Mortgage 101 – making it work as first-time home buyers | February 2022 Part 3

In this episode of Mortgage 101 with Clinton Wilkins and Todd Veinotte, as heard on CityNews 95.7, the guys talk about how first-time home buyers can make it work in the current Halifax market. From pre-approvals, home types and locations, to gifted funds and RRSPs, Clinton and Todd take a deep dive into everything first-time buyers need to know.

Mortgage 101 with Clinton Wilkins & Todd Veinotte: Making it work as first-time home buyers

Don’t feel like watching the video? Check out the transcript below.

Transcript:

No age restrictions for mortgages in Canada

Todd Veinotte: [00:00:00:04] Good stuff. All right, let’s talk about first-time home buyers, okay?

Clinton Wilkins: [00:00:03:17] Super important.

Todd Veinotte: [00:00:04:27] Yeah, super important. And it’s kind of like when somebody first falls in love for the first time when they’re a kid. Right?

Clinton Wilkins: [00:00:10:23] Those butterflies.

Todd Veinotte: [00:00:11:13] That first love, right? The eyes are wide open and all of that. It’s similar to people at all ages because you probably, we think of first-time home buyers as being as young people, but sometimes they’re older, I’m sure, right? What’s the oldest person you’ve seen or you’ve dealt with that’s bought a home?

Clinton Wilkins: [00:00:27:10] Like retirees.

Todd Veinotte: [00:00:28:25] Exactly.

Clinton Wilkins: [00:00:30:03] Retirees. And you know what? There is no age restrictions on getting a mortgage in Canada. And one would assume that, you know, if you’re getting a mortgage and you’re 75 years old, the bank might not give you a 25 or a 30 year amortization because they don’t think you’re going to make it that long. They still will.

Todd Veinotte: [00:00:50:11] Well, in the end, it’s the home that is the,

Clinton Wilkins: [00:00:54:03] Is the collateral, right? And in a lot of cases, you know, the estate would pay off the mortgage or potentially they would sell the house and then the proceeds would go to the estate. So that’s not a concern, certainly not in the prime world. So like with bank lenders and, you know, any of that type of thing. So we definitely see all ages.

Most first-time buyer files have two borrowers

You know, I have first-time home buyers that are 19 years old. So that’s kind of unusual, you know, for you to have enough credit assets and income to make it drive. That’s usually not the norm. And most first-time home buyers today, we’ve mentioned this before, but majority of the transactions we do have two borrowers.

Reason being is, you know, obviously with where the average house prices are right now in Halifax, the average home price is about $500,000. You need about $100,000 to $125,000 worth of household income to make that fly.

Todd Veinotte: [00:01:45:26] And the down payment?

Clinton Wilkins: [00:01:47:02] Yeah, of course.

Todd Veinotte: [00:01:48:00] Closing costs?

Clinton Wilkins: [00:01:48:15] Down payment, closing costs. And you know, if you have a lot of consumer debt or student loans or car loans, maybe you need to have income even more than that. So, you know, I think for the first-time home buyers, there’s not a lot of them that typically make six figures.

Now, obviously, incomes are continuing to go up, Todd. That’s reality. But just imagine if you can get two borrowers that are making $50,000 each or two borrowers that are making $60,000. It certainly makes a huge difference. And you can buy the average home. The average.

Pre-approvals tell you your price range

Todd Veinotte: [00:02:17:12] All right, so I’m sure that you get people coming in all the time and they want to get pre-approved and they say, “Well, we want this and we want that and we want the five bedroom and the garage,” and all of that stuff. And you probably have to say, we need to have a conversation.

Clinton Wilkins: [00:02:34:16] About, yeah, and I’m like, thank goodness I’m not a realtor because it’s a tough time to be a realtor right now. Let me tell you, right now. I have friends that are realtors, you know realtors. Yeah, we do business with realtors every day. It is a tough, tough, time.

Todd Veinotte: [00:02:44:28] Why do you say it’s a tough time to be a realtor?

