Some detailed thoughts about the home buyers incentives announced in the 2019 Federal Budget

General Robert Ganzhorn 21 Mar

The 2019 federal budget was announced yesterday with some much hyped housing measures (justified or not). I’ve taken the liberty of attaching the 12 pages from the budget that pertain to housing measures within it for those of you that want to read it. You can get it here: 2019 federal budget housing measures

The main highlights of the housing measures contained in the budget are below and few details are available as yet. What was provided was a very general framework and it may be a few weeks until we get those details. What we know so far is below.

First time home buyers incentive and increased allowable HBP withdrawals

  • Applies only to First time home buyers
  • Applies to mortgages insured with CMHC.
  • Only available for households with income of less than $120,000 annually
  • The combined mortgage and incentive amount cannot be for more than 4 times the annual household income. So basically maximum mortgage is the mortgage amount + cmhc incentive + cmhc insurance premium
  • No regular payments are necessary for the incentive amount
  • It is repayable
  • The incentive allows for an interest free top up towards the down payment from CMHC as follows: a maximum of 5% for existing homes and 10% for new homes
  • The program would include “eligibility criteria” to ensure “participants are able to afford the home”
  • This is a 3 year program with $1.25 billion allocated towards it. Start date is expected as early September 2019
  • The incentive addresses AFFORDABILITY NOT MORTGAGE QUALIFICATION. It is intended for those that can already qualify for a mortgage under the latest mortgage qualification rules.
  • So guess what? The stress test and all other rules making qualification so difficult still apply to all borrowers
  • It’s unclear whether the CMHC down payment portion will be allowed to be used as part of the mortgage qualification process. It would make sense that it would be and then it could help (minimally) with qualification but nothing significant enough to allow a large number of previously unqualified buyers to enter the market.
  • Withdrawals from RRSP accounts have been increased to $35,000. This is all fine and dandy but there aren’t too many first time home buyers with that much in their RRSP
  • Use of the incentive may actually result in a lower purchase price for some due to its limit of 4 times household income

Unanswered questions on this offering so far

  • What’s the definition of a first time home buyer? It is the HBP definition or maybe the land transfer tax definition or ?)
  • Will this apply to conventionally insured mortgages as well as high ratio mortgages?
  • Will this also be available through the two other mortgage insurers, Genworth and Canada Guarantee?
  • There are a lot of possible definitions of income here. Is it income for income tax purposes or perhaps income for mortgage qualification purposes? They can be different
  • How and when is the incentive repayable
  • Is it possible to refinance with the incentive still in place?
  • What exactly are these eligibility requirements?

Stay tuned for more as details are released

With rents across Canada soaring, you can’t afford NOT to buy a home

General Robert Ganzhorn 13 Sep

Mortgage Professionals Canada have published a study on the perpetual own vs. rent comparison. The outcome is interesting in that most of the results of these studies have previously shown that renting is the better choice.

However, given the soaring rents in Canada the study concludes that you can’t afford NOT to buy a home if you are now renting.

Do the math.

$100K in mortgage is a monthly payment of about $500 assuming an interest rate of 3.5% and an amortization of 25 years.

How much is your current rent worth in equivalent mortgage principle?

Gathering the down payment for the purchase is often an issue in these situations. Know that there are alternative forms of down payment rather than just your savings that are acceptable to both lenders and CHMC.

Obviously deciding to buy isn’t just about the numbers. But if you have any questions regarding what mortgage amount you can qualify for feel free to contact me.

If you have an interest in reading the full report you can find it here: owning-vs-renting-2018

Investing in a stress tested lending environment

General Robert Ganzhorn 17 May

investing sign

Has the stress test has resulted in funding declines for your investment portfolio? Whether a refinance or a purchase its definitely harder to get money in this environment.

Here are some items to consider which may make it easier to qualify under the stress test.

Property types

Consider purchasing  2 to 4 unit properties not just single family dwellings. These properties are still insurable and while a stress test still applies it’s the insurable stress test which is easier in some cases than it’s conventional counterpart. You’ll also get the benefit of better insured mortgage rates.

Multiplex properties (5+ units) are considered commercial and use a different underwriting framework – GDS/TDS ratios don’t apply and neither does the stress test. That being said they are individually underwritten and the underwriting framework is certainly no cakewalk but doesn’t include you personal income and obligations – the building is expected to carry itself.

If you’re a large market investor expand your horizons and look at smaller market properties that are less expensive. They may garner lower rents but the lower mortgage amount may make the purchase a possibility.

Income and obligations

Since you’re being qualified under the GDS/TDS framework manage the items affecting these:

  • For those of you that are business for self you may want to report higher income for the past year. Self employed income is typically taken as the average for the past two years so a higher income this year will boost the income on your mortgage application. And since self-employed tax returns aren’t due until June 15th you still have time to consider this option for this year
  • Consider reducing your rental expense claims to report more income
  • Your unsecured debt balances (credit cards and personal lines of credit primarily) are included in your applications as an obligation equal to 3% of the outstanding balance rather than the minimum payment. Consider moving those debts to fixed payment loans if it makes sense or even better pay them off if possible
  • Find ways to increase your down payment to reduce the mortgage amount. Liquidating under performing investments is an option as is partnering with another investor

Who are you borrowing from?

Use an alternative lender that allows for higher GDS/TDS ratios and/or allows for a higher percentage of rental revenue to be recognized in your application. Their rates are a little higher but for the right investment these lenders can provide a viable option.

Don’t always use a bank. There are still lenders out there with good rates that don’t stress test.

What property are you borrowing on?

A lenders that provide equity lending on principle residences still exist and typically these offerings allow for much higher ratio allowances. If your principle residence has a low LTV there are A lenders that provide good rates for these programs. Use the money borrowed to invest

Remember that each investors situation is different and needs to be assessed on a case by case basis.