It’s All About The Property

General Michelle Foster 26 Aug

 

Photo by SevenStorm JUHASZIMRUS from Pexels

With all of the rule changes imposed by the federal and provincial governments around mortgage financing and real estate it may be more difficult to access financing. But don’t take it personally – sometimes it’s not you it’s the property.
When lenders underwrite your application for approval they look at you as a borrower but they also evaluate the property. Here are some things to consider before you purchase.

The type of property — house, condo, duplex, heritage, etc.
1. Especially for condo properties the lender (and insurer if required) will look at the age of the building, the history of maintenance or lack there of and the location for marketability. Some lenders will limit their exposure with a maximum number of units in a building or avoid lending on buildings after a certain age for the property.
2. Properties with more than 4 units in them such as a 5-plex will be considered commercial real estate and the lender will evaluate on that basis.
3. Heritage homes (registered or designated) require a more detailed review and special consideration for financing.
4. Leasehold and co-op properties also have specific requirements for the maximum loan to value so more down payment may be required. More documentation will be required and interest rates will vary.

The location of the property— lenders always consider their risk in each market.
1. If the location limits the potential resale value for the building in the event of default by the borrower they may not lend on that property. Some lenders will reduce the loan amount for a building located out of major market areas or add a premium to the interest rate.
2. For properties with water access only or with no access to municipal utilities (water, heat, light and sewer) more details are required to assess the lender risk. Insurance coverage, water testing, seasonal access and condition of the property will be strong considerations.

The use for the property— personal or investment, recreational, previous activities.
1. If the owner occupied house has a suite then rental income may be considered.
2. If the house is purchased for investment then rental income is considered and the interest rate for rental rather than owner occupied is assigned. In these cases the rental income can increase the resale value of the property. However, the appraisal of the property will be reviewed to ensure the condition of the property and if any renovations were completed to add value.
3. There are lending options for a previous grow-op that come with higher interest rates and costs
4. In the case of a condo the property may have a commercial component in the building (shops below) or allowable space in the unit for business (live/work designation). In these cases some lenders may not have an appetite for financing. In some cases the lender may allow with approval by the insurer (CMHC, etc).
5. Purchasing a second home for recreational use will require a review if it is seasonal or year-round access.
6. If the property requires renovations the extent and cost to value of the property will be considered.

Before you start looking at any property, talk with a mortgage professional to go over your financing options and common pitfalls to look out for. We can discuss the specific requirements for any variation in the type of property you may want to purchase and allow ample time for a full financing review before subject removal on a purchase.

For example:
If you shift from a standard condo to a lease-hold property your down payment amount will likely change.
If you want to move to a small rural town you may have to pay a higher rate or have less options and more documentation required on the property.
If you buy a home in one province but may be transferred to another province, some lenders such as credit unions are provincially based so you can’t port the mortgage.
If the condo you wish to buy has no depreciation report, a low contingency fund or big special levies pending, these will all be a red flag for the lender and should be a strong consideration for you as a buyer. A more thorough review will be required.

Always consult an experienced independent mortgage professional for all of your financing needs and to help you make an informed decision.

 

Original post from: Pauline Tonkin, Dominion Lending Centres – Accredited Mortgage Professional

Pauline is part of DLC Innovative Mortgage Solutions based in Coquitlam, BC

6 Reasons To Get A Home Inspection Before You Buy

General Michelle Foster 12 Aug

 In an active housing market sometimes buyers are urged to make an offer with no home inspection condition. As a mortgage professional this always makes my heart skip a beat. I know from experience that financing can go sideways and you need to be sure it’s in place before removing conditions.

Another item that should not be forgotten is a house inspection. You may have a good eye for décor but house inspections are not for amateurs. We have all heard, “Never judge a book by its cover” so why would you make the most important purchase in your life without checking it out? This may be the best $300-$500 you ever spent. Here’s why.

