AVOCADO TOAST & BUDGETING

There was an article reprinted in the National Post recently about an Australian millionaire’s opinion on millennials not being able to afford a home because they’re wasting money on avocado toast, at $22 per plate. The article was quickly mocked but it was an interesting article on two fronts: 1) the irresistible urge for avocado toast and 2) the importance of budgeting.

In no way is this a critique on millennials themselves, but a reminder for all to understand how spending money today, may prevent us from saving for tomorrow.

The comments arose from a TIME interview with the millionaire about how he did not spend his money on avocado toast and $4 coffee, multiple times a day, when he was young. Surely times have changed since said Australian millionaire was young and he had other priorities at the time – which may not have included avocado toast. However, what he is trying to drive home, is the importance of budgeting.

For those that are trying to save money for a down payment on their first home, it is important to think about living within your means. Perhaps those trips to the coffee shop and Sunday brunches could be fewer per month to help save a few hundred dollars a month.

If you are spending an average of $4 per coffee at your local café on your lunch hour or coffee break at work, that could add up to approximately $80 per month. For many, those coffees are added to their credit cards where only the minimum payment is made at the end of the month. As such, those $80 per month have increased to more than 99$ at a 24% interest rate (and continues to compound over the months you carry your balance). For those few who pay off their credit card before the end of the month, even saving an extra $80 per month can add up to a pretty solid down payment on a home over months and years.

Today, we are more prone to instant gratification and those coffees and avocado toasts may seem like harmless frivolities that don’t amount to much. However, every little bit counts when planning for your future. I often tell people that today’s non-essential purchase is a hindrance to their future home which helps puts things into perspective for them – and serves as a catalyst to saving.

Budgeting is essential when looking to buy your first home. This includes looking for a home and mortgage solution that work best within your monthly budget. For example, if you are earning $4,000 per month, it would be ill-advised to have mortgage payments that nears $2,000. Perhaps a starter home is all you need which will allow you to invest in your home, grow your equity and then use that for your next home in a few more years. Do you need that 2,500sq foot home right away, or can you live in a 800sq foot home for a few years before moving into a bigger place?

Making the right financial decisions can be difficult for many families. As a mortgage broker I have seen many people struggle trying to buy their first home and invest for their future. Luckily, though, I have also been able to work with them to find mortgage solutions that make sense for their very personal financial situations.

Should you need help securing a mortgage for your first home, please contact your local Dominion Lending Centres mortgage specialist.. In the meantime, ease up on the avocado toasts and $4 coffees.

MAX OMAR
Dominion Lending Centres – Accredited Mortgage Professional
Max is part of DLC Capital Region based in Edmonton, AB.

When you apply for a loan, lenders assess your credit risk based on a number of factors. Your credit score, as well as the information on your credit report, are key ingredients in determining whether you’ll be able to get financing and the rate you’ll pay. To get approved for a loan and to pay a lower interest rate it’s important that your credit report reflects that you’re a responsible borrower who pays their debts on time with a low risk of defaulting.

Credit Report vs. Credit Score

To start with, it’s important to understand that your credit report and your credit score are two separate things.

Credit Report – Your credit report contains information detailing your credit history. Sources include lenders, utility companies and landlords. This information is compiled by one of two major credit-reporting agencies (Equifax and TransUnion) that try to create an accurate picture of your financial history. Credit files include information such as:

• Name, address and social insurance number
• Types of credit you use
• When you opened a loan or line of credit
• The balances and available credit on your credit cards and other lines of credit
• Information about whether you pay your bills on time
• Information about any accounts passed to a collection’s agency
• How much new credit you’ve opened recently
• Records related to bankruptcy, tax liens or court judgments

Errors on your credit report can reduce your score artificially. In fact, 1 in 4 consumers have damaging credit report errors. Therefore, it’s important to stay up-to-date on your credit report history. If there is an error, you should dispute it and get it removed as soon as possible. Last year, 4 out of 5 consumers who filed a dispute got their credit report modified, according to a U.S. study by the Federal Trade Commission.

Credit Score – Your credit score is the actual numeric value extrapolated from the information in your credit report. A credit-reporting bureau applies a complex mathematical algorithm to the information in your credit file to create your numerical credit score.
Beacon is the most widely known credit scoring formula in Canada and is used by many creditors. Your FICO score can range from 300 to 850, with under 400 being very low and 700+ putting you in the healthy range. Your credit score is meant to give potential lenders an idea of how big of a financial risk you are. The higher your score, the less likely you are to default or make late payments and the more likely you are to be approved for financing.

Your score is based most strongly on three factors: your payment history (35% of your score), the amounts owed on credit cards and other debt (30%) and how long you’ve had credit (15%).

What Are They Used For?

Lenders glance at your credit score to determine your credit risk. Most traditional lenders have pre-set standards. If your credit score is within a certain range, they’ll offer you certain credit terms. If you don’t fall within their approved range, then you may be denied. Most banking institutions will only approve a loan if the client has a credit score of at least 640. A score of 700, however, gives you a much better chance at gaining approval at most lending institutions and at reasonable rates.

As far as interest rates are concerned, banks use an array of factors to set them. The truth is they are looking to maximize profits for themselves and shareholders. On the other hand, consumers and businesses seek the lowest rate possible. A commonsense approach for getting a good rate would be having the highest credit score possible.

It’s important to note that if you apply for a loan, the lender will most likely pull your credit score through what is commonly called a “hard inquiry” on your credit, which slightly lowers your credit score. Therefore, it’s important to know your credit score ahead of time, fix any errors, and apply for loans which you have a good chance of being approved for.

