How much home could your rent buy?

...  See the answer to this and other tips in our March issue of the Home & Mortgage Essentials newsletter! 

Should you buy your home with no down payment?

You might have heard that the opportunity to buy your first home with no money down continues to be an option for Canadians.  Not surprisingly, you might also be wondering if this is a prudent financial strategy.
   
In the media, the big focus is on concerns that Canada may be making some of the same errors that led to the U.S. real estate and mortgage crisis, and that Canadians are just too overextended on credit.  

As well, with any financial decision, there is the question of whether that decision is appropriate for your own personal situation. 

Let's address the media attention on the Canadian housing market first.

It’s always important to be cautious, and, dare I say it: conservative.  But, to keep things in perspective, our financial system is sound, and the majority of Canadians remain sensible with their financial management.  Bloomberg, a leader in global business and financial information, recently noted that the Canadian Banking system has been rated the soundest in the world for four straight years - with no Canadian lenders needing a government bailout, unlike the U.S. and European banking systems.   And, according to Canadian banking industry figures, the percentage of mortgages in arrears in Canada currently sits at .38 of one percent, hardly a red flag for loan quality in Canada.   A recent report by one of our major banks also stated that Canada’s housing market is more a balloon, than a bubble.   So our stricter banking rules have certainly helped us avoid making the same mistakes made south of the border.

Now let's look at whether this is the right strategy for you.  Simply put, buying a home with zero down isn’t for everyone.  You need to have stable income, excellent credit, and the ability to comfortably handle both your monthly mortgage payment and ongoing housing expenses.  If all those apply to you, buying a home with no down payment could be a significant financial boost.  If you are struggling to save up your down payment while paying out a large chunk of your paycheck to a landlord, it could be the way to make the step to home ownership much sooner.  For some home buyers it can make more financial sense to take advantage of today’s historically low mortgage rate environment instead of waiting.

Most first-time buyers look to save five percent of the purchase price, which is the minimum down payment required to qualify for an insured mortgage. Zero down options cover some or all of that five percent, and include:

1. Borrowing the downpayment through a loan or unsecured line of credit;
2. A cash-back mortgage that provides the cash upfront; or
3. Having the down payment gifted to you by a parent or other blood relative with a letter saying you are not required to pay the money back at any time.

Talking to a mortgage professional is to see if this makes sense for your situation is very worthwhile.  We can outline all of the details that you should be aware of with each option. For instance, cash back mortgages have higher interest rates, and, if you pay out your mortgage before your term is up, you’ll be required to pay back a pro-rated amount of the downpayment that you received.  Or, if you borrow the down payment, the loan amount must be used in your qualifying calculations, and you might not qualify for as large a mortgage (see my post on ratios for more details on these calculations).   

You do also need to have an additional 1.5 per cent saved to cover all of your closing costs (see my post on closing costs for more details).

Bottom line: if you’re in the “saving up” stage of preparing for home ownership, this is a great time to meet with us so we can discuss your down payment options, including, if appropriate, the possibility of buying your home with no down payment.  
 
Talk to us today; it’s a great place to start!

~ Powered by Mortgage Intelligence
  
Photo credit: [c] Colin Brough for stock.xchng

Three mortgage ratios de-mystified

One of the most common questions I get asked is "what are those ratios mortgage people talk about?"

If you're doing home buying research, chances are you've heard the terms gross debt service ratio, total debt service ratio, and loan to value ratio. Or as they're more conveniently known, GDS, TDS, and LTV.

Here's what you need to know about these ratios:

1. Gross Debt Service Ratio
   Your gross family income, or total income before deductions, is used for both the GDS and the TDS calculations. To calculate the GDS, we first total up your yearly shelter costs - mortgage payments, property taxes, and heat, and if applicable, 50% of your condo fees as well. Once we have this amount, we divide it into your annual income before deductions. The result is expressed as a percentage. Most lenders will want you to keep the percentage to 30-32%.
   
