woman holding keys

Canadian Mortgage Rates Sparking Interest in Rent to Own

Currently, Canadian mortgage rates are at historic lows with the average five-year fixed rate around 1.99%.

This has led to a surge in demand for homes and real estate purchases in several markets across the country, particularly in smaller cities and suburban areas. However, high housing prices have made it challenging for many Canadians to enter the market, leading some to turn to alternative options such as rent-to-own agreements.

agent and clients meeting to discuss rent to own options

Rent to Own Agreements

Rent-to-own agreements allow people to rent a property with the option to buy it at a later date, typically within three to five years. This option provides renters with the opportunity to build equity in a home while also potentially increasing their chances of securing a mortgage down the line. Additionally, the fixed rental price during the rent-to-own agreement period can provide renters with some stability and predictability in their housing costs.

This type of financing arrangement offers a pathway to home ownership for those who may not otherwise be able to afford the down payment or obtain traditional financing due to credit issues or other circumstances. The contract usually stipulates the purchase price of the home, the length of the lease term, and the portion of the rent that will go towards the eventual down payment. At the end of the lease term, the tenant has the option to purchase the home and pay the balance of the agreed-upon price using the accumulated down payment credits. It is important to carefully review the terms of the agreement to ensure that it is beneficial for both parties involved.

Finding rent-to-own homes.

Finding rent-to-own homes requires a bit of research and patience. One option is to search online listings on real estate websites such as Zillow, Clover, and HomeFinder. Another is to work with a local real estate agent who specializes in rent-to-own properties. They can help you identify opportunities and navigate the process. It’s also helpful to network with friends and family to learn about any rent-to-own homes in your desired area. Additionally, you can try reaching out directly to property owners and landlords to ask if they offer a rent-to-own option. Keep in mind that rent-to-own homes may be more difficult to find in hot real estate markets, and it’s important to thoroughly research and understand the terms and conditions of the agreement before signing any contracts.

Real Estate, Living room

Real Estate – 12 Things You Need To Know

I. A Home Is Only Worth What the Buyer Is Willing to Pay

You might assume that all the effort and time that you have put into your real estate prior to listing it, or even what you previously paid for it, makes it worth a particular price. You might even have an appraiser come in prior to listing and say that it’s worth close to a price you like.

The reality, however, is that it’s only worth what a buyer is willing to pay for it. The buyer may think that the upgrades don’t actually match up with the asking price. It could be that renovations are necessary and the asking price is simply too high to justify making the purchase only to have to pour more money into it immediately.

A buyer would rather buy a house at $125,000, put $25,000 into it, and have the property be worth $180,000 rather than buying a home at $180,000 that requires the same work of the home that’s worth $125,000.

Real Estate

II. Upgrades Might Not Increase the Real Estate Value but Can Increase Its Chances of Being Sold

It’s perfectly normal to hope or think that you will get back everything you spend on a home renovation. The reality, however, is that you will likely only get back a percentage of what you spent. Different home improvements usually offer different amounts, and that amount can vary depending on where you live. The personal taste of the buyers and the quality of craftsmanship are other factors.

III. Cleanliness is King

No house will ever be perfect, especially if you have a dog in the summer. Still, you need to make an effort to keep the home as clean as you can during showings and listing photos. You want prospective buyers to remember what they love about the house after leaving instead of talking about how much of a mess your home was.

IV. Curb Appeal is the First and Strongest Impression

First impressions matter a lot. It’s hard for a person to change their mind after a bad first impression. Look at the front of your house and ask yourself whether you would be willing to buy it if you were a stranger. In case you are biased, look next door. What about the neighbour’s house? Would you be willing to buy theirs? If not, imagine if they were to make it more presentable. Would you buy it then?

Remove the children’s toys from your front yard. Hide the recycling bin and trash cans. Trim the bushes and mow the lawn, especially before having professional photos taken! However, keep maintaining the lawn for showings, and the chance that somebody might just drive by and notice the “FOR SALE” sign in your yard. Ensure that all shutters are still attached if you have them, and if necessary, apply a fresh coat of paint on them. You also shouldn’t forget to pressure wash.

V. Clutter and Pet Odor Leave the Longest Lasting Impressions

Just because you love your pet, it doesn’t automatically mean that everybody else does. It can be hard to erase every piece of evidence that they exist in your home. Regardless of the number of times that you vacuum, you will likely still miss a pet hair. Just make an effort. You can also hide their food bowls and bedding, if possible.

Pet odor can be extremely hard to hide, especially if you have a senile dog that has a bladder problem or a puppy that’s learning how to be potty trained. It might be worth your while to replace the flooring, or perhaps even offer a flooring allowance in the deal. For now, however, consider sticking a few air wicks in every room.