Things You Can Do to Improve Your Credit Score

1. Check your credit report for errors – While the credit agencies do their best to keep your record free of errors, they can make mistakes. It’s important to check your credit report at least once a year — consumers are entitled to one free credit report every 12 months — to ensure all of the information is correct. Each agency may have slightly different information and, consequently, may have errors another credit report doesn’t.

2. Set up payment reminders – Making credit payments on time is one of the biggest contributing factors of your credit score. It may be helpful to set up automatic payments through credit card or loan providers so you don’t forget to pay when payment is due.

3. Reduce the amount of debt you owe – Stop using your credit cards. Use your credit report to make a list of all your accounts and check recent statements to determine how much you owe on each account and what interest rate they’re charging you. Then create a payment plan to lower or eliminate the debt you still owe.

JENNIFER OKKERSE
Dominion Lending Centres – Director of Operations, Leasing Division

OUTSIDE THE BOX

From the pages of the summer edition of Dominion Lending Centres’ Our House Magazine.

For most Canadians, a home comes in just a few different varieties. It’s either a single-family wood frame house, townhome, condo or high-rise. In the quest to find less expensive housing, alternatives to the conventional home were bound to get serious traction. From container homes to tiny homes and even the centuries-old design of a yurt, Canadians and Canadian manufacturers are starting to look at the home in an entirely different way.

Daniel Croft is the vice president of Giant Container Services, a Toronto company that’s been converting shipping containers into places to live since the beginning of the decade. The company has its roots in the trucking industry. In the early 2000s Croft’s grandfather started noticing these containers being used for storage. The company bought 100 and after a few years, a new division was born to turn the containers into homes. Since then, Croft noted business has been brisk.

“We’re seeing a huge interest in container homes,” he says, noting some of the company’s projects include condominiums built out of hundreds of containers. However, he noted at this point, most of his clients are using the containers as a vacation property home.

Giant Containers offers four to five different models ranging from 320 to 1,000 square feet at a cost $85 a square foot.

While the containers are basically just a prefabricated steel structure, Croft says they’re built like a house, and include electrical and plumbing like a traditional build.

He says his company also helps guide owners through the process of erecting the containers.

Croft sees the prefabrication of living structures, like containers, as the future of home ownership, noting they can be transported at low costs and can last longer than a conventional wood frame home.
“Our demographic knows they want to be in a container house, they like the look and feel of it and the sustainability aspect,” he says, noting his customers range in age from millennials to couples in their 40s. “This is something I’ve really been behind… I really do think this is the future of building.”

Across the country in B.C., Nomad Micro Homes is also seeing a surge of interest in its product. The company offers two types of micro homes, the most popular being its 156-square foot Nomad Cube, which also comes with a 100-square foot loft. The Cube will set you back about $32,000.
The company’s founder and CEO, Ian Kent, describes the product as a “do it yourself” kit home, similar to something you’d buy in Ikea that can be put together very quickly. While they may be simple, he notes people can live in them as a primary residence. Nomad’s homes also aren’t on wheels, like some versions of tiny homes.

The company sells about 20 to 30 of their homes a year, but the company can increase scale to produce thousands of units if needed. Kent sees the tiny home as one answer to a rental supply crisis gripping B.C.’s Lower Mainland.

“It’s an extremely low-impact backyard dwelling,” he said. Nobody cares about it, you’re not going to bother anybody with it, and you’re going to provide the most affordable housing in the Lower Mainland.”
Indeed, cities and governments are starting to recognize and consider these less typical ways to live.

In 2016, the City of Vancouver put out a request for proposals to build 300 containers for temporary housing for the homeless. The city has also led the way in approving laneway homes.

Avi Friedman, a professor of architecture at McGill University in Montreal, believes the shrinking size of the home is a reflection of the economy—building larger homes costs more—and a change in demography as families become smaller.

He suggested buyers want bigger homes to start with, but when millennials especially enter the market, they’re just not able to afford the size of dwelling their parents owned.

In the past, Friedman notes, many people’s first home was a single family house, but today most people begin their adult life in an apartment.

“We are now living in a time where there are so many critical changes,” he says.

While the professor agrees these alternative homes can help alleviate the housing pressures in areas like Toronto and Vancouver, he wouldn’t want to see tiny homes in all communities. Instead, he sees these homes integrated among a range of housing options.

Friedman also called on municipalities to be innovative, allowing for flexible designs to address the housing issues.

“What municipalities can do is revisit archaic bylaws that have been introduced in the 1940s and ’50s and see how they can be readjusted to current economic and social reality,” he said.

But if the container or tiny home isn’t your thing, there’s a centuries-old way of living to put you more in touch with nature. The yurt design is essentially that of a circular tent. Patrick Ladisa, the president of Yurta, a yurt manufacturer in Toronto, says he’s always been interested in minimalist architecture and, in 2004, his company built its first yurt, meant to be used as relief shelter.

“It really was a cost-effective living shelter. That was our core market for years,” he explains.

The company makes three sizes of yurts, the most popular being 17 feet in diameter with a price range between $7,500 to $20,000, depending on options. Some of those options include windows and a solid door. What you won’t likely see is much indoor plumbing. Ladisa noted the attraction to the yurt compared to the container or tiny home is a desire to be close to nature and a connection to the outdoors.

However the business has evolved into the recreational market for people using the structures as a guest space at a cottage, or in place of a cabin in the woods. The small company with six employees expects to sell out of its yurts for the year by the summer. Customers come from across the country.

“The cost of housing is increasing and finding a way to live inexpensively or have a livable shelter that’s cost-effective… but still has dignified living, that’s a key part for us,” Ladisa says.

JEREMY DEUTSCH
Lead Writer