#1 – It provides an out for the home buyer.
Sometimes hidden structural issues like a cracked foundation or saggy beams can mean expensive repairs. If the price can’t be re-negotiated then you have a way to walk away from an expensive mistake.
A few years ago we had a client who has pre-approved for a mortgage. He found the perfect house in south east Calgary and made an offer which was accepted. He then ordered a house inspection while I arranged the mortgage. The inspector came back and told my client that there were 10 things he could see in the house that indicated that it had been used as a grow op. My client used this to break the contract and went on to buy another home without any problems.

#2 – Revealing illegal additions or improper renovations
If the DIY seller wired the house improperly or used sub-standard materials your home insurance could be null and void if you had something happen in the future. The home inspector for my first home noticed that the indoor outdoor carpet in the master bedroom had been glued to the hardwood, something that resulted in a multi-day project we were not counting on.

#3 Safety and Structural issues
Inspectors go up into the attic , and down into the farthest reaches of the basement and can spot things like mold, holes in the chimney, improper wiring or improperly vented fans.

#4 – Aiding in the planning for future maintenance expenses
Unless the home is brand new you will need to replace a number of things; water heaters last 6-10 years, roofs about 20 years , furnaces about 25 years. . The report will include an estimate on the remaining life for each of these expensive items which will give you time to save for their eventual replacement.

#5 Bargaining power
If you find something that will cost a considerable amount to replace or repair you can go back to the seller’s agent and ask for a reduction in the price. A leaky roof may cost $3000 to replace. Perhaps the seller would split the cost with you? It’s worth asking.

#6 Peace of Mind
Finally, for your own peace of mind. When you have spent all your hard earned cash on a home and will be paying it off for 20+ years, it’s easier to sleep at night knowing that the house won’t come tumbling down on you or that you paid too much .

While an inspection cuts into your budget at a time when you need all the cash you can get, you will find it is money well spent.

 

Original post by David Cooke, Dominion Lending Centres – Accredited Mortgage Professional. David is part of DLC Jencor Mortgages in Calgary, AB.

Canada’s Economy is Outperforming the US

General Michelle Foster 5 Aug

Canadian Economy Recovers Almost Half Its COVID-Induced Loss in May and June

The Canadian economy bounced back sharply in May and June as Canadian provinces eased lockdown measures.

GDP expanded 4.5% in May, and activity in June was even more robust at an estimated 5% rise. Cumulatively, GDP rose 10% in May and June, after plummeting more than 18% in March and April. These figures are calculated on a month-over-month basis.

These figures point to about a 40% annual rate decline in second-quarter GDP in Canada, which is roughly in line with economists’ projections. South of the border, the US posted a 33% contraction in GDP for the second quarter, the most massive plunge on record (see details below). It’s not surprising that Canada’s economy tanked by more than the US in Q2, as Canada enacted more aggressive restrictions earlier than the US and eased them more slowly. These public health restrictions were well worth it, as Canada has had far greater success at flattening the curve of new cases and deaths. Moreover, Canada’s economy will likely outpace the US in Q3, showing the benefit of allowing the public health considerations to dominate.

Canadian output was up in most sub-sectors in May, with double-digit monthly gains by retailers coinciding with the reopening of many stores. Construction, too, recorded a strong rebound, with activity up 17.6% month-over-month in the sector.

Activity at food services and bars rose 35.1% in May as dining rooms and patios began to open in certain parts of the country, while other restaurants continued relying exclusively on take-out and delivery. Meanwhile, accommodation services dropped 2.3%, as ongoing restrictions on international and interprovincial travel kept most Canadians at home.

Real estate and rental and leasing increased 1.5% in May following a 3.4% decline in April. Activity at the offices of real estate agents and brokers jumped 57.1% in the month, as home resale activity in nearly all major urban centres increased in conjunction with a substantial increase in the number of newly listed homes. Nevertheless, the output of real estate agents and brokers remained 44% below February’s level.

Arts, entertainment, and recreation declined another 2.9%. We expect some of these services industries to continue to lag the recovery as demand will be slow to rise due to remaining safety protocols and concerns about virus spread.

