Home buyers squeezed out of market must save more - or settle for less

Nearly one in 10 prospective home buyers who as recently as two years ago qualified for mortgages but no longer do so. Rule changes have made it tougher for them to scrape together down payments, to get mortgage insurance and to arrange affordable payment terms.

The tighter rules include regulators putting an end, in 2012, to zero-money-down mortgages, as well as shortening the maximum amortization period for a mortgage to 25 years, down from 30, making payments higher.

What’s a buyer in the marginal category to do?

Purchasers can still put as little as 5 per cent down. But those who put down less than 20 per cent are required to buy insurance from Canada Mortgage and Housing Corp., which has just raised premiums. Also, the rules for obtaining home equity lines of credit and purchasing rental properties are tighter.

Despite the squeeze, wannabe purchasers still have a few, limited options:

Look to the bank of mom and dad. Young Canadians are turning more to parents and relatives to help put together a down payment.

Can’t afford houses? Look at condos. People are also buying farther from Toronto, they’re now looking in places like Hamilton.

First-time buyers can also borrow from their own registered retirement savings plan. They can borrow up to $25,000 from their RRSPs – there is no tax penalty if they pay this back within 15 years from the time of their home purchase.

If you only have 5 per cent to put down you can get an RRSP loan for the next 5 per cent and then borrow from your own RRSP. Make sure that your financial institution doesn’t have a rule requiring you to keep the money in your RRSP for a minimum length of time.

Another option is to be creative about where you want to live, and how. Some young people are looking at co-ownership with other couples, for example – buying a house with separate living quarters and sharing the mortgage payments. Others are looking at homes that include rental units.

Other advice: Try to live within your means. Pay off some debt. Don’t buy a car; lease or get a used one. Save a little more.

Posted by Steven Porter, REMAX Aboutowne Realty, www.PorterRealEstateSystem.com
ref. DAVID ISRAELSON