Mortgage 101 -City Condo or Country Acreage?

Dan Ahlstrand and Clinton Wilkins welcome Alex Lavender to discuss the complexities of property tax assessment caps and their impact on homebuyers.

Dan Ahlstrand
And we are back to Mortgage 101, I am Dan Ahlstrand, and he is Clinton Wilkins. And before the break Clinton, we were talking about property tax assessment caps and and the ability for you to figure out what you need to buy a new home and, and I think it was a couple of months ago, during one of our shows you were talking about, that you can’t just go on to a real estate site and look at what the property tax is on that property, because when you buy it, that cap comes off, and the assessed value is likely much higher, so you’ll be paying a lot more in tax.

Clinton Wilkins
Yeah, so there’s a website here that I think everybody in the industry uses, it’s called Viewpoint. They also have their own real estate brokerage. We do some business with them, and it will show what they estimate the property taxes are really. You can’t use that because the taxes may not be exactly what that is, depending on what the cap is. But also, if you buy a property that has a cap situation, yeah, that might be your tax for this year, but then next year, when the cap comes off, your tax issue is going to be different. So I think that’s one thing people need to take into consideration. And we had a lot of clients, around 2020/21, who were buying these homes, and the prices really went up. Cap came off, and their taxes doubled, tripled or quadrupled. And from a financial perspective, we use the tax bill. We don’t use what the assessment is. We don’t use what’s on Viewpoint; we use the actual tax bill and the most recent one. So we will get a tax bill from, you know, the October 2025, or right now we’re using April 2026, and just multiplying that by two, that’s what we use when we qualify a customer. But that doesn’t necessarily mean that’s what your taxes are going to be by October 2026 and, you know, obviously, the assessment is taken into consideration, but also the tax rate is taken into consideration. And if you had bought a property that had the cap, and the cap’s coming off, obviously, that’s going to be an impact as well.

Dan Ahlstrand
Is the assessed value, the sale value of a home, if my property is assessed at $725,000, is that what you’ll list it for? Or they’ll list it for them.

Clinton Wilkins
What property valuation services say is that the assessment is what the value was basically two years ago. So that’s really what we’re seeing around the assessments. I can tell you, I remember when I was renovating my condo, so I think it was around 2021, and I did a show with Todd, and I said the assessments in Halifax are way, way below the market value, which they were. I think we, everyone has can agree that most people, their assessments have doubled. But that doesn’t necessarily mean that’s what they’re taxed on. So if they are on the cap, as you know, they are only increasing a couple of percent. But the assessment and the amount that they’re paying for, or what they’re paying their taxes on, are two different numbers. So what you see necessarily on viewpoint isn’t what that customer is actually being our customer should homeowner is actually being taxed on.

Dan Ahlstrand
Is the assessment cap out of whack? And I get that a lot because people say that, you know, they add a shed or something on the back, or they do some improvements to the inside of their house, and their assessment goes up substantially.

Clinton Wilkins
Alex, what do you think we know about how much property tax you’re paying? And it’s a lot.

Alex Lavender
Well, this is what I always tell the clients when they’re looking to buy a new home. We don’t even look at the tax like the tax bill is great. You know, it’s used for qualifying and all that. But I tell clients, I say, whatever the house price is, let’s just assume it’s under a million dollars. Take the first three numbers of the house price, and that’s how much your property taxes are going to be every month to budget in. So if it’s a $400,000 house, a $400 a month budget, that’s for property tax, because if the purchase price and the assessed value are the same. The tax rate in Nova Scotia is about 1.21% in HRM, so it works out to be pretty much close to that equation. So I always tell people to budget for that when you’re adding on, you know, things to the property renovations. Yeah, you know what? I don’t exactly know the formula for how it all works,

Clinton Wilkins
And it depends if there’s a permit as well.

Dan Ahlstrand
Right.

Alex Lavender
Exactly, I think, you know, maybe if there isn’t a permit, it doesn’t trigger that, you know, if there is, you know, they have some sort of algorithm.

Clinton Wilkins
And I’m not saying don’t get a permit, but obviously, some things you’re required to get a permit for, and other things you aren’t.

Alex Lavender
For sure, and that affects the value, because they think, you know, these improvements have increased the value significantly on the property.

Clinton Wilkins
So what happens if someone’s right on the edge? Alex, you know, we’re using that property tax bill. They can’t really swing this. You know the equation for the first three numbers of that purchase price. What would you tell that customer? What would be the feedback if they’re buying a home?