   Here's a simplified example. Let's say you and your partner's incomes total $100,000 per year, and you are thinking of buying a $500,000 condo. You have $100,000 in savings, so you need a $400,000 mortgage to make up the difference. Here's how the numbers play out:
   
   Mortgage payments:  $21,197.52 (12 X $1766.46)
   Taxes:  $5,000 (estimated)
   Heat: $960 (estimated, 12 X $80)
   Condo fees:  $2,400 (12 X $200, which is 50% of the estimated $400/month condo fee)
   ------------------------------------------------------
   Annual shelter costs (total):  $29,557.52
   
   Dividing this by your $100,000 income gives you a GDS of 29.56%.  It's less than 32% - great!
     
   You may be wondering what happens if it's more than 32%.  The answer is "it depends".  If you have no other debts, a great credit rating, and show that you regularly add to your savings, the mortgage lender may be willing to allow you a greater GDS than 32%, on an exception basis. 
       
2. Total Debt Service Ratio
   To calculate the TDS, we add the above shelter costs to all your remaining debt commitments, such as a car loan / lease, amounts payable on lines of credit or credit cards, and other debt payments.  Continuing the above example, let's assume you also have a car loan with a monthly $400 payment, and a student loan of $300 per month.  We can try out those calculations again:
     
   Annual shelter costs from above: $29,557.52
   Car loan payments per year: $4800 (12 X $400)
   Student loan payments per year: $3600 (12 X $300)
   --------------------------------------------------------------
   Total annual debt payments:  $37,957.52
   
   Dividing this total by $100,000 gives you a TDS of 37.96%.  Since it's less than 40%, you fit most lenders' criteria - congratulations!
     
   However, consider that your car loan payment was actually $600 per month, and in addition to the student loan, you also owed $10,000 on various credit cards.  The picture becomes quite different:
     
   Annual shelter costs:  $29,557.52
   Car loan payments per year:  $7,200 (12 X $600)
   Student loan payments per year:  $3,600
   Credit card payments per year:  $3,600
   ---------------------------------------------------------------
   Total annual debt payments:  $43,957.52
     
   Dividing this total by your $100,000 in income gives you the new TDS of 43.96%.    So what now?  Well, you have a couple of options.  You could significantly reduce the amount you borrow on the mortgage - in this case, you would need to reduce the mortgage amount by about $80,000 in order to bring your TDS under 40%.  Or, you could wait, reduce your expenses in other areas and aggressively pay down your non-shelter debts.  The key is to consult with a professional to understand your options and figure out what is the best way to proceed.
   
   The key: if you're thinking of buying a home in the next year or two, do everything you can to avoid taking on any new debt.  As you can see from our example, it can really impact you in your home purchasing journey.
     
3. Loan to Value Ratio  
   The LTV ratio is the simply the value of your mortgage (the "loan") compared to the market value of the property, again expressed as a percentage.  In the example we used above, the loan to value is 80%, which is the $400,000 mortgage amount divided into the $500,000 purchase price of the condo. 
     
   There are implications that pertain to the LTV ratio.  If your down payment is less than 20% of the home's value, or in other words, if your LTV is greater than 80%, your mortgage is considered a High Ratio mortgage.  If that is the case, you will likely need to use mortgage insurance (check out the CMHC website for more details).

If you have any questions, please don't hesitate to get in touch with me!


Photo credit: [c] Adam Ciesielski for stock.xchng

5 reasons you should use a realtor

If you are a currently househunting, especially if you are a first-time homebuyer, you may wonder how much value a real estate professional can really bring to the table. With so many online listing sites, couldn't you find homes just as easily on your own?

In my opinion, a good realtor can mean finding your dream home quickly and efficiently, versus spending hours trolling the web and dragging yourself to every open house in the GTA. Personally, I get quite excited about checking out homes that are staged for sale, and getting ideas on new trends in home design and layouts. But, if you are using this as your main mode of finding a home, the excitement is likely to pale after a few months of fruitless looking. More importantly, if you aren't working with a realtor, you are missing out on a vast repository of knowledge and connections that you could be using make your home buying process easier and simpler.

