“Mortgageability” And What It Means To You
WHY DOES THE
ABILITY TO PLACE A MORTGAGE ON YOUR PROPERTY AFFECT YOUR RESALE VALUES?
You may not be aware
that when you are applying for a mortgage, the property has to qualify just as
much as you do. There can be many instances why a bank will not lend on a
property, such as:
- It is
reaching the end of its economic life and the bank wants to know that the house
will last longer than your 25 year mortgage.
- The
property may be a mobile home and the bank needs to know it is properly affixed
to the foundation and to current building code standards, so it doesn’t
“disappear” one day and they lose their security.It doesn’t
have potable water or sewer/septic, or year round access.
- The
property could be in a state of excessive disrepair.
- The home
is smaller than the minimum square footage requirements for that lender.
- The bank
may not like the way the property is zoned.
Lenders will look a
variety of criteria and you must hit every single one of their boxes in order
for them to lend on the home. So why does a lender care about all these things?
Banks/lenders have to
look at the risk they are taking - both for their shareholders and because the
government mandates them to. If you are buying with less than 20% down payment,
it is a law in Canada that your mortgage must be insured to protect the banks
from any potential losses. There are 3 insurers in Canada. You pay the premium
on this insurance and the bank is protected if they have to sell it at a loss
during foreclosure. Some lenders will require you to have this insurance even if
you have more than 20% down payment in order to protect themselves. And then
there is a whole other conversation about bulk insurance that we won’t discuss.
Mortgage insurance qualification is extremely important because the insurer can
(and will) veto a bank’s pre-approval based on many variables. The ability to
have this insurance also permits buyers to look at a home with less that 20%
down payment.
It is extremely easy
for a property to be devalued by more than 20%. A property is only worth what
someone is willing to pay for it. A home in bad condition or in a bad location can
quickly lose value. For example, having a gas station built next to your home
could cause the values to decrease. Or being on a busy road can also impact
your values. Sometimes even minor cosmetic fixes can improve the value of your
home. This is why it doesn’t take much to make a bank squirm and the banks are
not in the business of losing money. They are concerned about hundreds of
thousands of dollars being on the line in a single mortgage and whether they
can quickly sell the home if needed.
Now let’s speak
specifically about the zoning piece. The County of Lac Ste. Anne is wanting to
rezone 17 or so subdivisions due to excessive non-conforming use within those
neighborhoods. Non-conforming use is when property in the neighborhood is being
used for purposes that are not allowed by the municipality’s bylaws. In this
specific case, the non-conforming use is the use of vacant land to house
multiple recreational vehicles for camping purposes without a permanent
dwelling/house/cottage on the same land. Some people don’t want to live in a
residential subdivision that is being utilized like a campground, so they won’t
buy the home to raise their family.
One of the insurers specifically said their
concern is “these lots could end up being large camping-type sites and that
limits the appeal for people wanting to buy regular homes in the area”. So the
proximity of lots being utilized exclusively by RV’s, to lots being used as
homes, could affect the resale appeal of the home in their opinion.
At first the County
wanted to call the zoning recreational. Very few banks will lend a mortgage on
a house zoned recreational, and I did provide proof of that to my counsellor
via bank policy manuals and email responses from the lenders. Now they are
changing the zoning name to Rustic Residential to try and mitigate that risk
for the residents who own homes in these neighborhoods. As a result, I
canvassed the exact same lenders and most said they would treat it the same as
recreational, because it is just a different name for recreational and the use
is still the same. Some said they would only do it if it was insured. Well that
was promising so I asked CMHC and Genworth if they would have a problem with
the new zoning since I have had declines on this type of property zoning
before. Both have advised that they have declined these types of “mixed use”
subdivisions and will continue to do so as they become aware of them. Once a
subdivision is “black-listed,” there is no going back. Every time a property in
one of those postal codes is applied for - it will be manually checked to see
if it is in one of those subdivisions.
So what does this mean
for the houses that are already existing in these neighborhoods? If you have a
single family dwelling and you have a buyer that qualifies no problem for the
mortgage, they may still be declined because it is a “mixed use” subdivision.
That buyer may be told by the bank that they need to put 25% or 35%
down payment. Or maybe the bank isn’t interested at all and that buyer would
need to pay cash. How much is your home worth if half the people who are
interested cannot get financing?
This lack of available
financing then causes a marketability spiral. Some people would still want to
buy the home regardless but don’t have enough down payment (or don’t qualify at the
only banks that offer the 35% down payment option). As prices drop, lenders
become even more cautious and it then becomes a race to the bottom. It’s a
self-fulfilling prophecy, they don’t lend out of fear of declining property
values, which in turns means less sales, which causes values to decline.
So then what? The
young family who originally bought in a neighborhood that is no longer what
they purchased into, and bought with 5% down payment may be in a position where
they have to pay tens of thousands of dollars to sell. Why? Because property
values have declined to a level where their mortgage is now higher than what
they can sell their home for. Or they have to choose whether they continue to
raise their family in a campground setting.
Make no mistake- they purchased
into a property zoned as a residential subdivision and that is being changed on
them, through no fault of their own.
I don’t think most
people realize that it is significantly harder to qualify for a mortgage these
days than it was even 2, 5 or 10 years ago. Having a property that is virtually
unmortgageable is certainly not going to help.
I have no alignment or
agenda except that if I elect to keep my home (which is my primary residence,
not my 2nd home and yes it is in one of these neighborhoods), I have
been told to expect a significant decline in values. I can’t and won’t set
myself back that much financially. My agenda is that the people who live by me -
need to know the ramifications of what is going to happen to their equity if
they stay. I didn’t even think about this until I was trying to finance a
property at Pigeon Lake and it was declined for being too “recreational” even
though it wasn’t zoned recreational.
Council needs to know what they are
knowingly doing to young families who reside in this County. The “Recreational
County” as they called it at the last Information Meeting. That slogan won’t
raise any red flags with insurers…(sarcasm).
I can tell you, many
residents in our subdivision have lodged complaints about the non-conformance
issues for the last 4-5 years. Everyone has their own reason based on the specific
challenges they have faced. This isn’t a new problem, it is an escalating
problem. We have incurred considerable expense to appeal this type of use at
SDAB hearings and nothing has changed. This is the Council’s and
Administration’s agenda. Every subdivision within that list of 17, will be
painted with the same brush.
Everyone has a
different opinion. Some subdivisions are OK with the proposed rezoning and some
are not. And at the end of the day - that is also OK. Everyone is entitled to
their opinion and everyone should be heard.
I wish you all well in
whatever decisions you need to make about your homes, where you reside, and
what this will mean for you personally. But as an owner of property in the
County of Lac Ste. Anne - you now know more about mortgages than 80% of the
population, and we haven’t even scratched the surface.
LSAC COUNCILLORS LET THEM KNOW HOW YOU FEEL
Joe Blakeman | Reeve, Councillor, Division 5
Lorne Olsvik | Councillor, Div. 1
Nick Gelych | Councillor, Div.2
George Vaughan | Councillor, Div. 3
Steve Hoyda | Councillor, Div. 4
Ross Bohnet | Councillor, Div. 6
Lloyd Giebelhaus | Councillor, Div. 7