Alex Lavender
So whenever I do an application, I always, before I find out what the max is that they can approve for pre approve for, essentially, I say, what do you feel comfortable spending every month for mortgage payments and property taxes, strip out utilities and everything else, just what’s your base cost, which is the equivalent of rent, right? You know, what is the mortgage payment and property tax you’re comfortable with? We’ll say, hey, you know, we want to buy a house for $400,000, right? And our max budget is $2,000 a month. Well, the payments on the mortgages are going to be $2,000 a month. The property tax is $400, you’re at $2400, I think that exceeds your personal budget, right? If we bring this down to $350,000, now you’re at $2,000 a month. And you know, I think you should go for a home that’s $350,000, but you know, if you can’t find anything there, just realize, you know, it’s a little bit above your affordability, right?

Dan Ahlstrand
Clinton, when people are trying, we’re talking about first-time homebuyers. Time homebuyers here, and young families, and, you know, not necessarily having the sparkling income that that you know, an older, more established family would have.

Clinton Wilkins
Or the sparkling credit. Let’s be fair.

Dan Ahlstrand
Fair enough, they mean kids and school and everything else are expensive, and they’ve got student loans and all of that stuff that’s happening. What kind of price bracket should we be looking at if we want to become first-time homebuyers?

Clinton Wilkins
I think the rule of thumb is usually four times your annual income is really around that affordability, and that’s kind of the max that you’d want to borrow. So let’s say the household income is $100,000. I think $400,000 is kind of a good kind of Max. Not saying that you can’t maybe qualify for more, depending on if there are other things that we can add in, or other things that we can consider, or if there’s maybe a basement suite or something that makes a big difference to the calculation. But the rule of thumb is four times the annual income.

Dan Ahlstrand
Difficult to find those kinds of houses in this market these days. And then you start to work into the condo market, where the prices are lower. But then there’s the condo fee, the condo fee, right? Which drives the prices up. So, you know, when we’re having these discussions about how difficult it is to get into the market, it is very difficult for a young family to do that.

Alex Lavender
Yeah, it is. And what I always try to push clients towards is seeing if you can find a property that has an income suite if you’re comfortable with it, because, you know-

Clinton Wilkins
They make such a huge difference in qualifying.

Alex Lavender
It’s a huge difference. So, like a lot of the time, these houses that have an additional suite in them are going for about 100 $200,000 more. You know, it varies. It depends on the area, but essentially, let’s just assume the house costs $100,000 more that basement suite you can probably rent it for, let’s say, $1,500 a month here in the city, an extra $100,000 of mortgage money is $500 a month for a suite that’s bringing in $1,500 a month. So you just cut your mortgage payments down by $1,000 a month, probably half. Yeah, you know. So do you know, depending on what the mortgage amount is, you know, if it’s a payment of $3,000 a month, you just cut that down to $2,000 a month. So I think, you know, a lot of people should really look at that, and I push people to look towards that, only if they’re comfortable with it.

Clinton Wilkins
Yeah, of course, it’s a great way, as a first-time home buyer, though, to get into the marketplace and to qualify. So you know, with that extra rental income, clients are qualifying for way more. Honestly, I’m not saying they’re qualifying for double, but they’re qualifying for significantly more than they would if they just were buying a single-family home. I think there’s a stigma, though, like, oh, well, I’m buying a two-unit. I’m basically just living in an apartment again. Well, you’re building up some equity, and then, you know, in a couple of years, maybe you can rent out both units, and then you can qualify to buy a single-family home. That maybe is more to your taste. But I think it’s kind of getting over that stigma. We also work with some lenders that you to renovate a single-family home into a two-unit, and we can use that future rental income. So there are some options that we can do. One thing before we let Alice go, is I really, and he’s such a great expert at alternative lending, so why don’t you give us the ABCs on alternative lending for the next few minutes? And I’m sure there are probably some customers who want to hear more about it, because I don’t talk about it that much on the show.

Alex Lavender
Yeah, alternative lending can be a great solution for clients that don’t fit in the traditional box. One of the biggest things to get into the alternative lending space is that if you’re purchasing a home, you have to have 20% down minimum. That’s the minimum. There’s no way around it. You have to get around the default insurance. So you have to have 20% down. If you own a home, you can refinance up to 80% of the value. So alternative is great for a couple of different clients. I’d say self-employed clients are huge, because we can do what’s called a stated income program, so we can use the deposits going into the bank account and essentially fill out a sheet of paper for stated income, stating what the stated income is compared to the income on the tax returns. So this can be very beneficial, allowing people to qualify for a lot more; they’re also there to help with credit issues as well. So if credit’s on the lower side, maybe there’s a consumer proposal, maybe there’s a bankruptcy, which a traditional lender isn’t going to look at. You know, an alternative lender will look at that. And another big thing, too, is credit utilization. You know, some people have made their payments all on time, but their credit lines are maxed out or over limit, and that’s significantly bringing down their score. So, you know, we go to a B lender for one year, clean up the credit, and then we’re back over to a traditional lender in a year.

