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Buying a house
SatanIsMyMotor
Fuck Warren EllisRegistered User regular
Fuck Warren EllisRegistered User regular
Ok, so I'm thinking about buying a house and I know next to nothing about it. I'm sick of throwing away money renting an apartment and I'd like to start building some equity.
I'll be going in to see about getting approved for a mortgage but I wanted to see if any of you have gone through this before as first time buyers.
I do and don't make a lot of money. I have a salary of around 30K a year (soon to be more) and a profit share in the company I work for which should pay out about equal to my salary come the start of next quarter (so an additional 30-40K).
Real estate isn't too expensive here. A big 3 or 4 unit house is around 300K. I should also mention that this is a university town and I would like to get a multiple unit house where I can live in one unit and rent out the others. I'm sure I'd have no problem filling it.
What are some of the things I should be looking for/looking out for? I know that I should get the place fully inspected prior to buying but aside from that I'm pretty clueless. Any advice is appreciated.
I'll be going in to see about getting approved for a mortgage but I wanted to see if any of you have gone through this before as first time buyers.
I do and don't make a lot of money. I have a salary of around 30K a year (soon to be more) and a profit share in the company I work for which should pay out about equal to my salary come the start of next quarter (so an additional 30-40K).
Real estate isn't too expensive here. A big 3 or 4 unit house is around 300K. I should also mention that this is a university town and I would like to get a multiple unit house where I can live in one unit and rent out the others. I'm sure I'd have no problem filling it.
What are some of the things I should be looking for/looking out for? I know that I should get the place fully inspected prior to buying but aside from that I'm pretty clueless. Any advice is appreciated.
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In other words, you need to have a large amount of cash built up as savings in order to realistically rent out a space -- or buy a cheap house that happens to have an odd room on top or out back. That way if you have to go a month or two without a renter, you still have ample funds to pay for the house. Similarly, take all of your maintenance costs, such as furnace, kitchen appliances, water heater, and so on, and double them.
Even worse, with renting out a space you need to have the ability to drop cash on a professional if something serious happens. If you own a house and you get a leak somewhere, you can put a bucket there and patch it badly yourself, until you can get around to fixing it for real. A renter will most likely not tolerate that, and expect you to fix things quickly and effectively.
Is it just you buying a house? As in, one single salary of 30k? If so, you really can't afford a house that costs more than about $100-150, depending on the interest rate you get.
What is your rent currently at? Where do you live? If you live somewhere where real estate prices are dropping and the market is saturated, it's often much smarter to rent and simply save the excess money.
http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?ex=1179028800&en=151f336d9b05b911&ei=5070
Second, con't count income you don't have.
See that red? "Should". What if it doesn't? You're getting into a loan for ~30 years. That's quite a long time. Companies can and do go under.
Third, renting. In addition to the above. What if you rent it and the guy just doesn't pay? You evict him right? Well in most states people can tie up eviction procedings in court for quite some time.
I would start by spending a lot of time on realtor.com, ziprealty.com, and zillow.com. They have real estate resources like you wouldn't believe. When I say a lot, I mean a lot. Live on those sites for a while. Watch everything that comes on the market, what it lists for, when it sells, and for how much, and so forth.
Also, the downpayment thing can be counteracted with local first time homebuyer assistance programs. Often they'll give lower interest rates or closing cost assistance, although the universal benefit to having a downpayment is avoiding PMI, which is mostly a scam. But a scam that's unavoidable if you don't have enough money for a downpayment.
My wife and I didn't have enough for a 20% downpayment, as that's a significant chunk of change. I mean, think about it -- 20% of a 200k house is $40,000. Do YOU have that much in highly liquid funds? Does anyone? Anyone who is able to save that much money will put it somewhere that it earns a high rate of return, making it less liquid, and if you're earning 8-10% on 40,000, the idea of dumping that into real estate, which realistically earns a return of about a percentage point higher than inflation in the long-term, well, sometimes it's just better to have a smaller downpayment and pay PMI for a year or two, make some improvements on the house, and then get the house reappraised to get the PMI off. That's what we're doing. We took the money we were going to put towards a downpayment (not anywhere near 40k) and figured that since it only would reduce our monthly payment by about $50, we'd rather use the money to dramatically improve the house.
