Mortgage 101 – The First-Time Buyer’s Reality Check

Clinton and Dan talk about how the rising rents in Nova Scotia are making homeownership difficult despite ownership often costing less monthly than renting.

Dan Ahlstrand
And welcome back to Mortgage 101. I’m Dan Ahlstrand, and as always, he’s Clinton Wilkins. Clinton, before the break, we kind of teased that we wanted to talk about rents. There’s a news story that was circulating, at least in Nova Scotia, over the last week or so, that Nova Scotia has now become the most expensive province to rent in Canada, surpassing British Columbia and Ontario. We’ve talked about this at length in the past. There are lots of questions that come up with that. One is how people are able to afford it, and two, how people are able to put money away to get that down payment, so that they can get out of an apartment and into a home.

Clinton Wilkins
There are some areas of Canada where homeownership doesn’t have as high a percentage, and BC is one of them. So they have a very rental-focused market, and it’s very expensive, obviously, to live there. The incomes are very high there, and that kind of offsets things. One thing that’s going on here in Halifax is that demand is higher than the supply. We see a lot of cranes in the air, and we have new apartments coming online, but not enough to battle the amount of demand and the amount that the population is increasing. So I am confident that in the future rents will level out. Incomes are going to increase because there is going to be more and more jobs coming online with some of these federal projects that are coming on. But right now, it is very expensive to live here. But we need to remember it’s very expensive to live here in the core of the city. I think you can move out of the city. Like, for example, Lantz. We had a realtor on our show a few months ago, and they’re building a ton of new construction homes out in Lantz that are very affordable and great for a first-time homebuyer to buy, at maybe two-thirds the cost of what rent would be. So it’s actually cheaper to own in Lantz than it would be to rent a two-bedroom apartment in downtown Halifax. The issue is, people want to be downtown. I think, in some cases, are you willing to sacrifice the location for the cost? And when you live in the city, you also have to take into account the transportation cost. So, pros and cons, obviously, to everything. The thing is, at that average rent, which is, I think, hovering around $2,500 a month or so, you can own an average or above-average home here in Halifax and/or across our region for $2,500 a month. So homeownership is cheaper in Halifax and Atlantic Canada than renting overall. The challenge is really getting that renter into homeownership. That’s sometimes the hurdle just to surpass. One obviously is the down payment, and two is really that income calculation. When we’re taking into account the stress test, the average house cost here in our region is somewhere around $500,000. We’ll say you need like $125,000 or so in income to qualify if you’re putting down that minimum down payment, and that’s a lot of household income. We need two people that are making $60,000 a year or more to be able to qualify for an average home here. There are still some people that have rents that are low. We’ve had a rent cap here, and is that helping or hurting these average rents? I think the one thing that we’re going to see is when we get more supply on. If the population doesn’t continue growing at this pace, the rents will start coming down. They’re going to start softening some, but I think we’ll see,e like, a vertical shift from the lower-cost rentals into higher-cost rentals, and then maybe the lower-cost ones will start freeing up. People, by and large, they want to live in the newer buildings. Probably, they have lower operating costs, maybe better amenities. But I think there’s going to be a ceiling on what people can pay. But the landlords will play with the cost of rent, depending on what the supply is. It’s a lot cheaper to lower that rent by $100 a month than it is for it to sit vacant for one month, if that’s what I mean. So I think we’re going to see rents maybe start changing in the future, especially once we see some of these new buildings coming online. Like there are hundreds and hundreds of new units coming online here in Halifax.

Dan Ahlstrand
When I get out into the community, I talk to people all the time, and the biggest pushback I get, particularly from the younger demographic, is like, I just can’t afford it. I just can’t afford to even consider getting into a house.

Clinton Wilkins
I hear that too. The one thing is that what we have in Nova Scotia is the Nova Scotia Down Payment Assistance Program, which is great for first-time home buyers. I really think it’s underutilized. I think in some cases there are some caps obviously involved. There’s a cap on how much income you can have in the household, and there’s a cap on the purchase price. So if you think that might work for you, it’s a great program. You still have to come up with the closing costs, and I will also caution folks. If you don’t have any money for the down payment, what happens if something does happen with the house? Like maybe if you need a new roof or something goes wrong, you need to have some type of fallback plan, whether that’s cash or credit. The other thing is that we see a lot of support from family these days. I’ve been doing this 21 years, and I’ve seen a lot of change. But the gifts that we were seeing from family in the past were 5000, 10,000, 20,000. Now we’re seeing gifts from family being 100,000, 200,000, 300,000, and you may think that that’s a crazy amount of money, but I’m talking to the parents sometimes, and sometimes the parents are actually coming to see us to get the mortgage financing to give the gift to the, I’ll call it kid, but I mean adult child, and the way that they’re thinking about it, and they say it to me, they’re like Clinton, in the last five six years, my home has doubled in value. If I don’t give this adult child this money for the down payment, I’m never getting rid of them, or they’re never going to be able to buy a home. It’s kind of a now or never, and I think sometimes the gifts were enough to put down 5%, but now b, because of the stress test and income requirements, oftentimes people have to put down more than 20% to be able to qualify. So that’s why we’re seeing those big gifts.

