When it comes to real estate statistics, I always take everything with a grain of salt. Fact is, most real estate statistics are compiled and released for general media consumption by the real estate industry: Real Estate Boards, CMHC, Real Estate Marketing companies, Realtors, Lenders, etc. They have a vested interest in a robust housing market. Inevitably this bias will shine through.
I was just reading through the latest numbers from BILD (Building Industry and Land Development Association) and if you just read the headline from the press release, you might conclude that everything is rosy in the new homes and condominium market in Toronto.
The headline reads: “Condo Sales Reach New Heights in July”. Now this can be interpreted in several ways and ‘New heights’ could mean just about anything. In this case it is referring to the fact that new home sales in the high-rise category (i.e. condos) were the highest for the month of July when compared to any other month so far this year. However, looking closer at the numbers clearly shows that the sales figures for July for new condo sales are actually down about 21% compared to July of 2007. Overall, new condo sales in the GTA are down about 22% for the YTD for 2008 when compared with 2007.
Also interesting from this press release is that condos appear to be taking up a greater and greater share of the overall market for new homes in the GTA. The reason given is land that land is becoming scarce. Builders are building up rather than out.
If you have any questions, feel free to drop me an email or leave a comment.
As I talked about in my previous post, understanding deposit structures and mortgage approvals is essential to purchasing a new condo from a developer in Toronto.
However, what do you do when you can get the funds for the deposits, but you run into trouble when it comes to securing mortgage preapprovals? This can occur for a number of reasons including:
- Income too low. The number one factor in getting mortgage approvals is your income. Lenders need to see you have enough coming in on a regular basis to ‘pay the bills.’
- Over leveraged. Many investors have several properties and/or contracts in their portfolio at any given time and this can stretch you thin, making the ratios that banks often use for pre approvals look out of wack.
- Self Employed or not enough employment history. Perhaps you are a new grad fresh out of school and your income is low now, but will increase substantially over the next 1-3 years. Or if you are self-employed, lenders often apply even more stringent qualifications before approving you.
So what are your options for getting pre approved? How can you overcome this hurdle and get the condo that you have been dreaming about or that is such a great investment opportunity? Here are a few ways to get around the roadblock
- Use a mortgage broker. Usually developers will have a specific lender they work with and ask purchasers to get preapproved through. And 9 times out of 10 that lender is one of the Big-5 Canadian banks. Their lending standards are often more rigorous than those used by mortgage brokers - who have access to dozens of lenders. Getting a pre-approval from a mortgage broker, if the developer allows it, can be a way around this dilemma for purchasers.
- Get a co-signer. For a number of reasons, you may not qualify for the mortgage at the time you want to purchase the suite, but perhaps you know that by the time the condo is ready for occupancy a few years down the road, your situation will likely have changed and you will qualify. In the time being, and just to get the qualification, why not get a co-signer to get you over the hump? You can always remove or change the other names on title before final closing. Time to put in the dreaded phone call to mom and dad…or your rich uncle who always liked you best!
- Negotiate. Depending on the particular developer, the stage of the marketing life cycle of the project, and the relationship that your real estate agent has with the developer, you may be able to simply remove the condition for mortgage pre-approval from the agreement, or make alternative arrangements that satisfy both parties.
- Letter of Commitment. If you are over-leveraged due to other properties or contracts in your portfolio, sometimes you can’t get a mortgage approval, but if you have a long-standing good relationship with your bank you might be able to get your branch manager or a mortgage manager to write you up a letter of commitment. A letter of commitment is similar to a mortgage approval, but it is less formal and is based more on the ‘good will’ of your relationship with the bank and their intimate knowledge of your personal finances. Sometimes this will satisfy the developer if they see that you are in very good standing with a well established lender even though you don’t technically qualify for the mortgage using traditional ratios etc.
So there you have it. Some suggestions for obtaining mortgage approval when difficulties arise when buying a new construction condo in Toronto.
If you have any questions about mortgage financing for new condos in Toronto, feel free to contact me any time.
Not a very sexy post title I know, but just because you are buying a pre-construction condo in Toronto doesn’t mean that you can avoid the world of traditional mortgages.
Normally when you buy a pre-construction condo you have to put down a series of deposits to secure your suite with the developer. How much you pay and when you pay varies. Factors affecting the deposit structure include:
- The developer’s bank - what they require. Developers need to get mortgages too! The banks require them usually to get a 15% down payment as a minimum from purchasers.
- When you buy - when you purchase in the condo’s marketing life cycle. The earlier you buy, the less flexibility there generally is in the deposit structure. When a project has reached their benchmark amount of units sold to get their financing approvals and permits to begin construction, sometimes they ease up on the deposit structure and this is often a good time for purchasers to jump in again.
- The developer’s preferences and promotions. Some developers require more as a rule of thumb, some require less. Some offer promotions with flexible payment schemes, others do not.
- Who you are. Yes, developers have been known to practice deposit structure discrimination - that is, changing the deposit structure requirements based on who the purchaser is. Usually though this ‘discrimination’ is simply tied to whether or not the purchaser is a Canadian resident (often non-residents must pay significantly higher deposit amounts).
So deposit structure on new condos varies, but usually you can find something like 15% to be paid out in 3 or 4 installments over the course of 6-9 months after initially signing the agreement of purchase and sale. Then an additional 5-10% also is usually required at occupancy (not to be confused with condo registration date).
So you have manged to scrape together the money you need for your deposits and you are ready to go ahead with your purchase. Are you finished? By no means. The developer will gladly take your 15-25%, but they also require mortgage approval for the remaining amount. Here’s an example: say you buy a 1 bedroom and den condo for $300,000. You must pay out 20% in deposits over the next 3 years. 20% of $300,000 is $60,000. That leaves $240,000 in unaccounted for funds for which you need to get a mortgage pre-approval.
Sometimes buyers have the funds for the deposits, but for various reasons, getting a mortgage approval can be tricky. If you fit into this category, tune in the blog tomorrow for some tips on how to get around this dilemma.
If you have any questions about deposit structures and mortage approvals, feel free to drop me an email any time.
I came across an interesting post over at New Condos Online about how American developers should start aggressively pursuing Canadian buyers for their product due to the relatively strong Canadian economy and the (until very recently) high Canadian dollar.
This is very timely advice for American developers to consider. Most US Real Estate Markets are still following a downward slide. Prices are still falling, inventory is still massive with little signs of it changing in the near term. Canadian investors are beginning to wonder it things have peaked here in Canada and are starting to look elsewhere for better value and better long-term prospects for price appreciation.
While foreign developers are starting to consider Canadian buyers, foreign investors are still feeling quite bullish on the long-term prospects of condos in markets like Toronto. More and more international investors are looking at purchasing condos in Toronto as investment vehicles, or as temporary residences. Look at recent developments like Ice Condos or Aura. Anecdotal evidence suggests a substantial proportion of buyers in these landmark projects are from outside of Canada. Canada is considered a safe, secure, low-risk place to invest to many outside of our borders.
My own client list is increasingly becoming something of a United Nations. Just in the last year alone I have had new clients originating from the U.K., Dubai, Taiwan, Korea, India, China, and Bangladesh to name a few.
If you are interested in knowing more about investing in Canada and Toronto in particular, please contact me.