Buying a house and figuring out the financials of it all is really a wake-up call for a lot of people who normally don't pay a lot of attention to money and investing and interest rates. There's a lot of tradeoffs and decisions to make and it can be intimidating.
I've heard about the 10% thing and I think that's smart.
I don't know if I agree about the person who was commenting on renting out units to other people. Quite a few people around here do it and make a killing on it.
Regardless, good advice. Much appreciated.
There are two reasons for a down payment.
1) To reduce the amount of your loan which reduces your monthly payments. Very nice thing to have but seems to be pretty common to just not be able to do on first houses anymore.
2) To avoid mortgage insurance, and this requires 20% down payment. Banks and lenders have a way around this, though. They do 2 mortgages, one for 20% and the other for 80%. This is very standard to do. You pay a bit more in closing costs this way, but can save a good bit in monthly payments.
What you will need money saved up for, though, is closing costs. I bought a house a little under a year ago and for houses in the $150k-$170k range closing costs were running basically $2500-$5000, depending on the lender and exact amount. A $300k house is going to have much higher closing costs.
On top of that, every lender that I talked to required that you have enough money in checking/savings to pay the first month mortgage payment AFTER closing costs have been taken out of the account. Even without a down payment, these two things combined mean you need $5-$10k (or more) sitting in the bank.
When the time comes, make sure you get a home warranty with the house. Mine was paid for by the seller but even if I had bought it, it's more than paid for itself. I have so far gotten a ~$200 plumbing repair, a brand new water heater, and would have gotten a new ceiling fan if I hadn't been stupid and told the repair guy there was a storm when it died.
I put 3% down on my first home and 0% on my second. I never paid PMI on either. On my first house, I got a first-time buyer low-income mortgage (which anyone who made under like $75K could get) that simply waived PMI. On the second, I got a 100% interest-only TAMI ARM, which means they added half a point to the interest instead of charging me PMI. Interest rates were so freakin' low that I ended up with about the same rate I would have gotten had I bought a few months earlier witout the TAMI. And, the interest is tax-deductible.
Some people will tell you that a 100% IO ARM is almost the worst mortgage you can get. That is only true from a very risk-adverse point of view. The fact still remains - do you have $60,000 lying around that isn't real important to you? Fine, freeze it into a $300,000 home and you'll siginificantly lower your monthly bill. Don't have that kind of money lying around? Or maybe you do, but you need it for other stuff? There are a lot of mortgage options. 80/20, 80/10/10, TAMI, PMI, IO, ARM, and so on.
The important thing is that you fully understand everything about the mortgage and what it will mean for you now and in the future.
A standard mortgage is a 30-year 80% Fixed P&I. Here's what that means:
30-year - The terms of the loan require you to make a payment every month for 30 years
80% - you pay 20% (or more) of the sales price on your own, and the bank loans you the other 80% (or whatever the remainder is). That 80%, and/or the interest on that 80%, are what your mortgage payment is paying every month.
Fixed - The interest rate is "locked in" when you secure the loan, so you pay the same amount every month as long as the loan exists.
P&I - Principal and Interest. Every month, part of your payment goes to pay back the initial loan you took to buy the house (principal), and the rest of the payment goes right into the bank's pocket, as a fee you pay for the privilege of being in debt to them (interest). Every month you pay a little more in principal and a little less in interest. For the first few years of the loan you are paying mostly interest and very little against principal; for the last few years, very little in interest and mostly just paying off the remaining balance.
Variations:
Instead of a 30-yr, you can do 15-year or 10-yr or even 40-year in some place. A shorter timeframe means you pay more every month. A longer timeframe means you pay a lot more in interest over the life of the loan. So, for example, a 15-year mortgage, while half the number of months, is NOT double the monthly payment. It is much less than that. If you can afford it, a shorter term is often better, but people generally go with 30-year in order to be able to afford the monthly payments on the house they want.
