Condo buyers feel the pinch

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Tightened lending guidelines are particularly affecting one type of homebuyer in major cities, according to one broker.

“In my marketplace … we are surrounded by so many condos, and a lot of our clients trying to purchase with bad credit are having a tough time,” Phil Edwards, a Toronto-based broker with MorCan Direct told “They put their deposit down four or five years ago and then they’re ready to register the unit and get a mortgage and they’re walking into tough times because over those four or five years something may have happened with their credit and they can’t now get approved for a CMHC insured mortgage.”

It’s an issue homebuyers – who may have been pre-approved in a less strict environment a few years ago – are having as they try to get their finances in order to officially move in upon completion.

According to Edwards, the problem can be avoided if clients approach a broker early on in the buying process, as opposed to merely getting pre-approved with the lender’s bank affiliate.

“If the client comes to us (beforehand) we let them know that obviously we can’t hold rates for that amount of time but if they can be pre-approved we usually tell them to keep their credit up because it’s obviously based on credit being in good standing,” he said. “Pay your bills on time; simple things like that will keep credit where it needs to be and for the most part they follow along with that.”

Issues arise, however, when clients are late in approaching brokers; though there are some creative workarounds Edwards has figured out to help clients secure financing.

“The problem is when a client hasn’t met us and their building comes up for registration,” Edwards said. “There are some lenders that are more relaxed with their guidelines but decent credit is still a requirement.

“(In) most cases you’re still looking at first and second mortgages, trying to help them repair their credit and then afterwards trying to refinance them out of that mortgage because the property has appreciated in value so we may be able to finance at 80 per cent loan-to-value and get them out of that product.”

Though he admits it can be difficult and it requires a number of puzzle pieces to fall perfectly in place.

“It’s kind of tricky because they have to have certain things like other properties or equity in the property, appreciation in value on the existing property,” Edwards said. “So things have to kind of align in order for that to happen.”

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  • Lior on 2014-02-20 2:11:34 PM

    The developer does not really care how the buyer comes up with the money once the purchase agreement is signed. The consumer pays the down payment to the developer and once the building is registered and they have to finalize the mortgage, they find that they no longer meet the lender's underwriting criteria (big problem for those who are self-employed). To compound the problem, several alternative lenders who can be used as back-up are already maxed out in terms of exposure in certain buildings which means buyer has to go to private lender for the 1st. Not an easy pill to swallow but it is better than losing out 100k or more deposit. If a mortgage can't be secure, not only does the developer keep the deposit but it also collects the appreciation value of the unit compared to the price when it was sold pre-construction.

  • Paolo Di Petta | on 2014-02-20 4:49:44 PM

    Historically, most condos in Toronto (with some exceptions, of course) have been marketed towards vulnerable sectors of the market - Lower Income Earners, First Time Homebuyers, Investors. That's one of the reasons why I've always evaluated it at a high risk level, potentially the part of our market that will take everything back down with it.

    There's a bunch of issues that are all starting to pile up, eventually it's going to buckle under the pressure. Especially as completions roll in over the next few months. I guess we'll have to wait and see, but I wouldn't put my money on condos, that's for sure.

  • Broker on 2014-02-20 6:25:52 PM

    Hmmmmmm...... Sounds like an opportunity if you ask me. If a client cannot close, I'm sure there are people out there who would step up and help out to get these folks out of a jam. I'd personally be prepared to take a condo off someone's hands if they can't close.

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