less, great. Will you be able to save that difference amounting to at least $3,400 in the first year? That would imply you can really pay only about $700 in rent to get the same savings effect.

If you can’t save $3,400 yourself by paying less in rent, ask the landlord if he’ll take a portion of your rent payments and set it aside for your rainy day fund.

Then ask the landlord if he’ll set your rent payment at today’s rate for the next 30 years. And before you close the deal, ask him to raise the rainy day share each year by 1% to 2% until year 30, when he’ll get only 2% of the rent payment.

Clearly, this would not be easy to do.

Even if the house only keeps pace with inflation over 30 years, which is a very conservative assumption, the forced savings inherent in a mortgage guarantees a homeowner is building wealth. A renter household has to be extremely diligent to amass the same savings that the good ol’ 30-year mortgage does automatically.

Mortgage Qualification Tips for Newcomers to Canada

Have you recently moved to Canada and want to buy a home? Independent mortgage broker Atrina Kouroshnia of Lava Rates explains what you need to know.

If you’re new to Canada and want to buy a home here, there are some rules you will need to follow. First off, the good news is that the Canadian government does not restrict foreign ownership of real estate, so you can buy property here even if you’re a temporary (or permanent) resident, rather than a citizen. Some provinces do limit the amount of agricultural land foreigners can buy, but this won’t apply to most home buyers.

However, foreign banks cannot register mortgages in Canada, which means you’ll need to get a mortgage from a Canadian bank if you plan to finance the property. The underwriting process for a newcomer can be a bit more complicated than it would be for a citizen, but I’ve seen people qualify for a mortgage only a few months after arriving in Canada.

If you want to buy a home as a transplant to Canada, here’s what you need to know:

Down payments: Depending on the lender, you may need a larger down payment because you could be perceived to be a higher credit risk. Some lenders require newcomers to put down at least 35 per cent, but there are alternative options for newcomers. You may be required to have had a down payment in Canada for at least 30 to 90 days depending on the lender, but some exceptions can be made depending on the country where the down payment is coming from and whether or not those funds can be traced. Lenders may also require that newcomers who are putting down less than 35 per cent purchase mortgage loan insurance because the risk of default is higher among non-citizens.
Employment and credit history: If you’re brand new to Canada, you probably haven’t had much time to establish a long credit or employment history here. Some banks will accept a 35 per cent down payment for those who have been in Canada for less than five years and have yet to establish employment sufficient for the mortgage they are seeking. Under other programs, the lender may require you to wait until you’ve worked with a Canadian employer for at least three months or you may need to provide extra documentation to show that you’re creditworthy. This might include immigration documentation such as a work permit, references from banks or employers, credit reports from your home country, records showing 12 months of on-time rent payments and proof of funds for your down payment. If you’re working for the same company because they’ve relocated you to Canada, that may help demonstrate your stability and creditworthiness to lenders.
Property Transfer Tax: Property transfer taxes may work differently than in your home country, so make sure you do your homework and budget accordingly. The main thing to note is that if you are buying a home in Metro Vancouver, you will have to pay not only the basic provincial Property Transfer Tax that all homes are subject to, but also an additional foreign-buyer Property Transfer Tax of 15 per cent of the purchase price. That applies whether you are resident in Canada or still living overseas, to those who do not have Canadian citizenship or permanent residency. However, if you are a foreign national living in Metro Vancouver with a Canadian work permit, you will be exempt from this extra tax. And the tax only applies to Metro Vancouver, as of late 2016, so if you’re buying outside that region, there is no additional tax for foreign nationals.
If you are exempt from the foreign buyer tax, British Columbia also offers first-time home buyers an exemption from the basic Property Transfer Tax. But again, you must be a Canadian citizen or permanent resident (not on a work permit) to qualify and you cannot have purchased property or been on the title of a property anywhere in the world at any time. The exemption also requires you to have either lived in BC for 12 consecutive months before the date you register the property or have filed income taxes as a BC resident for at least two out of the last six years.

 

-originally published on www.rew.ca

Richard Bell B.A. LL.B. Bell Alliance
Once you’ve found your new home, then comes the seemingly tricky bit of lawyers, notaries, searches and contracts. Richard Bell of Bell Alliance explains that it’s really quite simple.

So, working with your real estate agent, you have found your new home and, with assistance of your mortgage professional, you have arranged for a mortgage. What’s next?

It’s time to hire a lawyer or notary public to help with the legal process to finalize the purchase of the home.

Here are the eight steps you will need to go through.