The bank wants you to put 20% down, because in the event you cannot pay your mortgage, the bank gets your house. They turn around and sell it, and they get to keep that 20% you put down and any other payments you've made against the loan. After realtor's fees, legal fees, and so on, that 20%+ may not be so great for them, but it at least ensures they aren't going to lose money on your deadbeat ass.
But not everyone has 20% to pay up front. Therefore, the common way people deviate from the standard mortgage above is via PMI. If you don't have 20% to pay up front, you pay what you can, and you pay PMI (Primary Mortgage Insurance) every month. Don't be confused, PMI is not insurance for you, it's insurance for the bank. It allows them to effectively take out an insurance policy on you, so that if you don't pay up, they'll avoid losing money on you in the process of repossessing and resselling the house. PMI is simply a fee you pay to the bank every month, it is not tax deductible. The good part is that you don't have to pay it forever - once you've paid back enough of the loan, or once the house has gone up enough value, so that you effectively owe the bank less than 80% of the value of the house, you can re-do a new mortgage and dump the PMI. Some mortgages even automatically dump it for you without a re-fi.
Some people hate PMI because, unlike the interest you pay to the bank, PMI is not tax deductible. Also, it just stings paying it every month, because it's basically a "you're poor and we hate you" fee.
Two popular alternatives to a 80%+ mortage with PMI are the 80/20 or a TAMI:
80/20 - In this scenario, you take out two mortgages. Basically, you take out a loan for 20% of the value of the house, so that you can put down that 20%, and then finance the remaining 80% as usual. The 20% loan will be considered a higher-risk loan and will carry either a higher rate or more risky terms, or both. More on this later.
TAMI - Tax Advantage Mortgage Insurance. Instead of charging you PMI, the bank just raises the interest a little, like 0.5%, to cover the risk of loaning you more than 80% of the home's value. Unlike PMI, this extra interest is tax deductible. This type of loan can be harder to get.
Other variations on the 80/20 are the 80/10/10 or the 80/15/5. The last number in each case is the % amount you put down, and the first two numbers are the two loans you take out.
The alternative to a fixed-rate mortgage is am adjustable-rate mortgage, or ARM. In a fixed rate, you lock in a rate, and that is the rate you are charged every month for having the loan. This guarantees you a the same payment every month for the life of the loan (excluding property taxes and and fire insurance and such, but that isn't really part of the loan). An adjustable rate allows your interest rate to fluctuate with the market. And by fluctuate, I mean go up, not down. So you can find your payments getting higher and higher. The benefit is that you get a lower rate to start with.
See, if a bank gives you a fixed rate, and rates go down, you can always re-finance with a new mortgage. But if you have a fixed and rates go up, you get to sit back and laugh while you pay the bank interest every month at a rate lower than the market would dictate. This is why the bank offers you a better deal on an adjustable rate. It gives the bank the opportunity to raise the rate on you later on if the market pushes that way.
ARMs generally have a fixed period, and then they go adjustable. So, for example, a 10/1 ARM means the rate you lock in will be fixed for 10 years, and then it can be adjusted every 1 year after that. 5/1 means fixed for 5, and so on. The shorter the "fixed" period, the better the rate, but the sooner it can go up on you. The longer the fixed period, the more the rate will look just like the rate on a 30-year fixed.
ARMs usually have a maximum amount they can go up, too.
When you do a 80/x/x loan, the second loan will often be an adjustable rate. The reason is because if you go fixed on the second, the cost of the interest on the second loan will be so high that it just makes more sense to pay PMI. In order to get the advantages of the 80/x/x, you'll have to agree to riskier terms with the bank, meaning that you'll have to pay that second loan off soon or it will grow to be a huge burden.
The alternative to P&I are an interest-only (IO), and Option-Payment.