VI. Neutral Decor and Paint Always Appeals to the Masses

Get rid of those purple accent walls and dark colors now. That will likely stick out like a sore thumb in your listing photos before a prospective buyer even schedules a showing of your home. The thought that will likely be running through their mind is, “How many coats of paint are needed to hide that unappealing color?” Neutral is always in and minimal décor is always best. So, go ahead and pack any unnecessary extra décor when looking to sell.

VII. Cheap Updates or Fixes Will Result in Low Real Estate Offers

If you are unable to afford to update the entire house, don’t. Attempting to cover everything will result in cheap updates the prospective buyer will likely want to have redone. If nothing else, as previously stated, at least a fresh coat of paint. A fresh coat of paint for the whole house is never wasted money as long as it’s a natural color.

VIII. Everything is Negotiable in Real Estate

Just about everything is negotiable. The refrigerator might seem like the biggest thing that buyers want or sellers note that it can convey with an acceptable offer, but numerous other items have been negotiated. Furniture, curtains, curtain rods, blinds, even tractors. Still, it’s important to ensure that negotiations are done right and properly documented in the contract.

IX. Time Matters a Lot

It is currently a seller’s real estate market, which makes it the ideal time to list your home if it’s something you have been considering. Properties can barely be put on the market before a contract is put on them. That said, time is of the essence for buyers. For example, in the time of a housing crisis, sellers may have a harder time finding buyers.

If you find a house that you love, you should put an offer in right now, and make sure that it’s good. You simply don’t have time to waste going home and sleeping on it or talking about it. That property might not still be in the market when tomorrow comes. Rent to Own could be an option to secure the property you really want until you can save enough to qualify for a mortgage.

X. Real Estate Location

Location is a very important real estate consideration for a variety of reasons. First, you cannot move a home -at least not easily or even inexpensively.

A home in a good location is usually a solid long-term investment. It’s generally advisable to buy the worst house – real estate that needs some work – on the best block. Why? Fixing up a home in a great neighborhood gives the best return on investment. Simply put, it will be much easier to sell at a later date.

Alternatively, you can buy a beautiful home that does not need any work. However, if the block is either plain bad or just sketchy, you may find it hard to sell the property at a decent price.

XI. Real Estate Buyers Take Note of Things They Want to Change Before Noticing Any Updates

Like previously mentioned, it’s just about impossible to please everybody. You might have spent $10,000 on a remodeled master bathroom and $30,000 on an upgraded kitchen, but a prospective buyer may be groaning since they are not looking forward to having the carpeting ripped out and the hardwoods laid. Or, they simply might not like your ideas for the renovation.

A fail-safe move that you can make is to allow a paint allowance or flooring allowance, therefore you aren’t wasting the money while getting ready to sell and the buyer can pick out their preferred details.

XII. If Properly Priced, It Will Sell

You might be in a hurry to sell and price might not be your main concern, but you still need a baseline to start marketing the real estate property. One thing is for sure: Pricing is perhaps one of the biggest decisions when it comes to the selling process.

If you set the price too high, you risk turning off prospective buyers. It also means that the property won’t compare favorably with other similarly priced homes. Worse still, buyers might not even see your listing after searching online because they will be using lower price points.

House model

Mortgages for Dummies: Home Finance

Many new residents dream of being able to home finance and own a residence in Canada. However, buying is a huge investment, unlike buying other smaller assets.

You may have a few questions regarding the process of home finance in Canada, once you arrive. To help make the process of buying a home easier, this article will walk you through the basics of securing a mortgage, general advice, budgeting tips and any hidden costs that you should keep in mind.

Home finance for owner

Mortgage Definition

A home loan from a lender or bank is referred to as a mortgage. With it, a potential home buyer doesn’t have to pay the full home purchase amount in order to buy a property or home. While there are some limitations, 95 percent is the highest mortgage offered by banks.

Variable Versus Fixed Mortgage Rates

Borrowers are free to choose between two main types of interest rates when securing mortgages in Canada. The options include:

Fixed Interest Rate

Set for a pre-determined period referred to as a term, a fixed interest rate does not fluctuate. Five years is the most popularly chosen term.

Variable Interest Rate

Basically influenced by the BoC (Bank of Canada) policy interest rate, a variable interest rate normally fluctuates based on the prime lending rate. When it comes to setting interest rates for variable lines of credit and loans, the country’s major financial institutions and banks normally rely on the prime lending rate. It may be possible for you to move to a fixed interest rate from a variable one for free, depending on your lender or home finance institution. Remember to seek clarification from your lender of any changes in payments as a result of review of all potential risks and the prime rate.

