Top Homebuying Mistakes and How to Avoid Them

In the market for a new home in the next year or two?  Make sure you avoid these common homebuyer mistakes: 

Not getting a pre-approval.     The very first thing you should do before doing much more than glancing through the real estate section of the newspaper or online is to go to your mortgage broker or favourite lender and get preapproved for a mortgage.  For one thing, this tells you how much you can afford, so you don’t risk finding a house you fall in love with but can’t actually buy.  For another, it allows your mortgage professional to review your credit score and credit report.  If there are any problems with your credit, errors on the credit report (which happens more often than you might think), or your credit score is too low, you can then work together to develop a credit improvement plan.  This can take as long as two years, so the earlier you start, the better.  Your reward will be qualifying for the best possible interest rate on your mortgage and, therefore, saving money.

Not knowing where your down payment is coming from.     You will need anywhere from 5% to 20% of your home’s purchase price as a down payment.  Money in an RRSP (up to $25,000, for first time home buyers), money in bank accounts or brokerage accounts, or a gift from a family member are possible sources.  If you are putting down less than 20%, it’s called a “High Ratio” mortgage.  All this means is that the mortgage must be insured either through CMHC or Genworth, to protect your lender.  There are a few lenders that offer what they call a cash back mortgage, where you can get money on your closing date to help with closing costs, your down payment, or another purpose.  The bottom line, however, is that you will have to prove that you have a down payment.

Not budgeting for closing costs.     Don’t get caught forgetting about closing costs.  You will need  to demonstrate that you have at least 1.5% - 3% of the purchase price to cover costs including lawyer fees,  land transfer tax (including Toronto’s MLTT), home inspection, title insurance, interest adjustments, and other charges.   See my blog post about closing costs for more details.

Maxxing out on your home purchase.     We’ve all been there.  You’re out looking at homes, and you go see “the one” – the house with that perfect kitchen or the perfect yard for entertaining.  The catch is that it’s just a tad above your top price.  But if you tighten your belts, you could just about manage it, right?  Well, before you rush in, make sure you spend some time looking at something less exciting: the numbers.  If you have a pre-approval, you should know by now how much you qualify for.  Work through how each month’s budget would look like it you do max out.  Do you have any money left over for things like home maintenance?  Unexpected expenses such as a new roof or new car?  Fun things like travel?  And what happens if interest rates go up, or you or your partner don't get that expected bonus – will you still be able to afford the payments?

Hiding information about your financial situation from your advisors.     Often people will not disclose negative financial information because they are concerned that they will “look bad”, don’t feel it’s relevant, or don’t think it will come to light.  Unfortunately, surprises during the home financing process are usually not happy surprises!  It is better to be forthright about your situation.  There are very few circumstances we haven’t seen before, so we usually have a solution!

Changing something about your financial picture before closing on your home purchase.      Remember that you have been approved for your mortgage based on a certain set of financial circumstances – income amount, employer / self-employment information, current debt load.  Do not run out and sign for a new car lease, or quit your job to start a business, or anything else that impacts the set of numbers you provided when you applied for your mortgage!

Feel free to call me to discuss your options.   In the meantime, I wish you smooth and surprise-free home buying.

Photo credit: [c] ComputerHotline for openphoto.net

Thanks for visiting us at the Mississauga Home Show!

Thanks to everyone who visited us at the Mississauga Home Show this past weekend!  We were happy to see so many people braving the rainy weather Saturday and the snow (!) and cold on Sunday.  It was great to be out and chatting with everyone.   Now for all the follow-up calls!

10 Tips for Obtaining a Mortgage After Bankruptcy

Sometimes bad financial situations happen to good people and bankruptcy is the only way out.  But there's hope – there are a number of strategies for putting your credit back on track and getting approved for a mortgage, even after bankruptcy. 

Here are some points to consider:

1.  Locate the right lender: Some lenders will not approve a mortgage if a bankruptcy shows up on a credit report.  However so-called "non-conforming" lenders may consider doing so, provided the borrower can demonstrate that he or she has the income to support the payments and is now a good credit risk. 

2.  Length of time since bankruptcy discharge: Different lenders have different criteria regarding the length of time since a bankruptcy after which they will grant a mortgage – often  two years along with proof of re-established credit.  Some lenders may consider applicants with a more recent bankruptcy – a mortgage broker can advise on the requirements of various lenders.  

3.  Reasons for bankruptcy: If a bankruptcy was due to factors beyond your control, this is more acceptable to the lender than if the bankruptcy was the result of poor money management and excessive debt, which can affect the terms of an applicant’s mortgage approval.   

4.  Size of down payment: With a past bankruptcy, most lenders like to see a minimum 10% down payment consisting of one’s own funds, and it can't be borrowed, or a gift.  A down payment of 5% or less may be permitted, in some circumstances.   

5.  The type of property: Some lenders will only lend on houses or row townhouses.  Very few will consider apartments or stacked townhouses, which may involve stringent criteria to qualify.

6.  Credit report: A credit report provides a picture of your financial health based on past behaviour.   Lenders are looking to see improvements over time.

7.  Credit score: A borrower’s credit score may determine the rate of the mortgage — the higher your credit score, the better the rate.  Some lenders have minimum credit score requirements for those with a bankruptcy.

8.  Rate considerations: Most lenders charge a higher interest rate and even some extra fees to those with a bankruptcy.  A lender may grant a better rate if certain lending criteria have been met, such as: two years since bankruptcy discharge, good re-established credit, minimum beacon scores, saved down payment, good debt servicing ratios, and a long-term history of job stability.