Interest-Only - In this type of payment, you aren't paying back any of the money you borrowed. You're just paying the interest you owe. If you buy a $300,000 house, you can make mortgage payments for 30 years, and at the end of those 30 years, you'll still owe the bank $300,000. The advantage is that since you don't pay principal, your monthly payments are less. You keep more of your money liquid to use for investments or whatever you need it for. The downside is that you aren't paying off your loan! This isn't such a big difference for the first few years, though. Even in a P&I loan, for the first few years you are paying alomst entirely interest and very little principal. So the first few years aren't so different. At some point, though, you'll have to figure out a plan to actually pay down the loan, or you'll start to realize all the potential equity you've lost and the looming debt that you aren't paying off. Of course, 30 years from now your house could be worth $5 million and you can sell it, pay off the loan, and retire. Who knows?
Option-payment - In this loan, your monthly payments are drastically reduced. Not only are you not paying principal, but you're not paying all the interest either. Instead, the interest you don't pay gets added to the balance of the loan, increasing the principal that you owe. You better know exactly what the fuck you are doing before you get into one of these. In 5 years you will find yourself owing the bank significantly more than the house is even worth, and your payments will have to skyrocket to compensate.
Generally speaking, non-standard mortgages offer you lower payments and less money up front now, in exchange for greater risk and higher payments down the road. This is a bad thing only if you focus entirely on the "now" and not on the "down the road." You need to know exactly what your standing will be with respect to the mortgage and payments now, 5 years from now, 10 years from now, 30 years from now, and so on, and you need to have a solid plan on how to deal with changes as they come. If you can't do that, then get 20% down and get a fixed-rate. But doing the safe thing isn't always the smart thing.
In order to rent a space, it needs to be outfitted with a kitchen and bathroom and be physically separate from the other/main living space. To get started, you would either need to buy a house that is already converted for a tenant, or would have to pay to have that set up. Some tenants will tolerate having to go through a shared space or someone else's space, but most won't.
Then you need to figure out rent. What's rent in the area? If you buy a house for $300,000, and it's ready to go for a tenant, your mortage by itself is about $1800 a month. You also have to pay property tax and insurance (as well as the standard utilities that most places include like water), so your monthly payment would be at least $2000 a month. That means that rent should be proportional to the space. Is it half of the house? Rent should be $1000. More or less, adjust accordingly. People can make a "killing" because that renter is paying a part of their mortgage, but the real way to make money is to be able to afford the mortgage yourself, and then have a renter knock that amount down so you save the excess.
How much is the average rent in your area? You say that there are big houses, although I don't know what "3 or 4 unit" means. Is 300k the average price, or are small houses available for much less?
edited to add: the amount you can "overcharge" the tenant is equal to the amount you make as actual profit. If you're living in a house that is equivalently sized to a property that would cost you the difference of the mortgage minus the tenant's rent, then you have zero gain. Think of it this way -- if your mortgage is $2000 a month, and your renter pays $800, your cost every month is $1200. If you were to buy a smaller house that has the same living space, minus the tenant's space, for $1200, you gain nothing from having a tenant. You do gain a significant amount of liabilities, though.
The best situation is to own a place where a tenant's rent covers "their" portion of the mortgage, plus enough to cover liabilities (repairs, maintenance), plus extra for your "profit." If having a tenant barely covers "their" portion of your mortgage payment, you're essentially subsidizing they're rent -- you're paying them to live in the space. That's why owning a larger house for the express purpose of renting isn't always a good deal, and can often be a bad deal. You're buying a larger house, and taking on the risks and liabilities associated with it, so someone else can live in it. They need to *at least* cover your expenses for it to be worthwhile.
The loan I have is IO but only for the first 7 years. So, for the first 7 years my payments are lower but after 7 years it's going to jump up $200-$300/month. Similar to what an ARM will do to you if interest rates go up, except I know exactly how much it's going to go up and have an option to control it. I have the option to pay off however much PMI I want each month. The more I pay off, the less my monthly cost is going to go up in 7 years. By paying the PMI I also reduce the interest I owe, which reduces how much my minimum payment (which doesn't cover PMI) is each month. This way over time my payment will be lower in case I am a bit low on cash some month plus if I keep paying the same amount, that means more and more of the money is going towards the PMI.
