Residential Market Commentary – The realities of rental

With high prices and tougher qualifying requirements home buyers continue to explore the viability of renting out part of their home as a way to boost income or subsidize mortgage costs.  It is not uncommon and it is growing in popularity with younger buyers.

A survey conducted by one of Canada’s big banks found that 26% of home owners are, or are planning to rent out space.  Of that group nearly one-third are renting out space in their primary residence.  Among millennials nearly half are, or intend to be, landlords.  Among those who are looking for a home right now, 54% of millennials says they would pick a property with a source of rental income, compared to just 25% of baby boomers.

But is it worth the trouble?  The answer to that depends on attitude and expectations.  The bank survey found that 80% of homeowners agree that renting out space in their home makes financial sense, but they value their time and privacy more.

Being a landlord is a 24/7 occupation.  It may be called “passive income”, but you have to be willing to respond to tenant concerns on short notice and you have to be prepared for unexpected costs and maintenance.  There can be financial stress.

Even those who have the temperament, though, need to give careful consideration to the financial benefits and legal responsibilities.  The survey found that nearly three-quarters of landlord believe the tax advantages are worth it, even if the rental is losing money.  This can be a misconception.  It is important to know what you can deduct and what your tax obligations will be.  Many fledgling landlords get a nasty surprise come tax time.

Using part of your home to generate income to help qualify for a mortgage can also be a tricky business.  Lenders have varying criteria for how much real, or potential, rental income can be used in the loan application.  By one common calculation, unknown as rental addback, a $1,000 a month suite in your home will net you just $195 a month in income on your mortgage application.

5 MISTAKES FIRST TIME HOME BUYERS SHOULD AVOID

Buying a home might just be the biggest purchase of your life—it’s important to do your homework before jumping in! We have outlined the 5 mistakes first time homebuyers commonly make, and how you can avoid them and look like a Home Buying Champ.

1. Shopping Outside Your Budget
It’s always an excellent idea to get pre-approved prior to starting your house hunting. This can give you a clear idea of exactly what your finances are and what you can comfortably afford. Your Mortgage Broker will give you the maximum amount that you can spend on a house but that does not mean that you should spend that full amount. There are additional costs that you need to consider (Property Transfer Tax, Strata Fees, Legal Fees, Moving Costs) and leave room for in your budget. Stretching yourself too thin can lead to you being “House Rich and Cash Poor” something you will want to avoid. Instead, buying a home within your home-buying limit will allow you to be ready for any potential curveballs and to keep your savings on track.

2. Forgetting to Budget for Closing Costs
Most first-time buyers know about the down payment but fail to realize that there are a number of costs associated with closing on a home. These can be substantial and should not be overlooked. They include:
• Legal and Notary Fees
• Property Transfer Tax (though, as a First Time Home Buyer, you might be exempt from this cost).
• Home Inspection fees
There can also be other costs included depending on the type of mortgage and lender you work with (ex. Insurance premiums, broker/lender fees). Check with your broker and get an estimate of what the cost will be once you have your pre-approval completed.

3. Buying a Home on Looks Alone
It can be easy to fall in love with a home the minute you walk into it. Updated kitchen + bathrooms, beautifully redone flooring, new appliances…what’s not to like? But before putting in an offer on the home, be sure to look past the cosmetic upgrades. Ask questions such as:
• When was the roof last done?
• How old is the furnace?
• How old is the water heater?
• How old is the house itself? And what upgrades have been done to electrical, plumbing, etc.
• When were the windows last updated?

All of these things are necessary pieces to a home and are quite expensive to finance, especially as a first- time buyer. Look for a home that has solid, good bones. Cosmetic upgrades can be made later and are far less of a headache than these bigger upgrades.

4. Skipping the Home Inspection
In a red-hot housing market, a new trend is for homebuyers to skip the home inspection. This is one thing we recommend you do not skip! A home inspection can turn up so many unforeseen problems such as water damage, foundation cracks and other potential problems that would be expensive to have to repair down the road. The inspection report will provide you a handy checklist of all the things you should do to make sure your home is in great shape.

5. Not Using a Broker
We compare prices for everything: Cars, TV’s, Clothing…even groceries. So, it makes sense to shop around for your mortgage too! If you are relying solely on your bank to provide you with the best rate, you may be missing out on great opportunities that a mortgage broker can offer you. They can work with you to and multiple lenders to find the sharpest rate and the best product for your lifestyle.

Remember, when you are buying a home, you are not alone! The minute you decide to work with a Dominion Lending Centres Mortgage Broker you are bringing on a team of individuals who are there to help you through the process from start to finish.

GEOFF LEE

Dominion Lending Centres – Accredited Mortgage Professional
Geoff is part of DLC GLM Mortgage Group based in Vancouver, BC.

 

RAISE YOUR CREDIT SCORE IN 3 MONTHS

While people often think of mortgage brokers when they are first time home buyers, we can help people in a variety of different ways.

Recently Garrett LaBarre of Calvert Home Mortgages in Calgary shared a success story with brokers. He had a client referred to him by a mortgage broker who had a conundrum. She was paying her credit card balances on time month after month, but couldn’t get them paid down due to the high interest rates. As a result, she had a 567 credit beacon score. Her bank would not refinance her mortgage or offer her a debt consolidation loan. She was stuck.

The solution was to use some of the equity in her home to pay off the credit card debt and lower the payments to a more manageable monthly. Even though her mortgage interest rate was higher than a regular lender, it was a lot lower than a credit card rate and it was amortized over 30 years.
The result was that within three months this client had her credit score jump from 567 to 769!

What an amazing result. Now there’s one more person who knows that mortgage brokers can do things that the banks can’t do.
If you have a challenging story, be sure to contact your local Dominion Lending Centres mortgage professional for help.

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