Step 1: Retain the services of a lawyer or notary. Ask your other professional advisors for a referral or family and friends that have gone through the process. Make sure you are hiring someone with experience in real estate closings. Most closings go smoothly but if something unexpected happens you want to make sure your lawyer or notary public has the necessary expertise. You should contact your lawyer or notary as early as possible in the process.

Step 2: Your lawyer or notary will need to gather information from you, including how you wish to hold title to the property. If you are buying with your spouse or partner, most couples hold title as “joint tenants,” which means that the couple jointly owns 100 per cent. Upon the death of one owner the property automatically passes to the survivor outside of their will. The other way to hold title to property is as “tenants-in-common” which means each owner owns a fixed percentage, which could be 50-50, 70-30 or any combination. Upon the death of one owner, the owner’s interest passes under their will.

Step 3: Your lawyer or notary conducts a title search and obtains tax information and any additional information necessary to prepare the statement of adjustments. This is a balance sheet of the transaction showing the total funds required to complete after accounting for the deposit and mortgage proceeds. And there may be adjustments for taxes, strata fees or rental income.

Step 4: Your lawyer or notary prepares closing documents including title transfer, mortgage, property transfer tax forms and statement of adjustments. Your lawyer or notary will forward the seller’s closing documents to the seller’s lawyer or notary for execution.

Step 5: One to three days before closing is when you usually meet with your lawyer or notary to sign documents and deliver the balance of the down payment or equity.

Step 6: Your lawyer or notary registers the transfer and mortgage documents, arranges for the seller’s lawyer or notary to pick up funds and notifies you that the purchase has completed.

Step 7: You receive the keys for your new home. Normally you receive the house keys directly from your real estate agent on the possession date as set out in the contract of purchase and sale.

Step 8: Move in and enjoy your new home – congratulations!

Originally published on rew.ca

October 9, 2014

Home Sales, Average Sale Prices Down “Significantly” Across BC: BCREA

January home sales across BC fell 23 per cent year-over-year to 4,487 units – a decline of just under five per cent compared with December 2016’s 4,721 transactions.

“Housing demand across the province returned to long-term average levels last month,” said Cameron Muir, BCREA chief economist. “However, regional variations persist, with Victoria posting above-average performance and Vancouver falling below the average.”

The total sales dollar volume across the province in January was $2.79 billion, a drop of 36.5 per cent compared with the same month the previous year, reflecting not only lower sales numbers but also a reduced average sale price.

The average BC MLS® residential price in December was $621,093, a drop of 17.5 per cent since one year ago. It’s also a slide of nearly five per cent month over month, bucking the previous five months’ trend of price increases since August’s dip.

Muir added, “A marked decrease in the average MLS® residential price is largely the result of relatively more home sales occurring outside of the Lower Mainland.”

Looking at the individual real estate boards across BC, Greater Vancouver was once again the area to see the biggest annual decline in sales and average sale prices, followed by the Fraser Valley – despite both areas still seeing board-defined benchmark prices well above year-ago levels.

The best-performing regional markets in January (excluding Powell River and Northern Lights, which are very small markets that see widely varying percentage changes) were the Kootenay, BC Northern, Okanagan Mainline and South Okanagan boards, which all saw year-over-year increases in home sales and average prices.

Although Chilliwack saw a smaller increase in transactions, it posted the province’s biggest rise in average sale price, up 38.3 per cent year over year. Of the large markets, Victoria and Vancouver Island also reported an increase in average sale prices since the previous January, up 12.3 and 5.7 per cent respectively.

National Picture

Home sales and prices across the whole country fared a little better than BC, but the Lower Mainland’s “significant” decline is pulling down the national trend, according to figures released February 15 by the Canadian Real Estate Association (CREA).

The CREA reported 25,282 Canadian homes exchanging hands in January, which is up 1.9 per cent year over year but down 1.3 per cent since December.

The association’s monthly report said, “While sales were up from year-ago levels in about two-thirds of all local housing markets including in the Greater Toronto Area, Calgary, Edmonton, London and St Thomas, and Montreal, they were down significantly in the Lower Mainland of British Columbia.”

CREA added that national sales were only slightly above that of November 2016, when new mortgage rules are introduced, which the association believes could negatively affect buyers this year.

“Canadian homebuyers face some challenges this year, including new mortgage rules that make it harder to qualify for a mortgage and regulatory changes that will push up mortgage financing costs,” said Cliff Iverson, CREA president. “It will take some time to gauge the extent to which these challenges will weigh on home buyers in different housing markets across Canada.”