Clinton Wilkins: [00:02:46:16] There’s not a lot of inventory in Halifax. And you know, if you don’t have listings, you’re dealing with the buyers and on a lot of these listings that are getting multiple offers. So potentially if you’re a realtor representing these buyers, they keep making several offers before they even get one that’s accepted. So you have to work really hard to make that happen. And I think the expectation sometimes for first-time home buyers are really too high.

Todd Veinotte: [00:03:13:02] Why do you think that is? Because they just don’t have the experience or what?

Clinton Wilkins: [00:03:18:14] I think that the instant gratification culture has impacted that. I think that the first-time home buyers these days don’t want an average home. They want their forever home, even though it’s probably not going to be the forever home. But they want the, you know, the big brand new construction. They don’t want the $500,000 like average home. They don’t want the $300,000 or the $200,000 starter home. They want that like dream home.

And when I bought my first house, it wasn’t my dream home and I’ve owned so many since then. But, you know, I’ve made money on some and I’ve lost money on others, and I’ve made some good decisions and I made bad decisions just like everybody does in life, whether that’s real estate or whether that’s love. I mean, you know it happens to all of us. But I think first-time home buyers right now, the expectations are maybe a little bit too high because that dream of the brand new construction and the stainless steel appliances and the quartz countertops and the 3,000 square feet is really tough.

Yeah, because to get, you know, those type of homes, they’re probably not $500,000, they’re probably more. And, you know, as the home prices go up, the expectation, I think needs to be reset a little bit. And there’s nothing wrong with a first-time home buyer going into a rundown semi-detached starter home.

Most first-time home buyers cannot afford to buy on the peninsula

Todd Veinotte: [00:04:47:10] What about location? Oftentimes they say, “Oh, I want to live on the peninsula.”

Clinton Wilkins: [00:04:51:19] And “I want to live it downtown Halifax!”

Todd Veinotte: [00:04:53:20] It’s just like, dream on, right?

Clinton Wilkins: [00:04:55:09] Yeah, dream on a little bit. And when I see people and we do the pre-approvals and I’m like, okay, great, you’re pre-approved for $500,000. You’re probably not buying a single family detached home in the south end of Halifax, that is not happening. But I think that sometimes the focus is so much on, “OK, I need to get the pre-approval before I even know what’s available kind of in the market marketplace.” So I think there’s a little bit of expectation setting.

You know, I think you need to have an idea of what you want and what that’s going to cost you. And when we do the pre-approval we need to see, does that meet, you know, is there a median point here where the price that we’re able to get you approved for in terms of a mortgage amount, does that meet your expectations on the inventory that is available?

And as you know, the, you know, real estate when it’s selling these days, at least in our market here in Halifax, is selling for above the asking price and sometimes significantly above the asking price to the tune of $100,000 plus. So you know, you need to have as much budget to work with as possible.

Gifted funds becoming the new normal

Todd Veinotte: [00:06:03:00] Do you find that first-time home buyers often have parents involved? And again, obviously the demographics vary, but I think largely they’d be younger people. So do you find that oftentimes they have people guiding them? Or are they on their own a lot?

Clinton Wilkins: [00:06:16:13] Or I don’t know if so much, if they have, you know, parents guiding them. I think that there is a lot of family support in terms of gifted down payments. We see a lot of those for first-time home buyers. I’m I’ll go out on a limb and say more than 50 per cent have a gift.

Todd Veinotte: [00:06:30:23] Is that right?

Clinton Wilkins: [00:06:31:23] More than 50 per cent?

Todd Veinotte: [00:06:32:16] Does that need to be disclosed to the bank?

Clinton Wilkins: [00:06:34:21] Oh yeah.

Todd Veinotte: [00:06:35:03] Where that’s coming from?

Clinton Wilkins: [00:06:36:00] You need to disclose where it comes from and typically most lenders require it to come from either mother, father, brother, sister. It has to be a direct family member.

Todd Veinotte: [00:06:42:10] Really can’t just be a friend? Can’t do it?

Clinton Wilkins: [00:06:45:00] A friend can’t do it. A cousin can’t do it. Too far detached.

Todd Veinotte: [00:06:49:24] So why is that? Why would the bank care about that?

Clinton Wilkins: [00:06:53:09] Money laundering, beneficial owners, you know, tracking of funds, proceeds of crime.