We also did an 80/20 split loan, but both are covered with one payment and it functionally works as a single loan.
This was done through VHDA, which is a state specific (Virginia) group that helps low income and first time homeowners get affordable loans for a house.
The houses in this area are called "Heritage Homes" and have been here for over 200 years. A lot of these places are huge and have been broken down into units. When I say unit I mean apartment. Fully loaded and completely livable.
Regarding having a professional take care of maintainance and such, my father is a fully licensed plumber, carpenter, and electrician and has said he has no problem with handling all such landlord duties. I have more of a head for business so I would handle everything else and help him whenever he needs it.
This isn't as good a reason to own as you might think. Even with a tax deduction for mortgage interest, mortgage interest is so burdensome that you might not break even (compared to renting something of equal quality) for as much as 5 to 7 years.
Then there's the issue of market speculation. The market started a decline last year that (if things return to historical norms) may last another several years. If you buy something now you could very well be making negative equity and be "throwing away" much more than you are on rent now. I have had the money to use on a down payment for a year or so now and have held onto it because it looks like a terrible time to buy right now. Sure enough, median prices in my area have fallen 10.1% since this time last year. If I had bought a median-priced house in this area, I would have lost nearly $50k of equity already. AND be paying interest on it, AND be unable to sell.
Lenders have limits as to what they will loan you, based on your income. However, their limits are still pretty extreme. Consider limiting yourself -- to a mortgage of no more than 3 times your gross income. If your gross income is 60k, don't get a house that's 300k.
I live in an old city with a lot of big older houses that have also been split up, but the sames rules apply. If you could have 3 tenants that pay $500 each, but you're stuck in a small space that is no better than renting, it's kind of a wash. On the other hand, if you're in a college town and could rent 2-3 units and end up having no mortgage payment at all, that can be a good deal. The advantage to college towns is that there's always going to be people who have no interest in buying in the area. The disadvantage is that you can go through tenants quickly with dryspells, and you have to deal with college kids who generally won't care if they wreck stuff up.
Talk to a bank before you get serious about buying a large subdivided house, though. They may not give you a mortgage if you're looking to buy a house like that, OR you may get pegged as a business (which also has ups and downs). Remember that rent income *is* income.
Are these big houses the only option in the area? Here, a 3-4 unit property that's ready for rental is proportionately more expensive compared to single-family units, and as such the only advantage are for investors and rental companies that can essentially buy the units outright, and then bank all of the rental income.
I don't believe it - I'm on my THIRD PS3, and my FIRST XBOX360. What the heck?
I think I should start by pointing out some important differences between Canadian and American banking practices.
First, in Canada mortgage interest is not tax deductable, unlike our lucky American friends. I've heard of some complex tactics lesser banks can use so that you'll be able to write off your interest, but they have sounded pretty shady to me (and you have to get your mortgage through them, likely resulting in higher interest rate). You're welcome to investigate the matter.
Second, you are correct that the housing market here is very different from the US. In the US, their housing market has generally fallen flat, and even went down. In Canada, we are roaring at about 10% increase in prices per year (varying throughout the country, with ontario/GTA being about 10% and Alberta being over 20%). If you believe housing prices will continue to rise, you should buy fast - or wait a LONG time for them to stabalize/fall. If you are saying to yourself "maybe I should buy today, or maybe in about 2 years"... then BUY NOW. At the start of our house searchthe market was at around $280-$300k for what we wanted. When we purchased a year later it was $340k (thats $306k USD for Americans).
