Blog Post

What’s Driving Canadian Homebuyers?

Katherine Martin • Feb 27, 2018

Mortgage rule changes and increasing interest rates—surprisingly—weren’t the top motivators for prospective homebuyers in 2017, according to a new survey from the Canada Mortgage and Housing Corporation (CMHC).

Instead, the 2018 Prospective Home Buyers Survey found that improved accessibility (i.e., fewer physical obstacles and barriers) and investment opportunity were the main driving factors to purchase a home.

The results were divided into three segments of buyers: first-time buyers, previous owners (who had previously owned a home but do not currently) and current owners.

For first-time buyers and previous owners, the desire to stop renting was ranked as one of the top three motivators to buy a home by 65% and 60%, respectively.

“The majority of prospective home buyers from all groups agree that home ownership is a good long-term financial investment,” the survey noted.

This is the first time CMHC has conducted this specific study, which examined attitudes and expectations of prospective Canadian homebuyers, as well as their understanding of the homebuying process.

There was also some positive news for brokers, as the survey confirmed that a majority of buyers from all three groups—including a full 80% of first-time buyers—planned to consult a mortgage broker before making their home purchase.

Here are some of those findings:

Mortgage Rule Changes, Home Prices & Rising Interest Rates

36% of first-time buyers were aware of the 2016 mortgage qualification rule changes (e.g., the 10% down payment required for the home price portion above $500,000 and the requirement for all insured mortgages to be stress-tested using the 5-year posted rate).
- 53% of previous owners and 58% of current owners were aware.
20% of first-time buyers not previously aware of the rule changes said it will impact their purchase decision in some way.
- Vs. 18% of previous owners and 14% of current owners.
50% of first-time buyers said the changes would cause them to delay their home purchase, while 23% would purchase a smaller home.
- 51% of previous owners and 65% of current owners would delay their purchase
- 35% of previous owners and 32% of current owners would purchase a smaller home
76% of first-time buyers said they are likely to delay their home purchase due to high home prices , followed by 73% of previous owners and 63% of current owners.
70% of first-time homebuyers said they are concerned about the possibility of interest rates increasing before they buy their home, followed by 62% of previous owners and 61% of current owners.
61% of first-time buyers would, as a result, likely delay their home purchase, followed by 61% of previous owners and 50% of current owners.

Homebuying Expectations

69% of first-time buyers agree that they have a good understanding of how much mortgage they can afford.
- Vs. 79% of previous owners and 83% of current owners.
54% of first-time buyers and previous owners are planning to spend under $300,000 on their next home.
- Vs. 33% of current owners.
25% of first-time buyers and previous owners are planning to spend between $300,000 and $500,000 on their next home.
34% of current owners are planning to spend over $500,000 on their next home.
68% of first-time homebuyers feel confident they can find a suitable home within their budget.
- Vs. 83% of current owners.

In a scenario where buyers would not be able to find their ideal home:

43% of first-time buyers would delay their purchase.
- Vs. 45% of previous owners and 28% of current owners.
42% of first-time buyers would compromise on the size of the home.
- Vs. 39% of previous owners and 42% of current owners.
38% of first-time buyers would compromise on the location of the home.
- Vs. 39% of previous owners and 38% of current owners.

Buying Preparedness

80% of first-time homebuyers plan to consult with a mortgage broker before purchasing a home.
- Vs. 72% of previous owners and 69% of current owners.
16% of first-time buyers pre-qualify for a mortgage within three months of purchasing their home.
- Vs. 21% of previous owners and 22% of current owners.
33% of all buyers prepare a detailed budget on their own within six months to a year before purchasing their home.

Financing home

66% of first-time buyers say they have a good understanding of the full cost of homeownership, including mortgage payments, property taxes, condo fees, utilities, maintenance, etc.).
- Vs. 79% of previous owners and 85% of current owners.
33% of all homebuyers say they will take additional steps to pay down their mortgage as soon as possible.
40% of first-time buyers and previous owners say they are unlikely to have a financial buffer in case their expenses change in the future.
40% of first-time buyers say they are confident they have the necessary tools and information to manage their mortgage and debt load.
- Vs. 40% of previous owners and 50% of current owners.

Homebuyers and Technology

68% of first-time homebuyers would prefer to complete the entire homebuying process with help from a professional and be using online tools and resources:
- Vs. 60% of previous owners and 58% of current owners.
7% of first-time buyers would prefer to use online tools and resources exclusively, without the help of a professional:
- Vs. 4% of previous owners and 5% of current owners.

This article was originally published on Canadian Mortgage Trends on Feb 14th 2018, written by Steve Huebl.

