Family Formation & Housing

For young couples starting families, buying their first home and/or other real estate. Covers mortgages, credit cards, interest rates, children’s education savings plans, joint accounts for couples and the like.

It’s still possible for Singles to buy their own home: Here’s how

By Marc Kulak

Special to the Financial Independence Hub

Buying a home can be daunting, especially for people who want to buy on their own. And that number is growing. In fact, according to a survey we at TD Canada Trust recently conducted, single homeowners represent a quarter of Canadians buying or intending to buy a home.

A large part of this trend is driven by unexpected life circumstances: Canadian homebuyers who are divorced (69%) or widowed (35%) more likely to purchase solo, along with a growing number of single Canadians who say they’ll go it alone (67%).

From personal experience, I know that being creative –- and realistic –- on ways to afford to own a home is going to get you in one faster. Here are a few ideas to get you started:

Buying solo doesn’t mean living solo

Just over one-quarter (27%) of single Canadians who have or intend to purchase a home alone would consider having a tenant to make solo home ownership more affordable, while just under one-quarter (23%) said they would consider a roommate. Having rental income can help pay down the mortgage principal more quickly. Be sure to qualify for your mortgage without rental income so you have flexibility if you decide a roomie or tenant is not for you.

Think beyond the picket fence

Before you make any commitments, do your research and seek out professional financial advice to know what you can afford. For example, you can check out the TD Mortgage Affordability Calculator online to see what budget works best for your situation. Remember, it’s not just a mortgage payment you have to manage – other costs including property taxes, insurance, and ongoing maintenance will add up. Your mortgage payments should be low enough so you can take care of all your monthly expenses, meet your savings goals and still have some wiggle room. It’s also important to have slush funds set aside to cover emergencies and household maintenance.

Protect your investment

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The Long & Short of it: Long vs. Short-term Mortgages

Interest rates have nowhere to go but up. No doubt you’ve heard this line if you’ve bought a home or had to renew your mortgage at some point in the past decade, followed by an eager banker or mortgage broker urging you to “lock in” now.

Most homeowners in Canada prefer fixed-rate terms for predictability and peace of mind, with five-year terms being the most popular.

Yet despite its popularity, the five-year fixed rate is likely the least advantageous term for borrowers.

Going Long: 10-Year Mortgage Term

For those looking for greater protection against (eventual) rising interest rates, a longer term is worth a look. A 10-year fixed rate mortgage today can be had for as low as 3.69 per cent.

Another reason to consider a longer mortgage term: a safeguard against the possibility of a housing crash. What happens if prices fall 20 per cent or more in the next few years, wiping away your home equity before it’s time to renew? A 10-year term, while more expensive than a shorter term, does offer a double-dose of protection in case prices fall or interest rates rise substantially. Continue Reading…

The stress of moving sideways in high-priced housing markets

By Penelope Graham, Zoocasa

Special to the Financial Independence Hub

Think breaking into the Toronto real estate market is tough? Try making a lateral move; there’s a whole new crop of challenges facing those looking to cash in on their home’s equity, according to a recent bank report.

While much has been made over the plight of first-time buyers, they’re not the only ones feeling the pinch. Home owners with a long-term position in the market and who have become considerably house-rich — namely baby boomers — are also put off by the market’s challenges.

And while this generation has received criticism for hunkering down in their family homes rather than adding them back to the supply of low-rise, detached housing, the fact is many would love to cash out: but they face the same hurdles as their millennial counterparts.

According to a recent poll conducted by CIBC, two in five Canadian homeowners planning to sell their homes are poised to profit on their home sale — but 62% are reluctant to put it on the market due to the high cost of buying another home.

“In today’s market, homeowners are facing a conundrum as to whether to buy, sell or stay put,” says David Nicholson, vice-president of CIBC Imperial Service. “Buying or selling your home is one of the biggest decisions you’ll make. That’s why it’s important to make the decision for the right personal and financial reasons and see past the noise in the marketplace. Evaluating the pros and cons as part of an overall financial plan can help you decide what’s best for you.”

Sixty-seven per cent of boomers (aged 55 and up) indicated they wished to downsize to a smaller home, condo or nursing / retirement home.

The search for affordable options

Most downsizing boomers aren’t looking to acquire another million-dollar detached property, but recent price surges within the condo market may leave them feeling as though their options are limited. The Greater Toronto Area market has infamously experienced a 33% year-over-year price increase, and much of that double-digit growth has spilled over into the condo segment.

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Toronto & Vancouver real estate investors should sell now, author says

Real estate in Toronto and Vancouver is at the irrationally exuberant greed stage and investors should sell, says bestselling author Calum Ross

By Calum Ross

Special to the Financial Independence Hub 

The Problem

Real estate investors often fail to objectively assess their existing portfolios in the same way that a holistic wealth management professional or financial planner would when dealing with equity investments.

Many real estate investors who began their investment careers following sound investment principles have got caught up in the hype and strayed from their core investment principles. When a particular asset class performs well, there is often a sentiment of irrational exuberance that develops around that asset class. When this happens, savvy investors adapt their strategy while others continue to “go with the herd” and experience the eroding effects of inertia.

The problem is highlighted today in two key ways:

  • Yield on Toronto and Vancouver Real Estate Has Diminished: Rising real estate prices in these markets have outstripped the increase in rental rates that has eroded yields. This now means many real estate investors are over-weighted in one asset class, and that many new real estate investments are in reality speculative-grade investments because they don’t meet the suggested 3% interest rate cushion to sustain cash flow (a metric outlined in more detail in my recent book on borrowing to invest).
  • Investors are Demonstrating Irrational Exuberance and Greed Towards Real Estate: I’m deeply concerned by the number of people who believe real estate values will continue to climb at these uncharacteristically high levels. Not only are current appreciation rates unsustainable, but the fact that rental increases are not even close to keeping pace makes real estate investment even less appealing.

There are too many investing in real estate who are chasing returns through appreciation alone. There’s an alarmingly high net inflow of money to real estate in overpriced markets even as yields continue to plummet.

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What first-time home buyers should know about FHA loans (U.S.)

By Cher Zevala

Special to the Financial Independence Hub

For most people, a home is the most significant purchase they will ever make, as well as one of the most complex. Finding a home is actually the easiest part in most cases, but financing the purchase can be stressful.

That stress is only amplified when you want to purchase a home, but don’t necessarily meet lender qualifications for an attractive mortgage. Simply put, it’s not always easy to get a mortgage for a home. Lenders have strict criteria in terms of down payment, income, and credit history, and failing to meet those criteria can mean disappointment, at least when you work with a traditional lender. Thankfully, there are other options for purchasing a home, such as an FHA mortgage.

What Is an FHA Mortgage?

An FHA mortgage or loan is a home loan backed by the Federal Housing Administration (in the United States).  Borrowers who get a mortgage under this program must purchase mortgage insurance, which protects the lender in the event of a default. The agency itself does not issue the loan, but instead works with traditional lenders, providing assurance that the bank will not lose money on the deal.

FHA loans are attractive to many home buyers because they typically have less stringent qualifications in terms of down payment and credit score, but still offer competitive interest rates. For instance, while a buyer who only has a 10 per cent down payment and a credit score of 600 is not likely to qualify for a traditional loan, he or she has a better chance of getting financing via an FHA loan. Continue Reading…