January’s average sale price in Canada was $470,253, almost flat with one year ago, up just 0.2 per cent. However, the CREA warns against using averages as an indicator of real home values, as they can be easily skewed by high and low outliers. The MLS® benchmark home price in January, aggregated across Canada’s real estate boards, was $551.400 – up 15 per cent year over year.

“The shortage of homes available for sale has become more severe in some cities, particularly in and around Toronto and in parts of BC,” said Gregory Klump, CREA’s Chief Economist. “Unless sales activity drops dramatically, the outlook for home prices remains strong in places that face a continuing supply shortage.”

 

Article originally published on www.rew.ca

Contact Michael Cowling at 604-241-7653 or info@michaelcowling.com for your neighbourhood market update.

Here’s how to apply for BC’s first-time home buyers’ loan

We came across this helpful article via the Daily Hive, and wanted to share it with you! For more information, please feel free to contact us at any time with your questions. We’re here for every step of your home buying journey! 

article via Daily Hive

Feb. 16 2017

You’ve heard about it since December, but it’s finally real – now BC residents can get a loan to help them buy their first home.

The provincial government has invested more than $700 million in the BC Home Owner Mortgage and Equity (HOME) Partnership, which will provide up to a $37,500 loan to first-time home buyers.

Applications for the program opened on January 16, and will be accepted until March 31, 2020. Many millennials will be excited to use this program since it makes Vancouver’s housing more affordable.

But it isn’t as simple as walking into an office and coming out with a cheque. To help, we’ve compiled a list to help you apply for your first-time home buyers loan.


Find out if you’re eligible

To apply for the BC HOME Partnership loan, you can’t have owned any part of any residence anywhere in the world. It’s also required that you’ve been a Canadian citizen or permanent resident for at least five years.

You also need to have lived in BC for at least a year before applying. You can have more than one person on the title of the home you are buying, but everyone needs to fulfill the eligibility requirements. The combined gross income of everyone on the title must be less than $150,000 a year.

Before applying, you also need pre-approval for a high-ratio insured mortgage. That means at least 80% of the property’s value is mortgaged, and the mortgage is covered by insurance that protects the lenders. You have to get a letter from an approved bank or financial institution confirming you are pre-approved.

If you’re still unsure, you can use BC Housing’s online calculator to find out if you’re eligible.

Save your money
The BC HOME Partnership loan is conditional based on the amount of money you have for a down payment. Your down payment must be equal to or more than the amount you’re applying for. The BC HOME Partnership program will loan a maximum $37,500 or 5% of the home’s purchase price.

If you want to reduce your mortgage payments, you can save more for your down payment – although the program won’t loan you more money. You can have a down payment of up to 15% of the home’s purchase price and still be eligible for the BC HOME Partnership program.

Prepare the paperwork

Applications for the BC HOME Partnership program are done online, but you’ll still need to put together paperwork for you application. This includes:

Proof of status in Canada – either a Canadian birth certificate, permanent resident card, or certificate of Canadian citizenship
Proof of residency in BC
Secondary identification with a photo – either your BC driver’s licence, BC Identification Card, Passport, or secure certificate of Indian Status
Notice of Assessments from Canada Revenue Agency, or a Proof of Income Statement from the revenue agency
Letter of pre-approval for an insured first mortgage
These must be submitted electronically, in one of the following file types: PDF, DOC, DOCX, TIFF, JPG, JPEG, GIF, or PNG.

Find the house
Once you’re approved for the loan, you’ll need to find your house. Upon approval, you’ll get a Homebuyer’s Package that outlines the steps you and your mortgage broker need to take to receive the loan.

Because the loan only covers up to 5% of the purchase price, you need to find a home that’s $750,000 or less before taxes. To be eligible, the house has to have a closing date on or after February 15 – and you need to take possession of the home within 30 days of closing and move in within six months.

You’ll also need to have the home as your principal residence for the first five years you own it – and that goes for everyone on the property’s title.

You can find more information on the BC HOME Partnership program and how you can apply via the provincial government or BC Housing.

Metro Vancouver housing market off to a quieter start than last year

Home sales and listings trends are below long-term averages in the Metro Vancouver* housing market. This is due largely to reduced activity in the detached home market.

Residential property sales in the region totalled 1,523 in January 2017, a 39.5 per cent decrease from the 2,519 sales recorded in January 2016 and an 11.1 per cent decrease compared to December 2016 when 1,714 homes sold.

Last month’s sales were 10.3 per cent below our 10-year January sales average.

