New Changes - Impact on Buying Power
Everyone in the real estate industry is discussing the impact of the changes rolled out Monday by the Minister of Finance. Impacts on property values is purely speculative at this point, but we are getting a better understanding of the impact on buyer purchasing power. Effective Oct. 17th buyers with less than 20% down payment will be qualifying at 4.64% instead of the 5 year fixed rate you actually receive.
If I simplify calculations and look at buyers with great credit, no debts and buying with 5% down and no condo fee, the changes to purchasing power are significant; even more than I initially calculated.
Assuming $100/month heating cost and $200/month property taxes, a buyer with a $50,000 income could buy to a maximum of approximately $300,000 at 2.44% and $235,000 at 4.64%. They lose $55,000 of purchasing power.
Assuming $125/month heating cost and $300/month property taxes, a buyer with a $90,000 income could buy to a maximum of approximately $570,000 at 2.44% and $450,000 at 4.64%. They lose $120,000 of purchasing power.
If you were previously pre-approved or selling to re-purchase at a higher price, you should speak to a mortgage professional about how these changes will impact you given your specific situation.
Separating And Want To Keep Your Home? You Can Do It With 5% Equity
Separating And Want To Keep Your Home?
You Can Do It With 5% Equity
One major decision in separations is what to do with the matrimonial home. There is an option available to separating spouses that is often overlooked or not offered by some mortgage lenders. In addition to selling or refinancing, there is a Spousal Buyout option.
In Canada, you can refinance your home up to 80% of its value. This is a great option for those with significant equity in their home. If you more recently purchased and have less equity, refinancing may not be enough to buy-out the other spouse, pay off joint debts, and keep the minimum 20% equity required in the home.
Spousal Buyout is another option available to you. If you are going through a separation or divorce, both parties are currently on title, and you have a legal separation agreement, you can purchase the property from your spouse using 5% of your equity as down payment. This allows you to unlock 15% more equity than a refinance if you need it to pay out the other spouse or pay off matrimonial debts. It is a program offered by mortgage default insurers, but not by all banks and lenders.
(NOTE: A version of this option known as a Dissolution of Relationship is also available for siblings, friends, or other forms of joint ownership)
Steps In A Spousal Buyout
1. SEPARATION AGREEMENT:
It is important to speak with a mortgage professional early on in this process so your separation agreement addresses the items necessary for this program to be used. (For example -car loans or lines of credit may need to be noted as jointmarital debt to be paid out).
The person staying in the home will need to qualify for the full purchase on their own based on income, credit, etc. Again, speak to a mortgage professional early on to confirm you qualify for the new mortgage amount on your own, taking into consideration any new child and spousal support commitments. Since you will be paying out your previous mortgage and setting up a new one, you can do this using a different lender than your current mortgage lender.
This is basically a new purchase so a lender will need all the standard documents to confirm your income, employment, and proof of additional funds to cover closing costs. Also, an Offer to Purchase selling the home from both parties to the one spouse must be drafted, signed, and provided to the lender.
All lenders will request a full appraisal to use this program. It will confirm the new purchase price is less than or equal to the current value of the property.
5. CLOSING COSTS:
Similar to a refinance, the down payment for this option comes from existing equity. But you should also be prepared for additional transaction costs including legal fees, appraisal cost, any applicable prepayment penalties charged by the original mortgage lender, and mortgage default insurance premiums (ie. CMHC). If you previously paid these premiums when you initially purchased, we may be able to save you some money by topping up your premium versus paying the entire premium again.
If you are going through a separation, please call me to discuss the mortgage options available. And if you know someone who may benefit from this information, please share it. There are major banks in Canada who do not offer this program and so they may not hear about it from their bank or any other avenue.
What Is Your Home Worth? It Depends Who You Ask..
What Is Your Home Worth?
It Depends Who You Ask...
When it comes to the valueof your home, there can be a lot of numbers tossed around during a sale, purchase, or refinance process. Understanding the differences between the valuations of your home can help you understand your homes worth.
Property Tax Assessed Value
A municipality or city uses an assessed value to determine how much property tax you are billed each year. This value is an estimated value on July 1 of the previous year. In volatile market conditions, tax assessed values may be significantly lower or higher than current market conditions. These assessments also use a technique that values groups of properties instead of individual homes. They use property sales data, land title records and municipal building permit and construction information to determine assessed value. It is not site specific. Mass appraisal valuations do not include a walk around your home and property, so the overall condition is not a consideration in the value.
Appraised values are determined by a professional appraiser and provide value on a particular day. It includes an inspection of the property and will take into account property location, size, type of construction, condition, and features and finishings. To determine a value, they will generally look at comparable properties sold in the area in the last 3 months and adjust the values for any differences between the comparable sale and the property they are inspecting (plus or minus). The data is much more current than a property tax assessed value. It also is quickly outdated. Appraisals capture a snapshot in time, so even after a month has passed they may not be accurate as newer comparable sales have occurred in the area. Appraisal reports cost roughly $250 to $500 depending on the size or travel time to a property.
Realtor EstimatedMarket Value
When considering a sale of your property through a realtor, they will start by doing a current market evaluation. You may have seen what homes in your neighborhood are listed for, but not necessarily the sale prices. List price and sale price can be very different, so a realtor going through that data with you can be very helpful.
Realtors usually suggest a price range looking at pending sales, recent sales, and expired or withdrawn listings of comparable properties in your area. They will look at the style and size of home, lot size, age, proximity to amenities, curb appeal, interior finishes and overall marketability of your property when looking for comparable properties. A professional realtor will also consider market trends and the amount of supply and demand for similar homes in your area. These market evaluations are typically free of charge and can be a good starting point in determining the current market value of your home.
What Does This All Mean For Mortgages?
When faced with these differing values, lenders rely upon your purchase price or the appraised value, whichever is LOWER.