Finding help in this crazy housing market

For many Canadians, the dream of owning a home while earning a modest income just keeps getting harder and harder to achieve. But various governments as well as some non-profits and some private developers offer options to help struggling first-time home buyers get into the market. Here are three programs that can help.

1. Non-profit builder equity top-ups

In the Greater Toronto Area, Options for Homes, a non-profit builder condo developer, helps home buyers to purchase a new-build condo using an equity top-up.

The equity program works by providing first-time buyers a second mortgage that’s registered against the property. This second mortgage acts like an interest-free loan—providing buyers as much as 13% of the down payment on a new condo. Better still, this second mortgage doesn’t have to be paid back until a property is sold—an approach that lowers the size of the first mortgage and increases the down payment to as much as 20% to 25%.

Here’s how it works:

→ You opt to purchase a two-bedroom, 810-square-foot condo for $220,000

→ You contribute $15,400 as a down payment—or about 7% of the purchase price

→ Because you have less than a 20% down payment, you’d have to tack on CMHC fees, but the addition of another $7,365

→ But, with Options for Homes you could be eligible for an additional $28,600 equity contribution. This would help you avoid CMHC fees and wouldn’t increase your debt-to-income ratio—an important factor in determining your mortgage rate.

For those that choose to take advantage of the equity top-up, there are no repayments required for that second mortgage, as long as you remain an occupant of that condo. But once you decide to sell, or should you decide to rent the unit out, the principal and interest of that second mortgage is due.

“It’s a fantastic program that’s unlike any other,” says Mary Pattison, director, sales and marketing for Options for Homes. She adds, “As a not-for-profit builder, the aim is to help anyone that could qualify for a mortgage, to get into the housing market.”

To qualify for the purchase one of these equity top-up condos, buyers must submit financial information showing that they are gainfully employed and that they can manage the monthly payments required to carry the condo. There are no other restrictions. Buyers aren’t limited by  income minimums or limits and they don’t have to comply with specific requirements, such as family dynamics. “There is no barrier of entry or exit when it comes to purchasing our condo units,” says Pattison. “By doing so, we create successful mixed communities that retain and increase in value and help buyers to increase their own equity and net worth.”

The key to the success of Options for Homes is their no-frills approach to their builds and the amount of research they do on their building sites.

The condo buildings have no pools, saunas or weight rooms; there is no 24-hour concierge and no fancy foyer artwork. You won’t see a model suite in some swanky sales office—this is marketing that costs money. Lots of money. But this no-frills approach pays off. Not only does it keep ongoing monthly maintenance costs down, but what the builder’s saves by omitting these fancy amenities is passed on to the buyer—through lower purchases prices.

Then there’s the location. “We’re actually a catalyst for change,” explains Pattison. Twenty years ago, Options for Homes, led by Mike Levi, built the first multi-family building in Toronto’s Distillery District. At that time the area was undeveloped and condo prices hovered near $100,00. Try and get into that market now, and expect to pay at least $300,000, probably more. “Our goal is to get into the next hot pocket,” says Pattison, “as a result the appreciation on the units in our building have a tendency to outperform.”

Right now, Options for Homes is only available in the Greater Toronto Area—and really in the larger metro Toronto region. Current developments include: 249 units at Danforth Village Estates, 275 units in Village by Main Station, 116 units in Milton’s Jasper Condos, 263 units at Warden and Ellesmere, 226 units at The Humber (near Weston Village) and 380 condo units and 51 townhouses located at 1340, 1350 and 1360 Danforth Rd.

But without a sales office, how do buyers get more information about Options for Homes? Through no-frills seminars typically held in the back rooms of local libraries. The next seminars are scheduled for:

Monday, November 28 @ 7:00pm at the Northern District Library
Saturday, December 3 @ 11:00am at the S Walter Stewart Library
And
Tuesday, December 13 @ 7:00pm at the Northern District Library

2. Government equity loans through participating builders

In some of the hotter real estate markets, a few builders are starting to realize that without help, average Canadians just can’t afford to buy. To try and increase homeownership, these builders partner with provincial and federal governments that offer equity loans to first-time buyers.

In Toronto, Trillium Housing and Daniels’ are two developers that offer equity top-ups as long as the buyer qualifies as a first-time homebuyer. In Vancouver, Townline stepped into the affordable new condo development with the launch of The Strand in Port Moody.

While all three of these developers have their own requirements, in general their equity top-up programs are restricted to buyers who have never owned real estate, who plan on living in the unit they buy and who earn enough to qualify for the mortgage, but don’t earn more than $82,600 as a family or $40,000 as an individual—thresholds set by federal, provincial and municipal home affordability programs that help fund these developer equity top-up programs.

