Can my Children Afford to Buy Real Estate?
This question is one that comes up a lot with clients. We all know prices are expensive all throughout the Lower Mainland and especially in Vancouver. And to make it a bit harder, mortgage rules have also changed. In speaking with my friend, Laura MacCormack, a top mortgage broker at Clever Mortgage Broker with Verico Compass Mortgage, she said “I think one thing to educate about real estate is that mortgage rules have changed DRAMATICALLY.
For example, with 20% down payment, for a single person (or couple) to qualify for a $500,000 place (with NO other debts, no car loans/leases or payments of any sort), depending on the strata fees and property taxes (but I have used $3,000 for property taxes and $400 for strata fees, just to be safe), the total income needed is approximately $85-90k to qualify for a mortgage of $400,000 with $100,000 down payment. The new stress test requires that the client qualifies for the mortgage payment at either rate + 2% or 5.19% (over 30 years with 20% down) or a max of 25 years with less than 20% down and the insurance premium included in the mortgage.
For someone with less than 20% down, an insured mortgage 5% down on $500,000, $25,000 down, total income (with NO other debts, same as above), needed is approximately $105,000 annual income.
For any employee who is paid hourly or receives a bonus or commission the total income is based on a 2-year average but the current year needs to be higher than the previous year’s income or it is just the current year amount.”
Does that mean it is impossible? I don’t think so. Rob has 3 nieces, all age 29 who all own homes and the reality is that their parents helped each of them with the down payment to get into the real estate market. That help was appreciated, but they all earn decent incomes, are good savers and have husbands/partners who also contributed.
I’ve also had at least 2 clients who bought homes with friends. So one family lives on one floor and the other one another floor. It can be done.
Laura MacCormack added “friends buying homes together can be smart; you can have a maximum of 4 applicants on a mortgage. What I’ve seen work:
- Parents gifting down payments. I am seeing gifted down payments from parents quite often.
- Parents cosigning – cosigning is not like it used to be, it requires the parent(s) cosigning to be on title at least 1% ownership and one the mortgage 100% liable. A lot of young people are needing parents help. I had clients last year in their 40’s with parents cosigning.”
If you have heard of other creative ideas let me know and I’m happy to share them