Todd Veinotte: [00:06:59:22] Well, a cousin or something like that?

Clinton Wilkins: [00:07:01:13] How do we know if it’s their cousin? I could be your cousin.

Todd Veinotte: [00:07:05:10] Well, how do you know it’s the father or the,

Clinton Wilkins: [00:07:07:15] I mean, we don’t know, but usually if the last name is the same and sometimes there’s some additional verification that we need to do? So depending on the size of the gift and obviously the lender, sometimes gifted down payments, we have to prove if the gifter has the funds.

Yeah, so there are some due diligence on those funds to make sure that they’ve had the funds for a certain period of time and they actually have them. You know, I think that there’s a lot of family that will support first-time home buyers, and I think that’s really great and I’ll tell you why I think it’s so important, Todd.

Give your kids the gift

So, you know, if our listeners are parents or if our listeners are kids that have parents that can support them: Give your kids a gift. Honestly. I would rather see your kids maybe get into the housing market now before the prices continue to go up because I believe they are going to continue going up. I do not think that we’re going to have a crash. I do not think that the inventory situation is going to fix itself in Halifax for 20 years. So if you want them to get into the market, now is a great time.

Clinton Wilkins: [00:08:12:08] Yes, we have seen a bump obviously in the prices, but I think it’s normalized a little bit now. So now is a great time and those parents who are giving their kids a gift. You, if you are a home owner, you have benefited by the increased value of your home, right? So the net worth as a family has already grown.

I do have some parents who will come to see me. I’m actually dealing with something right now that are refinancing their home and taking the equity out and giving a gift to their kids and they’re like, “you know what, my kids can not into this housing market without a gift of $100,000. They need this much money to be able to put down 20 per cent and to be able to get into the get into the market.” And I’m seeing more and more of those six figure gifts.

Todd Veinotte: [00:09:00:21] Wow.

Clinton Wilkins: [00:09:01:00] They are becoming not so much the abnormal, more normal than ever, but we certainly see gifts for $5,000, $10,000, $20,000. That happens every day. But we’re seeing more and more gifts to the tune of six figures.

Single person with no family support

Todd Veinotte: [00:09:13:11] Do you feel bad for some of these who don’t have that ability to get that type of gift?

Clinton Wilkins: [00:09:18:06] You know who I feel really bad for? The single person that doesn’t have the gift that really kind of has to hustle their entire adult life to save the money for the down payment. I think those type of people are usually doing a high ratio insured mortgage. So that means it’s a minimum of five per cent down on the first $500,000.

And a lot of those people have in RRSP and they start RRSP when they were young. They took good advice and maybe that was from their employer. Maybe their employer had a match program. I know so many people that their employers have RRSP programs, but they don’t take advantage of them!

Take advantage of RRSPs

Todd Veinotte: [00:09:54:10] Oh yeah, Absolutely.

Clinton Wilkins: [00:09:55:22] Like run and jump and sign those forms and get that RRSP match going. So you know, if you’re a listener and your employer does offer such a program, take advantage of it. As a first-time home buyer, you can take up to $35,000 out of your RRSP.

Todd Veinotte: [00:10:08:29] As the first time homebuyer?

Clinton Wilkins: [00:10:10:28] Tax free.

Todd Veinotte: [00:10:11:14] Tax free. You pay no tax on that. It’s amazing. So we talked about this when we kick the show off, we’ve got one more segment coming up and it is the month of love. But sometimes love breaks down and that’s just the way it is. So we’re going to not be a buzzkill, but in the next segment, we’re going to talk about and it’s not a buzzkill. I think everybody going into these things should go into them with their eyes wide open, right?

Clinton Wilkins: [00:10:34:09] I think it’s having the conversation up front, and we’ll certainly talk about that. And then we’re also going to talk about what happens when there actually is the breakdown and then how do you deal with that and how do you kind of best protect yourself? And what kind of avenues do you have for help?

Todd Veinotte: [00:10:48:04] All right. We’ll get to that right here on CityNews 95.7 in Halifax and we’re in Ottawa as well. We’ll be back.

If you have any questions, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.

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