Home ownership.
It is possible.

Novel Financing Scheme Wins a CMHC Award

November 2, 2003

Dee Gibney
The Toronto Star

Imagine a developer who provides part of your down payment. It's part of a novel financing strategy developed by Options for Homes, a non-profit development corporation building no frills condos and townhouses. So it's not unusual for Options' founder Michel Labbé to be asked, "where's the catch?"

"One of the issues with the Options (financing) model is that people are perplexed," Labbé says. "They think there's something that's maybe not above board going on."

But now that Options' unconventional approach to financing has won an award from Canada Mortgage and Housing Corp., it's a question he hopes he will be answering less often. The importance of the award for Options he says, is that potential buyers - will now feel more comfortable with the concept.

"They won because they have demonstrated that their model works," says CMHC spokesperson Peter De Barros. "They have created over 900 condos using this model and have proven that it can work and work well, saving homeowners thousands of dollars in the process,"

There were 64 entrants from across Canada in the CMHC competition. They were evaluated by an independent external selection committee consisting of architects, private sector developers, representatives from provincial housing agencies, bankers, and housing educators.

Options for Homes was launched in 1992 and structured to bring low and moderate-income people into the condominium market. What set it apart (beyond eliminating extras like model suites, slick marketing packages, pools, gyms, media centres and the like) was the innovative financing strategy consisting of a second mortgage.

It's called the "affordable housing and community technique."
Buyers do not make payments on this second mortgage, No one does. It represents value, not cash and it in effect lies dormant until the owner either sells the property or rents it. At that point the second mortgage becomes due, a condition that has the added benefit of deterring speculators,

It works like this. If a condo unit costs Options $100,000 to build, it would normally sell for $110,000 at market prices, but Options sells it for
$100,000 - the cost price. The difference of $10,000 becomes the second mortgage. The down payment is based on the market value. "People expect the down payment to be on the money they are contributing -but we are giving them $10,000 toward their down payment to start with," Labbé explains." So a minimum 5 per cent down based on the market value of $110,000 is $5,500,"

The down payment is taken off the cost price ($100,000) leaving the buyer with a mortgage of $94,500, $10,000 less than they would have had to pay at full market price,

As the condos appreciate, so does the second mortgage, an amount buyers must repay only if they rent or resell. This money then goes into an equity pool that is used to develop other similar projects,

Options finds residential land, usually on sites that are a little "out of the way" and pre-sells the condo units. 80 percent of units must be sold before a building can proceed,

The buyers form a co-operative housing corporation, which hires Options as their development consultant to provide the expertise to develop the project. This includes finding contractors, architects and lawyers, providing marketing and arranging financing.

A small percentage of the purchase price goes toward fees to pay Options' small staff.

The condos are sold at scheduled information sessions. The purchase "consultants" who assist buyers are not real estate agents, but for the most part, owners from other Options' projects working part time for a small flat fee.

The CMHC Housing Awards were held following a two-day forum addressing affordable housing innovations designed to reduce the costs of housing for Canadian households that have traditionally found it difficult to meet their housing needs.

"We are dealing with a group of people (in the $35,000 to $55,000 income range) who have very few choices or opportunities to buy into the current market and who are not familiar with the idea of ownership and that makes them much more cautious," Labbé says, "so being reviewed by a national organization competent to judge us and being endorsed by the federal government means that people will be willing to come and listen. So the award opens doors for us to do more of the same; it will lead to more homes more quickly.

"We now have cross country contacts - we have talked to groups from
St. John's to Fort McMurray and from Saskatoon to Montreal interested In providing affordable housing to their communities and they are saying that ours is the most effective (approach). The energy doubles when you talk to people and they see how ownership becomes possible,"

The only other group to win from Ontario were the Mohawks of the Bay of Quinte First Nation, a community of 2,200 people with a revolving loan program offering low interest rates for entire mortgage terms for young people, singles, elders and those on social assistance.


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