(Toronto) Canadians looking to buy a home as the real estate market cools could fall back on a ‘microcondo,’ but mortgage brokers warn that such small-unit purchases may require additional caveats when searching of financing.
Posted at 5:11 p.m.
These brokers say many banks’ underwriting policies limit the minimum condo size — typically 400 or 500 square feet — to obtain financing, and sometimes subject buyers of even smaller units to additional conditions or approvals. exceptions for obtaining a mortgage loan.
“Does this slow down the process? Absolutely,” says James Laird, co-CEO of financial comparison site Ratehub.ca.
“Could this limit the range of lenders willing to lend? Sure. »
But according to Laird and other mortgage brokers, that doesn’t mean there aren’t financing options for buying a “microcondo,” which varies in definition but generally refers to an apartment with square footage. does not exceed 400 square feet. Other estimates place this measure even lower.
Homebuyers, even for the smallest properties, are still able to find good lenders at reasonable rates, Laird said.
“Sometimes a lender will make an exception for a great credit score [ou] great job, he says. Even for someone who is below their minimum [de superficie], they could still do it. »
Lenders are cautious with small condominiums due to marketing. If lenders have to take possession of the condominium because the borrower is defaulting on their mortgage, they feel these smaller properties might be less attractive to potential buyers, Laird says.
But their opinions change.
Jason Friesen, managing partner at Outline Financial, a Toronto-based mortgage broker, recalls the first appearance of micro-condos in Canada around 2012.
“It was something that a lot of banks had never seen before, and what I see is that every time something is out of the ordinary compared to what banks are used to […] they just say ‘no’,” he observes.
Meanwhile, the average size of condominiums has decreased.
According to Statistics Canada data, condominiums in the Toronto area averaged around 970 square feet in the 1960s, and it was around 1,100 square feet between 1970 and 1990 before declining to 840 square feet. square feet between 2001 and 2005. The average area in the same region was 750 square feet around 2011, but by 2016 it had dropped to 630 square feet.
More requirements
Banks have adapted by adjusting their underwriting policies for smaller condominiums, but many have additional requirements for these smaller units, Friesen said.
Some require that the accommodation for which they lend money have at least one bedroom with a door.
Others insist on mortgage insurance, which buyers can normally avoid if they have a down payment of 20% or more.
“Someone who puts down 20% is much more risky in the eyes of the bank than someone who puts 5% or 10% […] because a borrower with less than 20% down payment has to pay this mortgage insurance, which, again, protects the bank in the event that there is a default on the client side,” explains Friesen.
Many lenders are also willing to make exceptions, Friesen observes in his work. This happens a few times a month, but not necessarily on a daily or weekly basis.
Exceptions could be made because borrowers have a long-term relationship with a lender, a proven track record of paying off debt and a stable income, he says.
“But someone who maybe doesn’t have that relationship, who doesn’t have an investment portfolio with a bank, can’t take advantage of those things. [Dans ce cas]it is certainly more difficult to obtain this exception”, he continues.
“A person buying a ‘microcondo’ tends to be a first-time buyer, so they don’t have a huge amount of assets or leverage with their bank. »
Mr. Friesen recommends that anyone in this situation turn to a mortgage broker.
” [Une petite superficie] will limit the options, but in most cases there will be enough choice for buyers to be comfortable with the selection they are making from a mortgage perspective. »