9.  Re-established credit: Re-established credit shows the lender that a prospective borrower has new credit and has managed it well since bankruptcy.  Typically, re-established credit should involve a recent record of on-time payments on major bank or credit cards.  If you are re-building your credit, you need to be aware that a missed payment at this stage could be mentioned on your credit report for the next six years, and could be grounds for some lenders to decline a mortgage application. 

10.  Don’t do it alone:  Consider asking a mortgage broker for help.  For those with bad credit and/or bankruptcy, a mortgage broker can coach you on how to improve your credit score over time.  While you work on bettering your score, a mortgage broker can advise you on how to get a mortgage despite bruised credit, and provide valuable expertise, both before, during, and after the mortgage financing process. 

Come visit us at the home show!

Don't forget that the Mississauga Lifestyle Home Show and Cottagefest is happening this weekend.  We saw some great booths getting set up today, including some great-looking speedboats and other cool "toys".  I can't wait to talk to the people who've brought the antique boat motors.

If you are planning to go, make sure you come by booth # 330 to say hello!

Click here for the hours and location.   And whatever you end up doing, have a great weekend!

Take the surprise out of closing costs

You've figured out your down payment, started working with a great real estate agent, and have been pre-approved for a mortgage.  You're off to the races, right?

Well, not quite.  You are indeed off to a great start.  However, you also need to understand and be prepared for the costs that you will need to pay when you "close", or finalize, your home purchase.  If you don't have the money to pay these closing costs, your deal will not go through.  Not a good thing!

So how much should you set aside for closing costs?

The exact amount is based on a number of factors related to your specific situation, but we usually recommend that you budget about 1.5% - 3% of your purchase price.   This will cover costs such as the following:

• Reimbursements - repaying the home seller for amounts that they've paid in advance, which are now owed by you.  These are things like property taxes, utilities, and so on.
• Ontario Land Transfer Tax, and Toronto Municipal Land Transfer Tax (if you're purchasing in the city of Toronto).  Click on each of these for the calculation.
• Home inspection fee - this is the amount for the inspector you hired to check out the physical structure of your home prior to buying it.
• Appraisal fee, if applicable - typically about $250 in the GTA; it depends on the uniqueness and complexity of your property.
• HST on your CMHC premium, if applicable.
• Legal fees - speak to your lawyer about their fee schedule.  Typically this is in the range of $1,000 - $1,500.
• Title insurance or property survey - many lenders will accept title insurance instead of needing a full property survey.  Title insurance covers a number of situations that could threaten your ownership of your home.
• Property insurance - this insurance, especially fire, must take effect the moment you are the owner of the home.
• Status certificate fee of $100 - this applies to condos only. 
• Interest adjustment amount - based on the timing of your closing date and your first mortgage payment, there may be interest owing. 

What can you do if you don't have the money?

There are a couple of options for you in this scenario:

1) Wait a little longer to purchase your home, until you have the money saved for closing costs.
2)  Consult with your mortgage broker.  Some lenders offer "cash back" programs where you can get up to 5% of the mortgage amount paid to you on your closing date.  You can then use the funds for closing costs or another purpose.

If you have any questions, please get in touch with me.  I would be happy to help.

Enjoy your house hunting!


Photo credit: Microsoft clip art

Rates on the rise again

TD has announced that they are raising fixed rates for 1 to 5 year terms by as much as 35 basis points.  The other financial institutions are expected to follow suit in the next few days, as rising bond yields are increasing their cost of funds, and putting upward pressure on mortgage rates. 

What does this mean to you? 

If you're planning to purchase in the next 4 months or so, you should lock in your pre-approval rate now, just to be safe.  And if you have a mortgage coming up for renewal in the near future, contact your financial institution or mortgage broker to see if you can lock in your rate early. 

Want to be mortgage-free sooner? Pre-pay now!

Signing up for a mortgage may seem like a life-time commitment.  For most of us, it is the biggest debt we'll ever take on.  What many people may not realize is just how big a dent they can put in their mortgage by making pre-payments. 

Making extra payments or larger payments early on can add up to significant interest savings and shorten the life of your mortgage, leaving more money available for RRSPs and other investments, as well as improving your cash flow for changing lifestyle needs. 

Here are some strategies for making prepayments:

Add a bit to your monthly payment

Most of us can find an extra $50 per month by cutting out a restaurant meal.  Add that money to your mortgage and you’re saving a lot in interest down the road.   Most lenders allow you to increase your payment amount by a certain percentage every year.

Make a yearly pre-payment 

Paying an extra one or two thousand on your mortgage once per year on the anniversary date of the mortgage could yield significant savings over the life of the loan.  For many borrowers, the money for such a prepayment comes from a tax return. 

Make a larger prepayment early in the mortgage

Note that lump-sum mortgage prepayments have a much greater impact on the total amount of interest you’ll pay, the earlier they are made.  Check your mortgage contract to see how much you can pay down your principal, and how often you can do so.

If you're paid bi-weekly, sign up for "bi-weekly accelerated" payments 

If you split your monthly payment in half, and pay that amount every two weeks, it's an easy way to sneak in an extra payment every year.  This can save your thousands in interest and allow you to pay off your mortgage years earlier.

Please call me if you have any questions or would like to further discuss your options!

Photo credit: Microsoft Clip Art

$25,000 Giveaway Contest!

This year at Mortgage Intelligence we are celebrating our 500,000th mortgage client with our biggest giveaway ever!

We invite you to enter for a chance to win $25,000.  You can use it for a down payment, home improvements, or just about anything. 

Click here to fill out a ballot on my website.   Good luck!