Dan Ahlstrand
Clinton, what do you say to the people who are new to the market or are those kids that go on to the ChatGPTs of the world, or they go on to the realtor sites, and they kick the little mortgage calculator button on, and they just get the numbers put in there, and immediately they’re going to run. Is it worth having a conversation with one of your brokers to see how much money you really have?

Clinton Wilkins
Yeah, I think it’s definitely worthwhile. I’ll call it a pre-qualification. We could work on a pre-approval, but we’ll call it pre-qualification. We can look at your income, your assets, and your credit, and then make a plan. I think the plan sometimes is half the battle, and you might not be ready today, but maybe you’re ready in a year or two. It could be things like saving for the down payment. It might be looking at things with employment, making more money, or it may be improving your credit. And I think if you have a plan and you stick to it, then homeownership is achievable for many, many Canadians. I always say, like, everybody can get a mortgage. I think having the plan is important, and I think some people plan to never buy a home, but historically, homeowners have a higher net worth than renters, partially because that home is going up in value, and that homeowner is paying down their mortgage. So every month that goes by, that homeowner’s net worth is increasing, and I think you hit something on Dan. That’s really important that we need to take into consideration. These people that are renting, and there’s a lot of them, and nothing against renting, but the rents are very high. So I think it is tough for renters to save for the down payment. But concurrently, if you’re never planning on buying a home, it’s tough for a renter to put away enough money to offset the growing net worth of a homeowner every month, and I think that’s one thing to really take into consideration. So if you can get into that property ladder and just get into that first rung, I’m even just saying like a basic one-bedroom condo. If you can just get into that marketplace, it will pay you dividends down the road, but sometimes there are some sacrifices that folks need to make to get into the property for the first time.

Dan Ahlstrand
You mentioned the bank of mom and dad. The interest rates are better. That being said, that conversation may not be an easy one to start.

Clinton Wilkins
Right.

Dan Ahlstrand
Would you suggest how do you approach it?

Clinton Wilkins
Yeah, when I see consumers, like oftentimes the conversation will start with a pre-approval or pre-qualification. I said, this is how much money you need at minimum to get the type of home you want. Here’s the down payment. Here’s what the closing cost would look like. And they’re like, “Okay, I’m going to save it.” And then magically, like a week later, they’re like, “Oh, I got a huge, big gift for my family.” Perfect. Can you update my preapproval? And then suddenly they’re buying a home. Sometimes people don’t know what family is willing to do unless they talk to them. And I often hear from consumers to say, “Okay, my mom’s going to co-sign, my dad’s going to co-sign, my parents are going to co-sign,” or whatever, and then that co-signing ends up turning into them giving a gift. So many times I hear from parents, “Whatever I can do, not to co-sign,” that’s what I really want to do. And I say, “Okay, we can make this work for you not to co-sign if you give a gift of X.” And magically, that gift shows up pretty quick. I’m not saying all the time, and obviously every parent has their different economic background, their different financials, and net worth, and they’re only able to do what they’re able and willing to do. But it’s worth having a conversation, and I think parents, more so, are open to that conversation. And the ones that I hear that are open to it the most are oftentimes with those kids living like. Because they’re like, I’m never getting rid of these kids without maybe giving them a little bit of help, and I see the parents even coming in to see me to say, okay, what can I do myself? without obviously hurting my financial or retirement or whatever, what can I do to help these kids out? And then we’ll make a plan with them as well.

Dan Ahlstrand
It’s a it’s a another avenue. It’s relatively new in the real estate market because of the price of real estate now, but having that kind of conversation is important because you just never know until you ask.

Clinton Wilkins
You never know until you ask, and sometimes it’s a hard conversation. Like, we’re breaking down a lot of barriers here with Mortgage 101 in our show, and I hope our consumers who are listening to our show, whenever you’re listening to it, and wherever you’re listening to it, because we have a lot of new partners on the FM, are airing our show as well. Have the conversations at the dinner table. Talk about your income, talk about your assets, talk about your credit, and, believe it or not, breaking down those barriers, I think,k is very healthy, and I think it’s important to have those conversations with your spouse and with your family, and everyone’s really in it together. And I think people overall want people to be financially healthy.

Dan Ahlstrand
Going to take a break when we come back. Refinancing, is it the right time? You’re listening to Mortgage 101.