“From a real estate perspective, it’s a lukewarm start to the year compared to 2016,” Dan Morrison, Real Estate Board of Greater Vancouver (REBGV) president said. “While we saw near record-breaking sales at this time last year, home buyers and sellers are more reluctant to engage so far in 2017.”

New listings for detached, attached and apartment properties in Metro Vancouver totalled 4,140 in January 2017. This represents a 6.8 per cent decrease compared to the 4,442 homes listed in January 2016 and a 215.5 per cent increase compared to December 2016 when 1,312 properties were listed.

The total number of homes currently listed for sale on the Multiple Listing Service® (MLS®) in Metro Vancouver is 7,238, a 9.1 per cent increase compared to January 2016 (6,635) and a 14.1 per cent increase compared to December 2016 (6,345).

The sales-to-active listings ratio for January 2017 is 21 per cent. This is the lowest the ratio has been in the region since January 2015. Generally, analysts say that downward pressure on home prices occurs when the ratio dips below the 12 per cent mark for a sustained period, while home prices often experience upward pressure when it surpasses 20 per cent over several months.

“Conditions within the market vary depending on property type. The townhome and condominium markets are more active than the detached market at the moment,” Morrison said. “As a result, detached home prices declined about 7 per cent since peaking in July while townhome and condominium prices held steady over this period.”

The MLS® Home Price Index composite benchmark price for all residential properties in Metro Vancouver is currently $896,000. This represents a 3.7 per cent decline over the past six months and a 0.2 per cent decrease compared to December 2016.

Sales of detached properties in January 2017 reached 444, a decrease of 57.6 per cent from the 1,047 detached sales recorded in January 2016. The benchmark price for detached properties is $1,474,800. This represents a 6.6 per cent decline over the last six months and a 0.6 per cent decrease compared to December 2016.

Sales of apartment properties reached 825 in January 2017, a decrease of 24.7 per cent compared to the 1,096 sales in January 2016.The benchmark price of an apartment property is $512,300. This represents a 0.3 per cent increase over the last six months and a 0.4 per cent increase compared to December 2016.

Attached property sales in January 2017 totalled 254, a decrease of 32.4 per cent compared to the 376 sales in January 2016. The benchmark price of an attached unit is $666,500. This represents a 0.4 per cent decline over the last six months and a 0.7 per cent increase compared to December 2016.

 

Source: Real Estate Board of Greater Vancouver

Contact Michael Cowling at 604-241-7653 or info@michaelcowling.com for your neighbourhood market update.

Article originally published on www.vancitybuzz.com

A total of 944 public and independent elementary schools in the province have been ranked in the Fraser Institute’s 2016 Report Card of British Columbia’s top elementary institutions.

The evaluation is based on 10 academic indicators derived from the province-wide Foundation Skills Assessments (FSA) results.

This year, only two public schools made it to the top of the list – Irwin Park and Cedardale, both in West Vancouver – tying for first place with 16 independent schools from across Metro Vancouver, all scoring a perfect 10.

Meanwhile, West Vancouver had the highest average school ranking at 9.2 out of 10.

18 top ranked elementary schools in British Columbia

All tied, in no particular order:

  1. Crofton House (Vancouver)
  2. Southridge (Surrey)
  3. St George’s (Vancouver)
  4. Vancouver College (Vancouver)
  5. West Point Grey (Vancouver)
  6. York House (Vancouver)
  7. Corpus Christi (Vancouver)
  8. Holy Cross (Burnaby)
  9. Mulgrave (West Vancouver)
  10. St Michaels (Victoria)
  11. St Paul’s (Richmond)
  12. Iqra Islamic (Surrey)
  13. Our Lady Of Mercy (Burnaby)
  14. Irwin Park (West Vancouver)
  15. Our Lady Of Sorrows (Vancouver)
  16. Our Lady Of Perpetual Help (Vancouver)
  17. Cedardale (West Vancouver)
  18. Diamond (Surrey)

Below is a breakdown of the rankings by area. “=” represents a tie in the overall rankings.

11 top ranked public elementary schools in B.C.