Here are just five reasons why a good realtor is worth his or her weight in gold:

1. Negotiation. How many of us are comfortable handling real estate negotiations, and knowing how to get the best possible real estate deal? Using an experienced realtor means you have a skilled negotiator on your side. Even if you view dozens of properties, you are not likely to have the negotiating edge when you come right down to making an offer to purchase one.

2. Knowledge. In addition to the substantial education required to obtain a real estate license, realtors are also obligated to continuously educate themselves in real estate related topics. As well, they have access to market data, real estate industry materials, and fellow real estate colleagues, to further increase their knowledge of the local markets.

3. Professional network. Do you have a good local real estate lawyer in your contact database? How about a home inspector, an architect, or general contractor? A good realtor will help you by connecting you to the necessary resources for making your home purchase.

4. Balance. Unless you have bought a few homes yourself, it can be really hard to "see the forest for the trees". A real estate professional will help you prioritize the items on your wish list, figure out what is truly important, and balance that against your price range. As well, if you are purchasing with a partner, it's really helpful to be able to bounce ideas off a neutral third party, and find balance between what each of you desires in your new home.

5. Fun. The home buying process can get tedious at times, and even stressful. Hopefully you have a realtor who is well suited to your personality style. The best realtor for you will make the experience fun and enjoyable.

At the end of the day, you will probably still spend hours obsessing about properties you discover online, or that you walk through in an open house. With a good realtor on your side, you will be able to move on from that to actually buying the home that will work perfectly for you, in real life.

Happy searching!


Photo credit: [c] gerard79 for stock.xchng

Thinking of buying a fixer-upper? Here's how...

If you've been trying to find that perfect home, but no place you've looked at in your price range seems quite right, here's a way to buy and renovate for the perfect abode.  Think of it as a mortgage for fixer uppers.

It's called a “purchase plus improvements” mortgage.  This type of mortgage covers the sale price of your home, plus any renovations that would increase the value of the property, with as little as 5 per cent down.

Many homebuyers looking at older properties find themselves in the same boat: they’ve found a property that suits them, but it needs some costly and immediate upgrades.

You may be able to add the costs of those immediate renovations into your mortgage, instead of racking up credit card bills, department store or home renovation store cards, or selling investments to pay for the upgrades.    If you’re buying a home but want to add a garage, finish a basement, replace windows or wiring, or redo a kitchen, it can make a lot of sense to add those costs to your mortgage. That way you can spread your payments over the life of the mortgage and have a cost-effective way to get your dream home. You can also use your pre-payment privileges to pay the renovation off faster, when the expenses of the renovation are behind you. 

The process is quite straightforward.  Here are the main steps you will take:

Include a longer "financing clause" in your offer to purchase
Once you have found a home and decide to put in an offer, you should ask for a little extra time to finalize all the financing details for your home purchase - ideally 10 days.   This gives you time to get quotes and get the lender's approval on the improvements you intend to make to your property.

Obtain estimates for the upgrades
At the same time as you submit your purchase for approval with the lender, you also need to provide detailed written quotes from licensed contractors, for the renovations you plan to do.  These quotes should outline the scope of the work, and all costs. 

Get your appraisal
An appraisal with two separate values will be required: first the value of the property "as is" and the estimated value of the property once the improvements are completed.

Renovation costs are included in your mortgage
Your lender will add the estimated costs of the renovation into your mortgage. For example, with a 5% down payment, your mortgage broker would apply for 95% of the “as improved” market value, which will be higher than the actual purchase price. The committed amount of the mortgage will be advanced to your real estate lawyer, who will be instructed to hold back the renovation funds until the work has been completed and inspected.