Home Finance In Canada With This Simple Five Step Process

1.Contact A Home Finance Expert

Reaching out to a lender or home finance institution that offers mortgages is the first step in purchasing a property or home in Canada. They will consider your unique situations and guide you appropriately.

As part of a mortgage application, you are generally required to fulfill three major requirements.

The Down Payment

This is the portion of money that you cover towards buying the property or house in question. The least amount you can pay towards the purchase of your home or property is generally set at 5% of the total cost – taking the total cost to be a maximum of 500,000 CAD. However, this is dependent on a variety of factors, such as your income, assets you own as well as you Canadian status – student, temporary foreign worker or permanent resident among others. You would need to pay at least 10% for homes worth between 500,000 and 999,000; and at least 20% for homes worth more than 1,000,000 CAD.

Credit History

You need to provide a credit history spanning an entire year, from your home country or Canada, as a borrower. However, if you provide a significantly large down payment, the credit history requirement may be waived. Your other personal assets in the country may be considered in such a scenario. You should start building a good credit history as soon as you arrive in Canada, as it takes time.

Mortgage Repayment Assurance

The means through which you would be able to repay your loan will be evaluated by the lender of home finance institution you are dealing with. During the approval of a mortgage application your potential to earn an income in Canada and your existing income sources – coupled with a history spanning 90 days – will be considered.

Required Documents

You may be asked to provide your credit history for 12 months from your home country, investment record, bank statements and proof of income from past employers, depending on the amount of time you have been in Canada.

It is preferable to have two credit histories in Canada. Having separate transactions, showing another loan or holding two credit cards are all great ways of obtaining two credit histories.

Make sure that each individual has their own credit reports, if there are two or more borrowers on one application.

2.Secure Pre-approval And Budget For The Home You Wish to Finance

Getting mortgage pre-approval is the next step in this process of home finance. To demonstrate that you have satisfied the primary requirements, such as income, credit history and down payment among others, for getting a mortgage, you need to be pre-approved. In addition to outlining the down payment, the bank will also inform you of the maximum buying price, as part of the process of pre-approval.

Pre-approval can be provided in no time, after all the necessary documents have been provided.

3.Consider Taking Advantage Of The First-Time Home Buyer Incentive

To help individuals across the country buy their first home, the Canadian government provides the First-Time Home Buyer Incentive. To help cover the down payment, the government provides an interest-free loan that is 5% (or 10% for new homes) of the property’s total buying price. This program makes homeownership easier by lowering the buyer’s carrying costs. Within a 25 year period or when you sell your home, you are required to pay back a similar percentage of your home’s value.

4.Find A Home You Want To Buy And Submit A Mortgage Application

It could take up to a week for you to complete the final approval process, if your mortgage application had been pre-approved. Fortunately, your application will be processed with the goal of meeting the financing condition stated on your purchase contract as a priority, meaning that there will be no need to worry.

Your application can still be processed in the same amount of time, provided that you submit all necessary documents in a timely fashion, even though you did not have pre-approval. To make sure that you have time to put all the necessary documents together, and prevent any delays in the home buying process, buyers are encouraged to secure pre-approval before finding a property or home they want to buy.

5.Mortgage Repayment

A 25-year repayment period is chosen by most borrowers taking up a mortgage. To reduce the mortgage duration as well as amortization, you are normally allowed to make extra payments.

You potentially risk losing your property if you fail to make a mortgage payment, and continue to do so.

In the event that you choose to sell the property while the mortgage amount is still outstanding, the proceeds from the sale will be used to cover the outstanding amount on the mortgage, with any remaining funds passing on to you as your equity.

Home Finance Just Months After Your Canada Arrival

If you are able to demonstrate a steady income, asset ownership/credit history and can meet the basic down payment requirement, you may, within the first few months of your arrival in Canada, qualify for a mortgage to buy a property/house. You will be required to show proof of a minimum of 3 months of full-time employment in the country, if your chosen down payment is below 20% of the property’s price.

It can be challenging to meet the demanding financial requirements of buying a house. It is essential for you to ensure that you have a knowledgeable and seasoned mortgage or financial advisor who knows the ins and outs of the real estate buying process – especially if you are a first time home buyer in Canada. Considering that you are entering into a long term investment, remember to peruse through all the details with a reputable financial advisor, after finding the property or home you intend to buy.

Housing crisis

Housing Crisis – 7 Key Signs It’s Coming

The real estate market has simply not been going as many prospective home buyers would have hoped with a potential housing crisis on the rise. Buying a house has also become increasingly difficult due to volatile mortgage rates, rent moratoriums, building delays, and rising prices. Sales of the existing homes have also dropped and are currently trending lower than the 2019 levels.