  • Irwin Park (West Vancouver) (=1)
  • Cedardale (West Vancouver) (=1)
  • Gleneagles (West Vancouver) (=23)
  • Halfmoon Bay (Halfmoon Bay) (=27)
  • West Bay (West Vancouver) (=30)
  • Caulfeild (West Vancouver) (=30)
  • Ridgeview (West Vancouver) (=35)
  • Jessie Wowk (Richmond) (=40)
  • Dr R E McKechnie (Vancouver) (=40)
  • Westcot (West Vancouver) (=67)
  • Chartwell (West Vancouver) (=67)

11 top ranked elementary schools in Vancouver

  • Crofton House (=1)
  • St George’s (=1)
  • Vancouver College (=1)
  • West Point Grey (=1)
  • York House (=1)
  • Corpus Christi (=1)
  • Our Lady Of Sorrows (=1)
  • Our Lady Of Perpetual Help (=1)
  • Stratford Hall Vancouver (=23)
  • Immaculate Conception (=40)
  • Dr R E McKechnie (=40)

5 top ranked elementary schools in Burnaby

  • Holy Cross (=1)
  • Our Lady Of Mercy (=1)
  • St Michaels (=40)
  • St Francis de Sales (=47)
  • John Knox Christian (=60)

5 top ranked elementary schools in Surrey

  • Southridge (=1)
  • Iqra Islamic (=1)
  • Diamond (=1)
  • Star Of The Sea (=23)
  • Khalsa (=35)

5 top ranked elementary schools in Richmond

  • St Paul’s (=1)
  • Richmond Christian (=23)
  • Cornerstone Christian (=27)
  • St Joseph The Worker (=40)
  • Jessie Wowk (=40)

5 top ranked elementary schools in the Tri-Cities

  • Traditional Learning Academy (Coquitlam) (=67)
  • Hope Lutheran (Port Coquitlam) (=75)
  • Our Lady Of The Assumption (Port Coquitlam) (=82)
  • Our Lady Of Fatima (Coquitlam) (=87)
  • Queen Of All Saints (Coquitlam) (=109)

5 top ranked elementary schools in West Vancouver

  • Mulgrave (=1)
  • Irwin Park (=1)
  • Cedardale (=1)
  • Collingwood (=19)
  • Gleneagles (=23)

5 top ranked elementary schools in North Vancouver

  • Brockton Preparatory (22)
  • St Pius X (=30)
  • Lions Gate Christian (=62)
  • Holy Trinity (=75)
  • St Edmund’s (=87)

5 top ranked elementary schools in Delta

  • Southpointe (=40)
  • Immaculate Conception (=62)
  • Sacred Heart (=75)
  • Cougar Canyon (=120)
  • Devon Gardens (=206)

5 top ranked elementary schools in Langley

  • St Catherines (=67)
  • Credo Christian (=93)
  • Langley Christian (=109)
  • Dorothy Peacock (=120)
  • Alex Hope (=150)

5 top ranked elementary schools in Abbotsford

  • MEI (=62)
  • St James (=67)
  • Bradner (=82)
  • Dasmesh Punjabi (=87)
  • Auguston Traditional (=93)

5 top ranked elementary schools in Victoria

  • St Michaels (=1)
  • Glenlyon Norfolk (=27)
  • St Patrick’s (=35)
  • Christ Church Cathedral (=35)
  • St Margaret’s (=52)

 

It is worth noting that the Fraser Institute’s rankings have been said to be controversial due to their insufficient methods of gathering information on schools and their students. 

 

Down payment help: What parents, kids should know before money is gifted

High real estate prices and new mortgage rules designed to clamp down on risky lending have made it harder than ever for first-time buyers to own a home.

Desperate to break into the housing market, cash-strapped millennials are accepting massive financial help from parents in the form of “gifted” down payments.

The latest stats from Mortgage Professionals Canada show down payment gifts from parents have doubled since 2000 — going from seven per cent in 2000 to 15 per cent for homes purchased between 2014 and 2016.

“With the way the market’s gone over the last two or three years, there has been quite a surge in gifted down payments from family members,” said Toronto mortgage broker Darin Bauer of Mortgage Intelligence.

“If it was $20 or $30,000, I’d think, ‘Whatever, no big deal.’ But the gifts are huge now. They’re literally $100,000 to $200,000 sometimes.”

Vancouver mortgage broker Atrina Kouroshnia has also seen down payment help in the six figures. She hasn’t crunched her 2016 down payment numbers yet, but tells us half her clients who put at least 20 per cent down in 2015 had a portion of their down payment that was gifted, compared to 37.5 per cent of those who put less than 20 per cent down.

She and Bauer expect the trend to continue. James Laird, co-founder of RateHub (a site that compares mortgage rates), predicted earlier this month to Global News that 2017 will be “the most difficult year for a first-time homebuyer in the last [decade].”