Complete your upgrades, and receive the remainder of your funds
Once an inspection from an appraiser confirms all work is complete and a copy of the building permit (if applicable) has been received, the balance of the mortgage funds will be released to you to pay for the renovations. There are a few options for carrying your expenditures until the funds can be released. Some major home improvement retailers offer “no payment” options for up to six months. Larger contractors may also be willing to finance the project short-term if they see the documentation for purchase plus improvements financing, and receive a deposit.  Other people are able to get a short term loan from parents or a family member.  What you can't do is get the mortgage funds ahead of time - the lender can't lend you more money than your property is worth, so they have to wait until the property is actually worth the "improved" amount. 

Here is an example of how this works in real life:

Purchase price of home: $400,000
Improvements required: $40,000
Total mortgage: $418,000 (95% of $440,000)
Your down payment: $22,000 (5% of $440,000)

$378,000 will be advanced on your closing date, so that you can take ownership of the home.   At the same time, you will be required to pay your down payment in full.  You then do the improvements.  Once you get an inspection confirming that they have been completed, the remaining $40,000 will be released.  

If you think this might be a good option for getting you the perfect home, please contact your mortgage professional to discuss the ins and outs.  There are lots of aspects to this type of mortgage that you can take advantage of - for example, some lenders will also allow you to get a portion of funds advanced to you at certain stages of completion, rather than requiring you to wait until full completion.  As well, some lenders require that the work be completed in a certain period of time after your closing date, while others are more flexible.  Depending on your specific situation, we can find you a lender and product that will help you achieve your goals.

Happy house-hunting!




~ Powered by Mortgage Intelligence

Photo credit: [c] Sean Farrell for openphoto.net

Can You Afford a Home?

If you're in the very beginning stages of home buying, you may be wondering if you can really afford to buy. Sure, mortgage interest rates are pretty much the lowest they've ever been, but what about all the other costs that you will incur as a home owner?

This straightforward presentation from CMHC walks you through the thinking process of figuring out your readiness for buying a place of your own. Take a look, and let me know if you have any questions!

Home and Mortgage Essentials - January 2012 Issue!

The latest issue of our newsletter covers some great topics - how to choose the right home for you, the final days of the Eco rebates, and some housing market stats. Click at left to get the newsletter. If it doesn't appear properly on your computer, please don't hesitate to get in touch, and I will email you the PDF version. Enjoy!

Home and Mortgage Essentials - December 2011 Issue

Did you know that Canadians are responsible for almost 25% of foreign purchases of U.S. property? It's not the first time I've talked about the fact that more and more of us are taking an interested look at the bargains available in those warm locales to the south. If you're thinking this might be for you, make sure you talk to specialists in cross-border taxation, local real estate experts in the location you're considering, and of course, a mortgage specialist like me if you are looking for advice on financing your purchase. 

The December issue of our monthly newsletter touches on this and more. Click on the image at left to check it out!

Using your RRSP for a Down Payment? Read this!

If you're like many of us, wading through all the rules on RRSPs, the federal Home Buyer Plan, and the like is sure to put you to sleep.  Here's a great article that gives you the scoop on the rules around RRSP withdrawals for your down payment.  And it's in plain English! 

How to buy the perfect home (For you. For right now.)

So, you’ve decided to buy a home? Congratulations!

When my husband and I were house-hunting, it was such an exciting time. We looked for almost 2 years before we found a place we fell in love with (our real estate agents had the patience of saints!). The reason it took so long was: a) we kept thinking prices HAD to go lower – which they didn't, and b) there was a slight disconnect in what my hubby and I were prepared to live with – I would have been okay with a fixer-upper, but my hubby was totally NOT okay with a fixer-upper. As it turns out, we ended up somewhere in the middle.

