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Young homebuyers are the lifeblood of many agents’ business, so a report that indicates that it makes sense for millennials to purchase a home rather than rent in most cities is comforting news.

The latest edition of Rent vs. Buy from Trulia, which takes into consideration some millennial factors, found that “buying is not only 23 per cent cheaper than renting nationally, it is also cheaper than renting in 98 of the nation’s top 100 markets.”

While this calculation shows that buying is still cheaper than renting, the difference is pretty close in some places, especially in Ontario. 

The report noted that there are additional economic conditions that influence today’s market, such as home-price growth, which has outpaced rents since 2012, but that low interest rates help offset this advantage for the rent side.

Usually, when Trulia crunches its home-buying numbers, it assumes a 30-year, fixed-rate mortgage with a 20 per cent down payment for households moving every seven years. Following these guidelines, buying is 36 per cent cheaper than renting on a national basis, based on September home prices.

But the issue with this model is that it doesn’t fit the situations that average millennials face, according to Trulia. Instead, the company said that it is typical for young households (ages 25-34) to move every five years and only be able afford up to a 10 per cent down payment. Trulia also assumed a 3.85 per cent mortgage rate on a 30-year fixed-rate loan, itemized federal tax deductions and a 25 per cent tax bracket.

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Canadian investors who are self-employed and looking to claim rental income in order to qualify for a loan will have more freedom to do so come Sept. 28, something that agents with those clients applaud.

It will certainly help that segment of buyers because it’s well-known that it’s a challenge for those who are self-employed to qualify for a mortgage. A lot of self-employed people spend a lot on expenses and don’t count income all the time so when the lenders see that, they tend to deny them.

“This rule change gives them another avenue to prove their have significant income coming in.”

Any investor looking to take advantage of this option will have to possess a Beacon score of no less than 680 while anyone who puts less than 20 per cent down will have to secure mortgage default insurance.

According to the new rules, the CMHC will consider up to 100 per cent of gross rental income from a two-unit owner-occupied property that is the subject of a loan application submitted for insurance. The annual principal, interest, municipal tax and heat for the property, including the secondary suite must be used when calculating the debt service ratios.

For three- to four-unit owner-occupied homes, the net rental income (gross rents less operating expenses) can form part of the borrowers’ gross annual income, according to the new rules.

Not only will this help those who are self-employed but also first-time buyers looking for affordability because they’ll be see the balance on their mortgage payments reduced from rental income.

It’s good to a see an effective policy that will mostly see the interest in multi-family units rise as immigration and general population increases. It could also drive prices higher in the long-term but this move gives people another option to enter the market affordably. 

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Assignor

(An Assignor is the original buyer of the unit from the Builder/Developer)

 

1. Is the original Agreement of Purchase and Sale assignable?
2. Are there any restrictions on marketing the Assignment? MLS® ,Exclusive, or Privately
3. The Builder may require the Assignor and Assignee to sign the Builder’s consent form or the Builder’s Assignment 

     Agreement.  The Assignee may be required to prove that they can obtain a mortgage.
4. The Assignor usually agrees to obtain Builder consent and pay consent fee (may be the Assignee).
5. The Assignee may be required to pay the Assignor an amount equal to the deposits (and possibly the interest

     on the deposits) already paid to the Builder at time of occupancy.
6. Provide the Assignee with original Agreement of Purchase and Sale and all related documents.
7. The Assignor is not usually released from their obligation to the Builder if the Assignee does not complete

     the purchase.
8. The Assignor is responsible for the following costs:

  • legal fees and disbursements
  • builder consent fees
  • Real Estate commission.

Assignee

(An Assignee is the buyer of the Agreement of Purchase and Sale from the Assignor)

 

1. Enter into an Assignment Agreement.


2. Obtain original Agreement of Purchase and Sale and related documents. Review obligations carefully.

     Have a lawyer review.


3. The Assignee may pay the following on occupancy:
a. Final deposit
b. Occupancy fees:
i. Estimated property taxes
ii. Estimated common expenses
iii. Interest on purchase price.
The Assignee usually delivers 6-12 postdated cheques to the Builder.


4. The Assignee may pay the following to the Builder on final closing:

a. Estimated property taxes for up to 2 years
b. Hydro/water/gas meter installation and connection charges (approx. $500–$700 per meter)
c. Development charges/levies (potentially thousands of dollars)
d. Tarion New Home Warranty (ranging from $600–$1,900. See Tarion website for fee structure)
e. Discharge of builder’s mortgages (approx. $200–$300 per mortgage)
f. Builder’s lawyer’s Law Society charge (approx. $70)
g. Compensation for the Builder–cost of handling the Assignor’s deposit cheques (approx. $250)
h. 2 months of occupancy fees for reserve fund
i. Other amounts set out in the Agreement of Purchase and Sale.
These costs are typically not financed with a mortgage.

 

5. The Assignee is responsible for the following additional fees:
a) Legal fees and disbursements
b) Land transfer tax (provincial and municipal).
c) GST/HST rebate.
d) Municipal levies.

 

6. Assignee takes occupancy of unit and all applicable financial obligations.

 

7. After the condominium is registered, on final closing the Builder transfers title to Assignee. The Assignee pays the balance to the Builder. The Assignee may also pay any amount still owed to the Assignor depending on the terms of the Assignment.

 

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