The new stress test — designed to predict whether homeowners could shoulder their debt if interest rates or their personal finance situation were to change — means many of Kouroshnia’s first-time buyers who were previously approved for a high-ratio mortgage (which is when the down payment is less than 20 per cent) are completely out of the market now.

“To give you an example,” she said in an email, “my clients who were qualified for a purchase price of $450,000 and $410,000, now qualify for $380,000 and $340,000 with the same or even slightly higher down payment and the same income.”

That won’t get them much in Vancouver, where the average home cost more than $1.4 million in 2016. Kouroshnia thinks larger down payments will be the solution for some to “fill in the gap.”

Bauer believes many parents refinance their homes to help their kids with down payments, which he thinks is very risky.

Even though they may think their house is worth a certain amount of money, if the market “corrects,” he explains, the price of their own home may go down and they will be on the hook for the equity they took out of it.

“The main thing people forget, is until you actually sell and cash out, you don’t have that money yet.

If generous parents opt to sell stocks or mutual funds to help their kids come up with the money, they could face a hefty tax bill depending on the amount. If they borrow the money, they will be charged interest and need to have a plan to pay it back.

Sometimes there are “unspoken family rules,” Kouroshnia tell us, where the child feels compelled to somehow return the money to his or her parents.

Lenders frown on money being lent rather than gifted “because it increases the borrower’s debt-to-income ratio,” Kouroshnia explains on her blog.

Another option is to sign as a guarantor on a child’s mortgage. There needs to be a lot of trust for the child if parents choose that route, cautioned Vancouver financial adviser Kristine Skinner of BlueShore Financial last May.

“You want to have an in-depth conversation with your children about what their monthly budget looks like,” Skinner said, “and their ability to absorb any unforeseen expenses and ensure that they’ve actually built that into their budget before agreeing to help them.”

Mortgage payments are only part of the cost of home ownership. Property taxes, utilities, insurance, condo fees, maintenance costs and emergency repairs all add up.

And Bauer points out property taxes and utility rates are only going up in already pricey markets like Toronto. Being house poor is not something anyone should strive for.

 

What first-time homebuyers should know

The first rule of accepting a gifted down payment is that it has to come from an immediate relative.

It’s also supposed to be a “genuine gift” that never has to be repaid, according to Karine LeBlanc, a spokesperson for Canada Mortgage and Housing Corporation (CMHC).

The family member gifting the money may be required to sign a letter confirming that. The lender might also verify bank records to confirm the amount of funds being transferred to the buyer.

If you’re buying a property with your partner, you might want to consider protecting the money you receive from your family.

“Obviously, nobody buys property with their spouse and anticipates a split, but if that happens, your relative may not want your ex-spouse to walk away with half of that money,” Kouroshnia explains on her blog.

Toronto family lawyer Andrew Feldstein says any gift that goes into a matrimonial home is subject to being divvied up, even if there’s a letter stipulating who the gift is for.

“Absent a pre-nup, you’re out of luck,” Feldstein warned.

He adds you can get a “single issue” pre-nup (which may cost you a couple thousand dollars) even after you’ve already tied the knot.

 

READ MORE: Common-law couples can be ‘woefully ignorant of their rights’: lawyer

For self-employed applicants who are stating their income, Kouroshnia tells Global News, at least five per cent of the minimum 10 per cent down payment would need to come from the buyer’s own resources.

Something else to consider is that even with a gifted down payment, a lender will look at any prospective buyer’s complete financial picture. Good credit is always important.

READ MORE: What affects your credit rating and how can you improve it?

“If the client has poor credit, no stability with income, and is getting the down payment 100 per cent as a gift, it would be hard for the lender to accept their mortgage application and may ask to have the parent on board as well,” she said.

“It is important to show that the client has the ability to save on their own, even if [the] down payment is being gifted.”

Jeanette Brox, a senior financial consultant with Investors Group, says the best way to save for a down payment is to maximize RRSP contributions and put the resulting tax refunds toward a down payment fund.

READ MORE: How to borrow money from your RRSP for a down payment

Under the Home Buyers’ Plan, the government lets each first-time homebuyer make a one-time $25,000 RRSP withdrawal that can be used for a down payment. If you plan to buy property with a partner who’s also a first time buyer, that’s $50,000 right there.

You’ll have to repay the funds you took out of your RRSP within 15 years, starting two years from when the money was withdrawn.

READ MORE: More ways to save for a down payment

 

 

Read full article via Global News here.