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Katherine Martin

Origin Mortgages

Phone: 1-604-454-0843
Email: kmartin@planmymortgage.ca
Fax: 1-604-454-0842

Why Downpayment Source Matters

By Katherine Martin • 01 May, 2024

If you’re looking to purchase a property, although you might not think it matters too much, the source of your downpayment means a great deal to the lender. Let’s discuss the lender requirements, what your downpayment tells the lender about your financial situation, a how downpayment helps establish the mortgage loan to value. Anti-money laundering Lenders care about your downpayment source because, legally, they have to. To prevent money laundering, lenders have to document the source of the downpayment on every home purchase. Acceptable forms of downpayment are money from your resources, borrowed funds through an insured program called the FlexDown, or money you receive as a gift from an immediate family member. To prove the funds are from your resources and not laundered money from the proceeds of crime, you’ll be required to provide bank statements showing the money has been in your account for at least 90 days or that you’ve accumulated the funds through payroll deposits or other acceptable means. Now, if you’re borrowing all or part of your downpayment, you’ll need to include the costs of carrying the payments on the borrowed downpayment in your debt service ratios. If you’re the recipient of a gift from a direct family member, you’ll need to provide a signed gift letter indicating that the funds are a true gift and have no schedule for repayment. From there, you’ll need to show the money deposit into your account. Financial suitability Lenders care about the source of the downpayment because it is an indicator that you are financially able to purchase the property. Showing the lender that your downpayment is coming from your resources is the best. This demonstrates that you have positive cash flow and that you’re able to save money and manage your finances in a way that indicates you’ll most likely make your mortgage payments on time. If your downpayment is borrowed or from a gift, there’s a chance that they’ll want to scrutinize the rest of your application more closely. The bigger your downpayment, the better, well, as far as the lender is concerned. The way they see it, there is a direct correlation between how much money you have as equity to the likelihood you will or won’t default on their mortgage. Essentially, the more equity you have, the less likely you will walk away from the mortgage, which lessens their risk. Downpayment establishes the loan to value (LTV) Thirdly, your downpayment establishes the loan to value ratio. The loan to value ratio or LTV is the percentage of the property’s value compared to the mortgage amount. In Canada, a lender cannot lend more than 95% of a property’s value. So, if you’re buying a home for $400k, the lender can lend $380k, and you’re responsible for coming up with 5%, $ 20k in this situation. But you might be asking yourself, how does the source of the downpayment impact LTV? Great question, and to answer this, we have to look at how to establish property value. Simply put, something is worth what someone is willing to pay for it and what someone is willing to sell it for. Of course, within reason, having no external factors coming into play. When dealing with real estate, an appraisal of the property will include comparisons of what other people have agreed to pay for similar properties in the past. You’ll often hear of situations where buyers and sellers try to inflate the sale price to help finalize the transaction artificially. Any scenario where the buyer isn’t coming up with all of the money for the downpayment, independent of the seller, impacts the LTV. All details of a real estate transaction purchase and sale have to be disclosed to the lender. If there’s any money transferring behind the scenes, this impacts the LTV, and the lender won’t proceed with financing. Non-disclosure to the lender is mortgage fraud. So there you have it; hopefully, this provides context to why lenders ask for documents to prove the source of your downpayment. If you’d like to talk about mortgage financing, please connect anytime; it would be a pleasure to work with you.

Porting Your Mortgage

By Katherine Martin • 24 Apr, 2024

Porting your mortgage is when you transfer the remainder of your current mortgage term, outstanding principal balance, and interest rate to a new property if you’re selling your existing home and buying a new one. Now, despite what some big banks would lead you to believe, porting your mortgage is not an easy process. It’s not a magic process that guarantees you will qualify to purchase a new property using the mortgage you had on a previous property. In addition to re-qualifying for the mortgage you already have, the lender will also assess the property you’re looking to purchase. Many moving parts come into play. You’re more likely to have significant setbacks throughout the process than you are to execute a flawless port. Here are some of the reasons: You may not qualify for the mortgage Let’s say you’re moving to a new city to take a new job. If you’re relying on porting your mortgage to buy a new property, you’ll have to substantiate your new income. If you’re on probation or changed professions, there’s a chance the lender will decline your application. Porting a mortgage is a lot like qualifying for a new mortgage, just with more conditions. The property you are buying has to be approved So let’s say that your income isn’t an issue and that you qualify for the mortgage. The subject property you want to purchase has to be approved as well. Just because the lender accepted your last property as collateral for the mortgage doesn’t mean the lender will accept the new property. The lender will require an appraisal and scrutinize the condition of the property you’re looking to buy. Property values are rarely the same Chances are, if you’re selling a property and buying a new one, there’ll be some price difference. When looking to port a mortgage, if the new property’s value is higher than your previous property, requiring a higher mortgage amount, you’ll most likely have to take a blended rate on the new money, which could increase your payment. If the property value is considerably less, you might incur a penalty to reduce the total mortgage amount. You still need a downpayment Porting a mortgage isn’t just a simple case of swapping one property for another while keeping the same mortgage. You’re still required to come up with a downpayment on the new property. You’ll most likely have to pay a penalty Most lenders will charge the total discharge penalty when you sell your property and take it from the sale proceeds. The penalty is then refunded when you execute the port and purchase the new property. So if you are relying on the proceeds of sale to come up with your downpayment, you might have to make other arrangements. Timelines rarely work out When assessing the housing market, It’s usually a buyer’s market or a seller’s market, not both at the same time. So although you may be able to sell your property overnight, you might not be able to find a suitable property to buy. Alternatively, you may be able to find many suitable properties to purchase while your house sits on the market with no showings. And, chances are, when you end up selling your property and find a new property to buy, the closing dates rarely match up perfectly. Different lenders have different port periods Understanding that different lenders have different port periods is where the fine print in the mortgage documents comes into play. Did you know that depending on the lender, the time you have to port your mortgage can range from one day to six months? So if it’s one day, your lawyer will have to close both the sale of your property and the purchase of your new property on the same day, or the port won’t work. Or, with a more extended port period, you run the risk of selling your house with the intention of porting the mortgage, only to not be able to find a suitable property to buy. So while the idea of porting your mortgage can seem like a good idea, and it might even make sense if you have a low rate that you want to carry over to a property of similar value, it’s always a good idea to get professional mortgage advice and look at all your options. While porting your mortgage is a nice feature to have because it provides you with options, please understand that it is not a guarantee that you’ll be able to swap out properties and keep making the same payments. There’s a lot to know. If you’re looking to sell your existing property and buy a new one, please connect anytime. It would be a pleasure to walk you through the process and help you consider all your options, including a port if that makes the most sense!