Third, when you go to get a mortgage, please PLEASE negotiate/haggle. The 'big banks' posted rate is like6.6% or some stupid thing (5 year fixed). ING Direct will offer you around 5.3%, but they will not negotiate. Big banks WILL negotiate.. a lot. We had CIBC and Scotiabank fighting for our mortgage, and we ended up with Scotiabank offering 4.84 and CIBC with 4.83. The best way is to say you'll bring all your assets/accounts/investments to the new institution. On a $300k mortgage, you will save about $300/month on PURE INTEREST between 6.6% and 5.0%.
And last, in Canada, the PMI is issued through CMHC (Canada Mortgage and Housing Corporation). They have a scale for the PMI fee, charged 1-time on top of your mortgage, based on your downpayment. They charge a fee to the bank, no matter what the loan amount is (you can see it here). However, the banks will usually suck up the fee if you pay 20% or 25% down. Otherwise, paying 10% will incur a 2% fee, and anything near 0% will incur more than 3%.
Now, I'm fairly certain that you cannot do the double-mortgage thing just as you can't take out a loan for your downpayment (banks require that you PROVE that your downpayment is not coming from a loan - that its cash on-hand assets).
I can try to answer any specific questions you might have if you'd like.
Good luck.
Oh, I forgot - Please don't get your hopes up for any specific house/prices until you talk to banks. With only $30k/year income, you might not be approved for a $300k mortgage (infact, you almost certainly wouldn't be). There is a calculation banks use to compare your "debt burden" to your anual income. For this reason, they ask you what your car payments are, student loans, and any other loans you might have. Adding this plus your mortgage payment amount gives your "debt burden", which they compare to your overall income. It cannot exceed something like 40% (not sure on that number). You also mentioned $30k(ish) in profit sharing... I'm not sure how they'll take this.. they might trust you and consider it when calculating your income - but then again, they might not. Reducing the mortgage amount by using a higher downpayment and extending the amortization period of the loan from 25 to, say, 40 years might help that burden:income ratio, so that you might be approved.
Just wanted to say that. Lots of good info here.
Mortgage banker in the hizzouse
First, whoever said you'd need 25-30K for a down payment on a 3-4 unit was wrong...the more units the property, the higher the necessary down payment.
Even when loans were easy to come by (the last few years) 3-4 unit still required a down payment of at least 20%, often 25 or 30%...so you'd need about $90,000 cash (plus closing costs, attorney fees, title and the like, so figure another 10-15K liberally on top of that)
In terms of qualifying, use these numbers: 28/34. Those are the magic debt-to-income ratios that banks use to qualify you. Basically, the 28 is "28% of your gross income is going towards housing expense" and the 34 is "how much all your expenses, total, are in ratio against your gross income"
They'll go higher (35-45 isn't unheard of) but keep in mind that a payment on $100,000 is about $650 without taking into account taxes or insurance. With an income of 30K, you're not looking to finance much more than 100K, 150K tops.
80/20 loans are becoming very scarce and hard to come by, because of the recent losses incurred by banks. Expect to put at least 10% down. 80/10/10 is about as good as you can hope for now.
And never, ever, ever take a mortgage where you need to rely on rent from a second unit in order to make the payment. I've seen more people default because of that than I'd care to talk about.
Typically you want to go for fixed rate, fully amortizing loans. Option ARMs are the worst, Interest Only are nearly as bad; you can get into hairy situations if your market isn't appreciating or slightly depreciating, finding yourself in the situation where you'll need to refinance an interest only in order to avoid a payment jump as the fixed, IO period expires only to find yourself in a scenario where the rates or higher or you do not have enough equity to refinance. Plus you have to incur the closing costs (vary depending on state) all over again, so...fixed rate is your friend.
Yeah, I don't like ARM/variable rate mortgages much, but those interest-only and 0-down mortgages are rediculous. It was clearly a means for financial institutions to over-extend the affordability of housing (that was already inflated beyond reality) just like offering 40 year ammortization periods, and the US housing market has really payed for all these 'tricks'. Whenever a market artificially enables a movement (in this case, appreciating housing prices), the crash always gets that much more painful. We're already starting to see the market in Canada straining at the edge of affordability, and I sincerely hope they just let it calm itself rather than follow the same mistake the US did.