RE/MAX Michael Cowling And Associates Realty

Business: 604-276-2335
Cell: 604-241-7653
Email: info@michaelcowling.com

How Much Does It Cost to Renovate a House? The Numbers You Should Know

Whether you bought a fixer-upper or moved into your home ages ago, eventually the time may come when you start itching to make some updates. And that will get you wondering: How much does it cost to renovate a house? Knowing your numbers ahead of time is crucial, lest you end up with plans that are bigger than your budget. So before you so much as eye a tile sample, check out this detailed breakdown on how much your dream upgrades will set you back.

The cost to renovate a house

The exact cost of revamping your living space will depend on its size, the region you live in, and just how much of a face-lift it needs. To get a rough idea, Than Merrill, founder of FortuneBuilders.com, says the general costs associated with a remodel look like this:

  • Low ($25,000 to $45,000): Interior and exterior painting, small repairs (like refinishing cabinets) and new landscaping.
  • Medium ($46,000 to $75,000): The low-cost upgrades above, plus a total kitchen renovation and minor bathroom upgrade.
  • High ($76,000 and up): Low- and medium-cost upgrades, plus fixing any foundation issues, roof and sewer line problems.

The largest renovation expenses

Sure, paint can play a big part in a remodel, but gallons of semi-gloss will be a drop in the bucket compared with big-ticket items for certain rooms (we’re looking at you, kitchen and bathroom). Remember, it’s the appliances and cabinets in those rooms that eat up the biggest chunk of money. Here’s what you can expect to pay for an average-sized house (about 2,500 square feet).

  • Kitchen: The national average cost of a kitchen remodel is $20,474. If a kitchen only needs minor upgrades, renovations should start at around $10,000. A full gut can reach more than $50,000, depending on the quality of materials and appliances installed, says Merrill.
  • Bathroom: A bathroom upgrade typically costs about $9,000 and tops out at $20,000. (Of course, you could spend more by adding such spalike touches as a steam shower.)
  • New roof: The cost of protecting all your upgrades from the elements will run you around $20,000.
  • New floors: Installing new wood floors will cost about $4,400, while laminate, which is less expensive, will set you back about $2,800.
  • Electrical updates: If you’re replacing an old panel and a home’s worth of outdated wiring, expect to spend $3,000 to $5,000.
  • Replacement siding: Putting new exterior siding on your home runs an average of $14,000.
  • Replacement windows: If you plan to replace 10 windows and frames to save on your energy bill, the cost will range between $8,500 (vinyl) and $20,000 (wood).
  • The contractor: Unless you plan to oversee the renovation yourself, a budget should include the cost of a general contractor. They usually charge 10% to 15% of the project’s total budget. So for a $50,000 renovation, expect to pay a contractor $5,000 to $7,500.

 

One easy way to save money on renovations is to negotiate to pay actual builder costs on finish materials, says Jesse Fowler, president of Tellus Build, a green custom-build firm in Los Angeles and Santa Barbara counties.

The contractor you choose should be getting a discount on retail prices, and Fowler says that this can benefit you, too, in that you can “capture some or all of those savings.”

Return on investment (ROI)

Ah, the magic words that make the pain of parting with thousands of dollars more palatable, as those big checks you write for renovations today may pay dividends if you ever sell your home.

A typical kitchen remodel typically yields an 83.1% return on investment. That means for every $1,000 you spend on those cabinets and countertops, you’ll get back $831.

Meanwhile, a bathroom renovation boasts an ROI of 65.7%, and if you go for those pricey wood-framed windows, you’ll enjoy a high ROI of 72.1%. Check here for the renovations that offer the best return on investment.

 

 

Read full article via Realtor.com here.

RE/MAX Michael Cowling And Associates Realty

Business: 604-276-2335
Cell: 604-241-7653
Email: info@michaelcowling.com

Buying Costs

If you’ve decided to buy a home, it’s important you understand all the costs involved in addition to the price you’re paying for the property.

Here’s a helpful article published by the Real Estate Board of Greater Vancouver – we thought you might find it to be useful:

Here’s an overview:

Buying Costs

Mortgage application
Lenders may charge a mortgage application fee, which will vary depending on the lending institution.

Mortgage insurance
The federal government requires high-ratio mortgages with less than 20 per cent down payment to be insured against default. The cost ranges between 0.60 to 3.85 per cent of the mortgage amount which is added to the mortgage principal.

