Buying a Condo? 5 Tips For Getting the Best Value...

If you're a first-time homebuyer, a current homeowner looking to downsize or a parent considering buying a secondary property for kids moving for school, chances are you've considered condo ownership.

When looking for a condo, finding the best value is all in the combination of the place, the price and the monthly fees.  When calculating how much they will loan to you, mortgage lenders count half of your monthly fees, along with other factors such as property taxes and heat expenses.

Here are five tips from Mortgage Intelligence, to help you get the best value for your condo purchase:

1. Know what your fees cover.  Along with maintenance of the building and common areas, some condominiums will include part or all of your utilities or property taxes in your fees, while others keep them completely separate.

2. Check the reserve fund.  The corporation responsible for the condo development should have a reserve fund that's large enough to cover the cost of repairs to the building's common elements.  A status certificate (or Estoppel certificate in some provinces) will show any planned developments that could increase your monthly fees or require a special one time assessment.  You can find similar details in the condo corporation's annual meeting minutes.  

3. Think twice about upscale amenities.  Keep in mind that building features like pools, saunas, deluxe fitness areas or large common rooms typically require higher condo fees to cover the upkeep. Consider whether you'll really use these features enough to make the extra cost worthwhile.

4. Check the regulations.  Make sure you're aware of any bylaws governing your condo development that could affect your lifestyle. For example, bylaws may restrict household pets, gas barbecues, working from home or renting the unit to a tenant.

5. Consider your neighbours.  Is the building mainly occupied by owners, or renters? Residents who own and have a vested interest in the building may be more careful about upkeep.


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Photo credit: [c] Sharon Diwakar for openphoto.net

Are We in a Housing Bubble?

In a recent issue of CIBC World Markets' Economic Insights, one of my favourite economists, Benjamin Tal, addresses what we've all been wondering...  Are we in a housing market bubble?  Is a crash imminent?

Tal states that any such suggestion is "probably wrong".

His reasons for this conclusion:

First, while average house prices have indeed been increasing, the main markets that are pulling up the average are Vancouver (a "highly skewed" market) and, to a lesser extent, Toronto.  Pulling out the data from these markets reveals a much more moderate 3.7% year-over-year price increase.

Second, while he does believe that "prices in the Canadian market and its sub-segments are higher than can be explained by factors such as income growth, rent and household formation", the "pace of any correction is likely to be gradual".   He demonstrates that we only have a small segment of the population that is vulnerable to interest rate hikes (families with less than 20% equity and/or whose debt payments total more than 40% of their gross income).  Further, he maintains that such interest rate increases are expected to be moderate. 

Tal concludes that there may indeed be a period of time where housing "underperforms" compared to other assets, but that eventually we will see a return to equilibrium.

If you're house-hunting and wondering whether to get into a bidding war on one of those "hot" houses, this is something to keep in mind.  More and more, the answer is you probably shouldn't.

 


Photo credit: [c] Jasenka Petanjek for openphoto.net

Rate watch - rates on the rise

A couple of the chartered banks announced rate increases yesterday and today, and with bond yields going up recently, it is likely that the other lenders will do the same. 

If you're in the market for a home and don't have a pre-approval yet, or you've been considering refinancing soon, don't delay calling your mortgage consultant.  Lock in these low rates while you have the chance!

Buy your cottage and keep it, too

We just got back from our cottage on the Ottawa River.  It's wonderful there...  Wild windswept forest, water gently lapping onto the sandy beach (and mosquitoes the size of hummingbirds, but hopefully some long overdue hot dry weather will beat them into submission). 

I always know that summer's coming because the smaller members of our household start negotiating, "Can we go to the cottage tomorrow?  Why not?  Well, when can we go?"  And I find myself wondering, just how much school do those kids really need, anyway?

The reality of our situation however is that taxes, insurance, maintenance, and small renovations really tap into our cash flow.  In addition, with our busy jobs it's hard to get away as much as we would like.  So, like many people, we rent the cottage part of the summer.  It accomplishes two things: one, the rental income helps with our expenses, and two, we have wonderful renters who take care of the cottage as if it were their own, so that we don't have to worry that an empty cottage is just sitting there, vulnerable to thieves.

If you've been bitten by the cottage bug, or a vacation home is crowding in on your daydreams, you have probably realized another reality.  Nowadays, property prices have greatly increased in many of Canada's popular vacation destinations, making it a challenge to purchase the beach house of your dreams.

Some people choose to share these costs by renting, as we have, while others manage the cost through joint ownership with family or friends, or even some combination of the two.  However, before taking the plunge into co-ownership or renting, you need to be sure that you really understand what you're getting into.

Here are a few things to think about:

Does owning a vacation property fit your lifestyle?

In addition to the fun and leisure aspects of a vacation home it is important to factor in the time and cost involved in year-round upkeep. How will the property be used? If your dream is to own a ready-to-live-in relaxing hideaway while your co-owners dream of a northern DIY project, you may not see eye-to-eye when it comes to how you will be spending your weekends.

It’s important to think carefully about how much time you and your co-owners plan to spend at the vacation property. Will you be vacationing as a group, or do you want to trade off on weekends? Will one use the property more than the other? Will it be a 50/50 split?  

How will disagreements be resolved?  Can your relationship withstand potential friction regarding decisions involving money?

Have you thought about what’s involved before you put it up for rent?

