by Todd Lewys
It’s news that home buyers don’t necessarily want to hear.
The news that the qualifying mortgage rate for the federal government’s stress test has increased.
“Those with good credit records now have to qualify for a mortgage at the Bank of Canada’s new five-year benchmark rate,” said Accredited Mortgage Professional (AMP) Diane Macpherson.
“The rate has increased to 4.84 per cent from 4.64 per cent.”
More than ever, prospective home buyers, especially first-time buyers, have to take a realistic look at what they can comfortably afford in a home.
Reduced budgets mean a single-family home is no longer the default choice.
Consequently, condominiums are now figuring in as a viable option. Today, home buyers have to factor lifestyle and finances into their decision to buy a house or a condo.
WinnipegREALTORS® president Blair Sonnichsen said the first thing prospective buyers need to do is think hard about how they want to live.
“Consumers have to decide what kind of lifestyle they want to lead,” he said. “A REALTOR® can provide them with information on the lifestyle associated with both options.
“During this process, Realtors really have to listen. If a client says they’re not interested in doing upkeep on a home and making a payment to have maintenance done for them is preferable, then they’re most likely a candidate for a condominium,” said Sonnichsen.
Realtors can help buyers achieve additional clarity on which option — home or condominium — is right for them by asking a simple question, he added.
“It’s a good idea for a Realtor to ask their client about how they spend their personal time.
“For example,” Sonnichsen explained, “a client might say they like to do engine repair work or craft work. Those types of buyers might not be a candidate for a condominium.
“Other factors, such as a buyer’s stage of life and ability to handle monthly expenditures, also play a part in deciding whether a home or condominium is the best option.”
Macpherson said that the stress test — a.k.a. the 20-per-cent haircut — can affect budgets significantly.
Qualifying for a mortgage at a rate close to two per cent higher than discounted rates can bring a condo into the decision-making process due to it possibly being more affordable.
“Prior to the stress test, a buyer may have qualified for $300,000, which put them in line for a solid starter home,” she said. “With the stress test, that amount goes down to about $240,000. That means you’re on the borderline for a good starter home.
“It might make more (financial) sense to go for a condo in the $200,000 range with monthly condo fees around $300.”
The figures for a home or condominium purchase bear out this statement.
A $200,000 condo with $1,500 net taxes, a $300 monthly condo fee and $500 per month in additional debt included would require an income of $66,000.
On the other hand, a $275,000 home with $2,200 net taxes and $500 additional debt would require an income of $70,000.
An income of $80,000 would qualify a buyer or buyers for a $320,000 home, or a $260,000 condo with condo fees of $400 per month.
The wildcard in all this is maintenance and upgrades. A home typically costs more to maintain, while a condominium is a safer bet due to fixed condo fees.
That’s why it’s so important for buyers to think options through with the help of a Realtor and accredited mortgage professional, according to the experts.
“Both a REALTOR and mortgage professional will ask the questions required to help buyers identify the best option,” said Sonnichsen. “Some buyers may have the idea that they want to own a home, but don’t have the financial ability to do so.
“Buyers have to shop for the lifestyle they want, the payment they can afford and the location that suits them best.
“We will do our best to help them identify the best option for them, whether it be a house, or condo,” Sonnichsen added.