The housing market is showing signs of a slowdown as fears of a larger economic recession loom. Knowing what’s likely to lead to a real estate crash could potentially prevent you from paying too much for a home. Watch for the 7 signs highlighted below that the real estate market might just be starting to change.

I. Economic Downturn

The overall economy is one of the first signs that a housing crisis is coming and the market is about to dip. Housing markets are generally intensely local, and a dip in the market can vary from one neighborhood to the next, but how the economy is doing is usually a good overall indicator of the national state of affairs.

The economy usually affects the supply and demand for houses. If the economy is on an upward trajectory with high consumer confidence and low unemployment and there is no housing crisis, you can generally expect that more people will be buying and selling homes.

Conversely, if the economy is in a downward trajectory, people generally have less money to spend on home finance or are unsure of their financial future. Sellers may have trouble finding buyers for their houses, which in turn will lead to a reduction in house prices to help them sell.

II. Rising Mortgage and Interest Rates

Rising interest rates are one of the biggest indicators that the housing market may be cooling off. If interest rates are low, there’s usually a greater demand for property. People are always looking to lock in a great interest rate when buying a home.

However, if the mortgage rates begin to rise, people are usually less likely to make purchases. When there’s a decline in the demand for houses, sellers will find it more challenging to find buyers for their houses, and this may translate to lower prices, causing a housing crisis.

III. Declining Consumer Confidence and The Housing Crisis

The interesting thing about any market is that its movements are usually based on how people feel about it at the time. If people start feeling uneasy about selling or buying, then it could be a good indication that the market is likely to crash.

The level of confidence that people have about the housing market is so important that each month, Fannie Mae publishes the National Housing Survey. The comfort actor usually affects all parts of the housing industry.

If people don’t feel confident about buying houses, the demand usually goes down. People are unlikely to buy housing if they are uncertain of their economic future. People want to buy houses when they are confident that it is a good investment.

If people don’t feel confident about selling their homes and looking for something new, the supply usually goes down. This trickles down to real estate agents and builders. If builders predict a reduction in the demand for housing, they will build fewer units. Real estate agents also know to keep an eye on the market. You should talk to a local agent if you would like to know how your local market is doing.

Finally, if the banks are not comfortable lending money, it means that fewer people can access mortgages.

All the factors above can have a negative effect on the market, and together can make it crash.

IV. Decline in Soaring Home Prices

Houses are an asset that appreciates. Each year, homes appreciate between 3.4 and 3.8 percent, on average. The reason for this is that they are built on land, which is a limited resource. Nobody can make more land, and not all land can be built on, which is what makes it valuable.

When the housing market is hot, just as it currently is, houses will appreciate at a faster rate. However, if you start to see house prices either depreciate or plateau, the housing market could be crashing.

V. Increase in the Number of Homes on the Market

The supply of houses in the United States as well as how long selling them would take is tracked by Federal Reserve Economic Data (FRED). If the market is balanced, it should take about 6 months to sell all the currently listed homes. When that shifts, however, and there’s an increase in the time taken to sell all the homes, this could be an indication of economic trouble.

Having a higher number of houses on the market means that sellers must compete more to increase the attractiveness of their property to potential buyers. You can make improvements to your home to make it more saleable, but cutting the price is the easiest way to move a house. If house prices are cut, this may have a domino effect that affects the entire market.

VI. Increase in the Number of Foreclosures and The Housing Crisis

If there’s an increase in the number of foreclosures, it means that more people are unable to pay their mortgages. It also means that a higher number of houses will be on the market and the resulting oversupply will result in a decrease in prices.

If your housing market has too many foreclosures, sellers will be forced to lower their prices to compete with the banks looking to unload their foreclosures. Simply put, foreclosures will affect the housing market in its entirety.

VII. Increased Number of Homeowners Taking Equity

Prior to the 2008 housing crisis, banks would encourage homeowners to take out home equity loans. These lines of credit were used to pay for college tuition, new cars, and other large life expenses. However, the economy was strong back then, and nobody was worried about repaying them, so they were abused.

Unfortunately, this resulted in serious problems once housing prices stopped increasing and people started struggling just to pay their bills. Once the market crashed, many people owed far more than what their house was actually worth.

Banks that held the purchase mortgage were paid first while the ones offering home equity loans ended up getting paid second. A banking war between lenders broke out as a result, which worsened the economic crisis. To combat this, banks currently only provide HELOC loans to well-qualified individuals and many banks actually froze HELOCs at the beginning of the pandemic in 2020.

Housing Crisis Bottom Line

A crash in the housing market may occur whenever supply outstrips demand. Currently, the issue is that while there may be a decrease in demand, supply is not improving quickly enough to make up for this, but the situation can quickly change. If you want to buy a home, monitor the market trends keenly to ensure that we aren’t headed toward a crash.