Back to buying the house, one must ask themselves if the cost is realistically affordable - not just "bank approved affordable". The banks want to make money off your interest... as long as you're paying, they don't care if you're suffering (they only want to prevent you from defaulting). Even if you can just barely afford something - 25 years is a long time... in that time you might want to get married, have kids, have a life. Sure you'll probably get raises over the years at work, but things have a way of staying more or less the same.
And renting seems like free money, but it's anything but. Sure you can be a slum-lord jerk, but do you really want to be? And many things are government regulated ... the rent you take in must be claimed as income, because the renter will likely claim their rent towards the property tax credit on their taxes. You better believe Revenue Canada has automated systems that would catch the discrepency (I've seen it first hand). So your rent collected is taxed as income. You have to make the unit(s) legal (fire code, entrance, etc). You have to have a legal lease (lawyers hmm?). And.. the big one.. you have to have cash on hand for unexpected expenses, such as major repairs. Do your research on your provincial tenancy act (ontario tenancy act) and see the things that the landlord is responsible for.
If you're serious about renting, but find yourself very busy, one thing you could do is use a property management company. They do the grunt work for you, but take some of the income - so less money for you, but also less potential headaches. Again, research FTW.
I'd heard that. It doesn't here, but it makes sense in Canada, certainly!
Here's the drill.
You want to blame the banks, go right ahead, the banks were complicit and greedy and they started extending credit to everyone and anyone on some frankly risky loans, notably Option ARM loans. It was based off profit only...banks don't hold much of a fiduciary responsibility to mortgagors and basically, the securities market ate up "collateralized debt obligations" which are packages of loans, hedged for risk (some risky, some sound) and sold on the securities market, which allowed banks to keep lending, so they got creative. And yes, these loans made things seem affordable to people who shouldn't have ever owned a property to begin with (notably, of course, in subprime lending, but there was PLENTY of faulty prime lending) and people were left in mortgages with rising rates with little equity...but there are also plenty of people that made out like bandits with that cheap and exotic credit. It did work for some people. The problem is lots of people who didn't understand the loans still ended up in these adjustable loans, and now, with values not appreciating, they're left holding the bag.
That is, unfortunately, how it works, it's a cycle that's repeated many times over and it almost always works this way. You can look back at markets in the US, England, and even Japan and see the same trends over time. I wish I could tell you it wasn't going to happen in Canada but this is human nature. And there are always going to be people who get there a day late and a penny short, in the stock market, in real estate, anywhere. But these cycles are natural, and as much as they suck, there really shouldn't be some huge government bailout...maybe FHA should help refinance people on ARMs to fixed rates with longer terms or something similar but that's IT. People should also know better themselves, you don't get your money back when you screw up in the stock market, so should it be here. Some of the ideas (sadly, Democrats, whom I ally with) the government is tossing around at the moment are pretty stupid.
But if there are laws governing fiduciary responsibility of lenders and brokers, I won't complain too much. They make it illegal to discourage someone from applying for a loan, and while I understand why, we also have a responsibility to tell people that they're realistically crazy for trying to afford say, a $570,000 mortgage on $40K salary (I'm talking an actual client here)
Good advice. Buy what you're comfortable with, not what stretches you. The market may be stagnant for a loooong time...if you're thinking about buying now, don't buy it with appreciation in mind, or income in mind, buy it because you need to live in it and be secure and have affordable payments.
It's pretty different in the US, we don't even get to claim rent as a deduction on our taxes, but you will likely need to declare your rent as income of course, and really...don't count on rent as anything but a loss mitigator. Having a house can be shockingly expensive. Most landlords break even. And be ready to have a tenant problem. Like I said, if you need a tenant to afford a house, you can't afford the house. Nightmares abound in places with strong tenant's rights laws (New York for sure, I can't speak for Canada)
That'd be overkill for just a few units in an owner-occupied property. If he owns a dozen properties, then absolutely. Until then, nah.