While most Canadians buy a second home for recreational use, growing numbers are also buying for investment purposes. Determine in advance how you will split, and claim, the rental income. In the case of a vacation property that you intend to rent out most of the time, the lender may deduct the rental income from your total monthly debt payments when qualifying you for a mortgage. It is important to be aware that not all lenders will take rental income into account – a mortgage broker can advise you on this.   As well, if you do rent the property for the majority of the year, you may have additional expenses - insurance would be more expensive, and you may wish to consider using a property management company.  How do these fit into your spreadsheet?

Can you afford the financing?

While it certainly helps to go in with a co-purchaser, you want to be sure that your waterfront property isn't putting you underwater.  Seek independent advice on what size of mortgage you can reasonably handle - again, a mortgage broker can help you with this.  And as with any purchase, if you think you will need financing, make sure you get a pre-approval to ensure smooth sailing when you put in your offer to purchase.

Regardless of whether you are buying a cottage that you yourself will enjoy, or as an investment, some pre-planning will help make sure it is a relaxing and rewarding venture.  And don't forget your bug spray!

Image credit: [c] Daniel Steger for openphoto.net

Thinking of helping your kids to buy a home? Three ways to do it

Abigail Van Buren once said, “If you want children to keep their feet on the ground, put some responsibility on their shoulders.”

This holds true even once they’re grown. What better way to give responsibility to your adult children than by helping them to become homeowners?  Further, once your kids are old enough to go to university or first start working, they likely won’t have the funds to buy their own home, yet many of us feel that it is better to own the home we live in, rather than paying off someone else’s mortgage. So, how can this be accomplished? 

Here are three alternatives. Which is most appropriate for you depends on your financial situation and your lifestyle and retirement goals.

Option 1. Provide cash to your child as a gift, for a down payment on a home.

PROS: Your child can buy a home sooner, and start building up equity, rather than paying rent to someone else. If the amount of the gift is more than 20% of the value of the home they wish to buy, you enable them to obtain a conventional mortgage, avoiding mortgage default insurance fees.

CONS: You will have to provide a letter confirming that the funds are a gift, with no repayment required. The child is free to use the money as they choose.

Option 2. Co-sign on your child’s mortgage.

PROS: The mortgage will be obtained based on your financial circumstances. Your child may not have an established credit rating, high enough salary, or a proven track record of employment, to qualify for a mortgage. If your financial situation allows, you can co-sign or guarantee their mortgage. This may result in a better interest rate, larger mortgage amount, and a more ideal home for your child.

CONS: You will be responsible for paying the mortgage, if your child becomes unable to do so. As well, if you later need to borrow money yourself, the debt may impact your own ability to qualify for funds.

Option 3. Use your own cash, or equity you have available in your own home, to buy a home and have your child pay you rent.

PROS: If you feel your child is not yet ready to own their own home, for example, while going to university, becoming the landlord may make the most sense. Using money you have in the bank, or equity in your own paid-off home, you could invest in a rental property. If you do finance the purchase, your interest on the loan is tax-deductible since this is not your primary residence (and if you choose a home equity line of credit, all you have to pay is the interest).   Best of all, your child and their roommates will pay the rent to you, keeping the money in the family.

CONS: If you finance the purchase, the equity in your own home will be tied up and not available to you for your personal needs. The same holds true of you use your own funds. Also, if your child moves away, you might be stuck holding property in an area that was chosen only because your child was attending school there.

The key benefit in these scenarios: the help you have provided will keep money in the family, instead of paying someone else’s mortgage via rent payments.  Talk to your accountant or financial planner to review your options and ensure they are appropriate for your situation, and then enjoy helping to make your child a homeowner!

Photo credit: [c] Microsoft Clip Art

Five Steps to Making Your Dream Renovation a Reality

The lure of a stunning gourmet kitchen or sparkling spa-style bathroom may have you chomping at the bit to begin a home renovation. But if you heed the advice of experienced renovators, pre-planning and advanced preparation are the secrets to renovation success.

Here’s a helpful checklist to get your renovation started on the right track:

1. DECIDE WHAT YOU WANT TO DO

For most people, this is the fun part – flipping through magazines and watching home decorating shows to get inspired. But it is also one of the most critical phases in any home renovation.

2. PREPARE A REALISTIC BUDGET

Determine how much you are prepared to spend on your renovation. Remember to boost your budget by at least 10% for unexpected costs.

3. ARRANGE FOR FINANCING

Get financing in place early so that you can plan your renovation with confidence. Leveraging the equity in your home is often a good option. With a secured loan, you can usually obtain an attractive interest rate with flexible repayments. Other alternatives include refinancing your existing mortgage or arranging for a second mortgage on your home.

An independent mortgage broker can help by negotiatiating competitive financing with a number of competing lending institutions.

4. SELECT THE RIGHT TEAM

You’ll want to entrust your project to people known for their quality of work. Ask for recommendations from friends and family, interview prospective candidates, and I strongly recommend that you check references.

5. STICK WITH YOUR PLAN

Your contractor, who does the construction or subcontracts it to other trades people, will work with you or your designer to implement your plan. With a sound plan, reasonable budget, financing in place and a team that you trust, your renovation can get off on the right track.

What renovations are on your wish list?

Home sales down, prices up in April 2011

According to the Canadian Real Estate Association, home sales activity was down 4.4% in April 2011.  This softening was expected due to the tightening of mortgage regulations in March.

Home prices were up 8% compared to April 2010, buoyed by continuing increases of multi-million dollar home sales in Vancouver.  

To see the full article, click here.


Photo credit [c] Liz Orfao for openphoto.net