Oil production remained sluggish in May, down another 2.7% from April and drilling activity has yet to show signs of a significant rebound into the summer.

US ECONOMY SHRINKS AT A RECORD 32.9% PACE IN Q2

US gross domestic product shrank 9.5% in the second quarter from the first, a drop that equals an annualized pace of 32.9%, the Commerce Department’s initial estimate showed on Thursday. That’s the steepest annualized decline in quarterly records dating back to 1947. The drop in GDP in the quarter was close to expectations but was still alone more than twice the total 6-quarter peak-to-trough decline in the 2008/09 recession.

Consumer spending, which makes up about two-thirds of GDP, slumped an annualized 34.6%, also the most on record. While employment, spending and production have improved since reopenings picked up in May and massive federal stimulus reached Americans, a recent surge in infections has tempered the pace of the recovery.

US Jobless Claims

A separate report Thursday showed the number of Americans filing for unemployment benefits increased for a second straight week. Initial claims through regular state programs rose to 1.43 million in the week ended July 25, up 12,000 from the prior week, the Labor Department said. There were 17 million Americans filing for ongoing benefits through those programs in the period ended July 18, up 867,000 from the prior week.

While the economic restart has helped put 7.5 million Americans back to work in May and June combined, payrolls are down more than 14.5 million from their pre-pandemic peak.

“We have seen some signs in recent weeks that the increase in virus cases, and the renewed measures to control it, are starting to weigh on economic activity,” Fed Chairman Jerome Powell said at a news conference Wednesday after the central bank’s two-day policy meeting. “On balance, it looks like the data are pointing to a slowing in the pace of the recovery,” though it was too soon to say how extensive — or sustained — this period would be, he said. This is a reminder that there are limits to how much the economy can rebound to a ‘new normal’ in the absence of a vaccine or more effective treatments.

According to Bloomberg News, The US economy has stalled for the fourth consecutive week as new virus cases continue to surge and some lockdown measures have been reinstated. In the week ending July 24, we saw a decline in US public transit ridership, airline passengers, mortgage applications, consumer confidence, and same-store sales.

With the election only three months away, American voters will have to decide whether to re-elect President Donald Trump to a second term against a backdrop of the virus-induced recession and his response to the health crisis. Not surprisingly, Donald Trump floated the idea of delaying the election in a tweet yesterday morning, suggesting once again the false claim that widespread mail-in voting would make the election “inaccurate and fraudulent.” The president has no power to postpone or cancel an election on his own, and his comment triggered a hugely negative response from both his own party and the Democrats. 

In the meantime,a $600 weekly supplement to unemployment benefits that has provided a key economic lifeline for millions of Americans ends today with Republicans and Democrats still quarrelling over a path forward. This, while US coronavirus deaths now top 152,000, hitting records in Texas and Florida and Dr. Anthony Fauci warns that the disease is spreading rapidly to the Midwest.

BOTTOM LINE

The Canadian economy is outpacing the US in the early recovery period.

Some of the initial bounce-back in Canada – particularly in the housing market – probably reflects the release of pent-up demand generated during the lockdown. Unprecedented income supports have also helped prop up near-term household purchasing power. Payments from CERB alone looked larger than total wage losses through the downturn in April, and we expect to see more of the same in May payroll employment and wage numbers in the week ahead.

The threat of a resurgence in virus spread will still limit the amount that the economy can recover over the second half of this year – and activity in the oil and gas sector still looks exceptionally soft. We still expect GDP to be more than 5% below year-ago levels, and the unemployment rate elevated, in Q4. But there is some scope for Canada to outperform the US in the very near-term, provided virus spread can remain relatively well contained.

According to early advance data for July published by RBC economics, retail and recreation activity in Canada continues to recover more quickly than in the US states suffering surging COVID cases (see chart below).

Dr. Sherry Cooper

DR. SHERRY COOPER

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.