In some programs, developers require a time commitment. For instance, at The Strand, registered and approved buyers must commit to owning and living in their unit for at least two years; sell before the deadline and you must pass on the remaining portion of the equity loan to the next buyer. However, remain in your unit and your equity top-up is considered an interest-free and payment-free loan that’s only has to be repaid once you sell. (Quite often, there are rental restrictions in these developments.)

Some developers, such as Trillium, also require that the price of the home you buy must be below the city’s median price and/or your household income is below the local median. You may also be required to apply through a central process. In Toronto, all rent-geared-to-income (RGI) homeowner applicants must apply to a centralized list managed by Housing Connections. 

The funding and requirements for many of these builder equity programs comes from the Affordable Housing Program: Homeownership Component (IAH), made available through the federal-provincial Social Infrastructure Fund. The IAH Homeownership Component provides down payment assistance loans for eligible home purchasers and these loans are secured by a no-interest, no-payment second mortgage on the home. The goal of the government’s affordability programs and the developers is to help “bridge the gap between what you can afford and the price of the home.” They work with the buyer to figure out what’s affordable—based on your down payment and your income—and then try to fill the gap with a developer second mortgage.

To find these programs, go to your municipality or provincial websites and type in “affordable housing.” Quite often a list of programs and options will be displayed and from here you can sort through the programs that best suit your situation.

3. Programs with specific clients in mind

There are buildings or programs that require a potential homeowner to fit into specific criteria. For instance, Habitat for Humanity builds just over 200 homes per year, but you must be a low-income family (ie: have kids) to qualify.

As the Habitat for Humanity website explains:

Through volunteer labour, efficient management and tax-deductible donations of money and materials, Habitat for Humanity builds and rehabilitates safe, decent and affordable houses with the help of the homeowner (partner) families. Habitat houses are sold to partner families at no profit and are financed with affordable, no-interest mortgages. The homeowners’ monthly mortgage payments go into a revolving fund, which is used to build more homes.

Habitat for Humanity is a hand up, not a hand out. In addition to mortgage payments, each homeowner invests hundreds of hours of their own labour, called “sweat equity”, into the building of their home and the homes of others.

All mortgages are held by Habitat GTA and have 0% interest and require no down-payment.

• Applicants will be asked to submit a current credit reference check that shows a good credit history as well as other required documentation from employers, landlords, banks and credit lenders to confirm reliability of income

• Employment Insurance (EI) or Ontario Works (OW) are not acceptable sources of income

• Applicants must not have large debt

There are restrictions as to how much a family can earn to qualify for a Habitat for Humanity house. These restrictions are based on family size. The current range is:

Family Size            Minimum Income        Maximum Income
3 people                       $38,443                             $44,840
4                                    $39,866                             $53,370
5                                    $43,288                              $59,861
6                                    $46,711                              $66,874
7                                    $50,133                              $73,887

Then there are housing program geared specifically to artists. In Ontario and B.C., these projects fall under the umbrella of an organizations known as Artscape, which offers work as well as live/work units to “professional artists” as “determined by a committee of artistic peers using criteria outlined in the Draft Canadian Artist Code.”

There are currently 13 work and live/work projects built and available, as well as two more projects slated for development in Toronto. To apply, you can use a submittable application. You are then added to the online waitlist and will receive email updates and notices.

Keep in mind, Artscape also adhers to the affordable housing definitions and restrictions that other geared-to-income programs follow. This is in accordance with the Housing Services Act (HSA) 2012, and includes having to apply to these programs through a centralized list that’s managed by Housing Connections.

As it states on their site:

If you wish to apply for an Artscape RGI studio, please contact Housing Connections at 416-981-6111 or visit housingconnections.ca for further application instructions regarding our RGI studios.

There are also housing programs geared to aboriginals. Known as the Affordable Home Ownership Program (AHOP), this housing program aims to help Aboriginal people who intend to purchase a home in the Greater Toronto Area as their principal residence. The program provides loans of up to $30,000 to qualifying Canadian Aboriginal people to assist with a downpayment to purchase a home off-reserve in the GTA. The assistance is provided in the form of a forgivable loan and does not have to be repaid provided the home buyer adheres to the conditions of the program throughout the affordability period—which is 10 years.

Repayment of the original loan amount and a percentage of the capital gain portion must be made if any of the following happen within the initial 10-year period:
(i) the borrower defaults mortgage payments;
ii) the unit is sold;
iii) the property is no longer the sole and principal residence of the purchaser;
iv) the borrower misrepresented their eligibility for the program;
v) the borrower used the proceeds of the loan for a purpose other than the acquisition of the unit;
vi) the death of the borrower.

There are other conditions for obtaining the loan, and funds are allocated based on annual funding restrictions for a period of six years (2014 to 2020) and “available on a first-come, first-served basis.”

For more information, see the AHOP website.