Clinton Wilkins
And a year’s not that long, you know, especially if we have to do two transactions, why not clean yourself up? Take a year with a higher rate, higher fees, but who cares? It’s going to be, you know, you take the one hit today and then be in a better financial position for the future.

Alex Lavender
Even with these B lenders. I mean, the rate is a little bit higher. It’s based on credit, so the better your credit, the lower the rate. You know, we’re looking at maybe about 1% higher today than a traditional lender. But I’ve seen multiple occasions where we have refinanced and consolidated all of the client’s debt with a B lender, and it’s still saving them thousands of dollars a month on payments.

Clinton Wilkins
Well, I had one today that I just did a refinance for eight months ago. So, I always like to see my customers about 120 days before renewal. So I’m talking to them now. They have a renewal in August, and they came from having, you know, high 500 scores like 583, now 800, because guess what? Those customers listen to me. We got them cleaned up. They followed what we needed to say, and we’re going to move them back to a traditional mortgage finance.

Dan Ahlstrand
And you wouldn’t want to live with these B lenders the entire length of your mortgage, right? This is, this is kind of a stopgap to get things fixed.

Alex Lavender
You could, if you had to, like some self-employed clients, be there for a while. It’s not a private lender, which is, which can be very expensive, yeah. But for some people, this could be a short-term solution, or it could be a medium to long-term solution as well.

Dan Ahlstrand
You mentioned the cost, it’s a little bit more. But I guess, and Clinton may have already touched on this, Alex, that you know, in the long term, you know, going into this market for a year or two years, and then going to a traditional lender with a better credit score in the long run, you’re gonna end up saving money.

Alex Lavender
Yeah, the biggest thing is we try to give clients the advice to say, how can we get out of this in a year?

Clinton Wilkins
What’s the exit strategy?

Alex Lavender
What’s the exit strategy? You know, every situation is going to be a little different. You know, do we need to get the income a little higher next year? You know, is it a matter of credit? So we try to put together a solution so that in a year’s time we can revisit it, and if the client’s done their homework, then a lot of the time we’re able to move these over to a traditional lender.

Clinton Wilkins
And we see a lot of these alternative lending customers actually have very strong credit, and it’s usually that they don’t have enough income on paper, or they’re self-employed. And guess what? They owe income tax. Self-employed people, for some reason, think there’s some way around not paying their income tax. But so many times we see them in the office, don’t we, Alex?

Alex Lavender
All the time, because a traditional lender will not pay off CRA arrears. So essentially, that’s something that has to be done through an alternative lender. I had a client today, 880 credit score, but you know, the income on paper was very low because they’re self-employed. And, you know, we sent it in to a B lender and had an approval back within, you know, two days, or two hours – sorry.

Clinton Wilkins
I think it’s a choice. I think, you know, self-employed people sometimes want to be self-employed, to write off every little thing that they can. I’m not saying that they’re doing anything unsavoury from a tax perspective, but, you know, maybe some personal expenses are going through, and they’re just, you know, trying to write that income down to the very, very, very minimum. But you can’t necessarily qualify for, you know, prime lending. There’s enough income on paper to be able to do it. So I think it’s a choice between paying income tax and having a higher income or going with a stated income program, with an alternative lender and be able to get that financing. And sometimes it’s just really about getting that financing done.

Dan Ahlstrand
I guess the message of the day here is that, you know, there’s, there is-

Clinton Wilkins
Options!

Dan Ahlstrand
Options for you. If you don’t have the best credit, you don’t have the best income, when you work with a mortgage professional, you don’t just go to the bank, and they turn you down. You can work these different things and get and hopefully come out of it with a Mortgage.

Clinton Wilkins
And Bank lenders at the branch, they don’t have access to these, these lenders that we have.

Alex Lavender
I completely agree. I would say, if there’s ever a situation where we can’t get a client approved, which tends to be, you know, relatively rare, I would say, I know confidently that they can’t get approved anywhere else, you know, I will turn over every stone to see, you know, every single option to try and get them approved. And that’s the nice thing, we’re a one-stop shop.

Dan Ahlstrand
Thanks, Alex. I appreciate it. We’re going to take another break of listening to Mortgage 101, back in minutes.