Exploring options for home ownership.
For many Canadians, a home is the biggest purchase they will ever make. Becoming a mortgage holder for the next 25 to 30 years is a sizable responsibility. Prospective homeowners must be prepared to pay for property taxes, home insurance and an “Uh-oh” fund to help cover home repairs or renos, not to mention additional upfront costs, such as moving expenses, closing costs and utility and service connection fees.
Yet, as prepared for homeownership as some may be, getting into the housing market is proving more difficult recently. According to the 2016 Census, ownership rates in Canada are on the decline for the first time in almost a half century – down in 11 out of 13 provinces and territories, and in 88 of Canada’s largest 100 cities.¹ It’s not difficult to see why. Home prices can be high, particularly in urban centres, interest rates are on the rise and regulators introduced new mortgage rules in 2018 aimed at putting more rigour in place when qualifying clients for mortgages.
Designed to ensure homeowners can manage mortgage payments as interest rates rise, the new rules include a stress test for all borrowers. However, this has made it more difficult for many prospective buyers. An analysis by the Bank of Canada indicated that among Canadians who qualified for a mortgage with a 20 per cent down payment between mid-2016 and mid-2017, approximately 10 per cent would not meet the new standards.²
Given the current real estate environment, purchasing a home may not be right for everyone – some might be better served by renting and putting their money into other investments. But for Canadians who won’t give up their dream of buying property, there may be creative ways to get into the market.
Re-think your requirements
If you believe home ownership is right for you, you may need to change your perceptions of “must-haves.” Instead of looking for your dream house, look at what you can afford. Perhaps it’s a condo rather than a house, or something outside of your preferred neighbourhood.
Purchasing with family or friends
This growing trend in Canada can allow co-purchasers to qualify for a larger mortgage, but there can be some pitfalls. Keeping communication open will help you understand each other’s goals and expectations for homeownership. Consider making it legal with an agreement that includes the percentage of mortgage to be paid by each co-purchaser, how the home is to be divided, and how taxes, utilities, repairs and expenses will be paid. There needs to be trust between co-purchasers, because you’re both (or all) on the hook for the mortgage.
Some Canadians help qualify for their mortgage by renting out a suite in their homes. It’s important to understand the responsibilities of being a landlord and ensure that you can cover mortgage payments if your tenant income is interrupted for a time. Before going this route, talk to your lender to ensure you can use your rental income to qualify. Rules can vary on what kinds of rental suites are allowed.
Do your research
Just as you would shop around for the best deal on a car, it pays to shop around for a mortgage. There are innovative products that may help you get and manage a mortgage to fit your financial situation. For example, a solution that combines a high interest chequing account with a flexible mortgage allows you to choose the term, rate and features of your mortgage. Other solutions may include an all-in-one account combining a line of credit, bank account and mortgage to help pay down debt faster.
While still relatively rare in Canada, rent-to-own (also called “lease-option”) scenarios are starting to emerge. The premise is you rent a home for a period of time with the goal of buying the property at the end of the lease.³ There can be a number of terms and conditions attached, so ensure you can meet them if you decide to go this route. These agreements are usually used by those who don’t have enough saved for a down payment or who can’t qualify for a mortgage.
Get some good advice
There may be financial strategies you’re not aware of that can help you to achieve your property objectives and to afford your mortgage payments now and in the long term. Alternatively, there may be investment avenues outside real estate that would be better for your circumstances. Speak to your advisor for help in figuring out what real estate move is right for you and your overall financial situation.
1 Statistics Canada, “Housing in Canada: Key results from the 2016 census,” The Daily, October 25, 2017, www150.statcan.gc.ca/n1/ daily-quotidien/171025/dq171025c-eng.htm (accessed January 24, 2019). 2 https://globalnews.ca/news/3897942/new-mortgage-rules-2018-canada-guide 3 https://globalnews.ca/news/4445541/rent-to-own-housing-canada
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