As of February 15, 2016, the federal government requires a 10 per cent down payment requirement on homes valued at $500,000 – $1 million, that need mortgage insurance. Homes valued at $1 million+ require a minimum down payment of 20 per cent. Mortgage insurance is not available for homes in this price range. Learn more

Appraisal fees
Before your lender approves your mortgage, you may be required to have the property appraised. Sometimes your lender will cover this cost. If not, you’re responsible. The fee ranges from $300 to $450 plus GST.

Land survey fees
Lenders may require a survey of the property. The fee ranges and is typically $500 plus GST.

Home inspection fees
A home inspection is a report on the condition of the home and includes structural and moisture problems, as well as electrical, plumbing, roofing and insulation. The fees range and is typically $500-$900 depending on the size of the home and the complexity of the inspection. Some inspectors also charge an additional fee for an older home or a home with a secondary suite, a crawlspace, or a laneway home.

Goods and Services Tax (GST)
The GST on a new home is 5% of the price. A GST rebate equivalent to 36% of the GST paid is available for new homes priced up to $350,000 and a partial rebate on new homes priced up to $450,000.

Buyers also pay the GST on fees for services from appraisers, home inspectors, lawyers, Notary Publics and REALTORS®.

Provincial Sales Tax
The PST is generally not payable on services except for legal and notary fees. Both the GST and PST are paid on legal and notary fees.

Property Transfer Tax
Home buyers in BC pay a provincial Property Transfer Tax (PTT) when they buy a home. The tax is charged at a rate of 1% on the first $200,000 of the purchase price and 2% on the remainder up to and including $2 million. The PTT is 3% on amounts greater than $2 million..

Qualifying first-time home buyers may be exempt from paying the PTT if the purchase price of their home is priced up to $475,000. There is a proportional exemption for homes priced between $475,000 and $500,000. At $500,000 and above the rebate is nil.

Qualifying buyers of new homes may be exempt if the purchase price of their home is priced up to $750,000. There is a proportional exemption for homes priced between $750,000 and $800,000. At $800,000 and above there’s no rebate.

Click here for the Property Transfer Tax fact sheet.

Click here for more cost saving programs.

Adjustments (see details in the Contract of Purchase and Sale)
Property taxes
Depending on the Contract of Purchase and Sale, a property buyer will likely be required to reimburse the seller for any prepaid property taxes. The lender may require the buyer to add property tax installments to monthly mortgage payments.

Utility bills
A buyer is typically required to reimburse the seller for any prepayments for municipal swer and water fees.

Rent and security deposits
If there is a secondary suite or a laneway home rental and the tenancy continues, the buyer receives the security deposit from the seller with accrued interest because the buyer is responsible for reimbursement when the tenant leaves.

Mortgage life insurance
If the owner dies, this type of insurance will pay off the balance owing on their mortgage.

Fire and liability insurance
Most lenders require property buyers to carry fire and extended coverage insurance and liability insurance.

Home insurance
Lenders typically require home buyers with a mortgage to buy home insurance. The insurance should be effective on the earlier of either the completion date or the date that the balance of funds is placed in trust.

Legal or Notary Public fees
Buyers typically hire a lawyer or Notary Public to assist with drafting documents and ensuring the title of the home is properly transferred. Likely fees include a:

*title search for a property, this costs up to $11
*land title registration fee, which is about $75
For more information about land titles, visit the Land Title and Survey Authority of BC at www.ltsa.ca.

Moving fees
Moving fees vary depending on the distance moved and whether professional movers do all of the packing. Rates vary.

Utility hook ups
There are fees for hydro, gas, water and sewer, cable, and phone connections.

Locks
New owners should always have door locks rekeyed. Costs depend on whether the locks are standard or electronic.

Strata maintenance fees
Typically paid on the first day of each month.

Commission fees
What does it cost to hire a Realtor you may also ask?’ There is no set commission rate in the real estate profession. Most Realtors are paid after ownership is transferred. Fees are typically paid to the real estate company by the lawyer or notary in the transaction from the sale proceeds.

Compensation is always agreed to beforehand between you and your Realtor. There is no such thing as an average commission. The Commission paid depends on the services provided by your Realtor, which can vary significantly depending on your needs as a client or the business model employed by the Realtor.

When does a commission become payable?
The standard Multiple Listing Contract provides that commission is payable on the earlier of the following: completion date under the Contract of Purchase and Sale, or the actual date the sale completes.

Read full article via the REBGV online here.

RE/MAX Michael Cowling And Associates Realty

Business: 604-276-2335
Cell: 604-241-7653
Email: info@michaelcowling.com

#110 – 6086 Russ Baker Way
Richmond, British Columbia
Canada
V7B 1B4

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