Being fairly analytical types, we had a list of ten “must-haves” for our house:

1. Within certain price range
2. Maximum commute time from work
3. Four bedrooms
4. Two-car garage
5. Lots of space between us and neighbours
6. Neighbourhood with character
7. Backyard for kids to play in
8. Lots of windows
9. Basement that my 6’2” husband didn't have to crouch in
10. Within walking distance of good school

In the end, we got almost everything we wanted from our list, although we did go over on # 1. You’ll notice that one thing was not on our list – a big modern kitchen. That is why we are now considering a pain-in-the-neck kitchen reno. Anyway, I digress.

Here are my recommendations for finding the perfect home:

1. Decide on your top ten “must-haves” and rank them in order of priority. Doing some research on helpful sites such as CMHC.ca and Genworth.ca will get you thinking about points you might not have considered. Check out CMHC’s “Homebuying Step by Step” guide as well as their great home features checklist.

2. Get pre-approved for a mortgage. A good mortgage specialist will help you develop a mortgage plan. This gives you several key pieces of information. Not only should you understand exactly how much you can qualify for, but you should also get advice on whether you need to fix anything credit-wise to get the best mortgage rates, and whether you need to increase your savings for down payment and/or closing costs.

3. Connect with a great real estate agent. If you don’t already have one, ask around for recommendations. A skilled real estate agent will sit down with you and provide guidance on where in the city you can get a home that fits with your budget and your requirements. Be sure to keep the lines of communication open, so that after every viewing, you can provide feedback on what you liked and didn't like about the place. This can save you a lot of time and effort.

4. Make your offer. Your real estate agent will guide you here as well, based on their experience and understanding of the market. Make sure to include clauses in your offer to give you time to finalize your financing and to get a home inspection.

A little planning can go a long way to relieving any stress associated with this big step in your life. Take your time in doing the research, talk to friends and real estate professionals, and then, trust your instincts. And make sure that you take a good hard look at that kitchen!


Photo credit: [c] Miroslav Vajdic for openphoto.net

Buying a Condo? 5 Tips For Getting the Best Value...

If you're a first-time homebuyer, a current homeowner looking to downsize or a parent considering buying a secondary property for kids moving for school, chances are you've considered condo ownership.

When looking for a condo, finding the best value is all in the combination of the place, the price and the monthly fees.  When calculating how much they will loan to you, mortgage lenders count half of your monthly fees, along with other factors such as property taxes and heat expenses.

Here are five tips from Mortgage Intelligence, to help you get the best value for your condo purchase:

1. Know what your fees cover.  Along with maintenance of the building and common areas, some condominiums will include part or all of your utilities or property taxes in your fees, while others keep them completely separate.

2. Check the reserve fund.  The corporation responsible for the condo development should have a reserve fund that's large enough to cover the cost of repairs to the building's common elements.  A status certificate (or Estoppel certificate in some provinces) will show any planned developments that could increase your monthly fees or require a special one time assessment.  You can find similar details in the condo corporation's annual meeting minutes.  

3. Think twice about upscale amenities.  Keep in mind that building features like pools, saunas, deluxe fitness areas or large common rooms typically require higher condo fees to cover the upkeep. Consider whether you'll really use these features enough to make the extra cost worthwhile.

4. Check the regulations.  Make sure you're aware of any bylaws governing your condo development that could affect your lifestyle. For example, bylaws may restrict household pets, gas barbecues, working from home or renting the unit to a tenant.

5. Consider your neighbours.  Is the building mainly occupied by owners, or renters? Residents who own and have a vested interest in the building may be more careful about upkeep.


- powered by Mortgage Intelligence

Photo credit: [c] Sharon Diwakar for openphoto.net

Are We in a Housing Bubble?

In a recent issue of CIBC World Markets' Economic Insights, one of my favourite economists, Benjamin Tal, addresses what we've all been wondering...  Are we in a housing market bubble?  Is a crash imminent?

Tal states that any such suggestion is "probably wrong".

His reasons for this conclusion:

First, while average house prices have indeed been increasing, the main markets that are pulling up the average are Vancouver (a "highly skewed" market) and, to a lesser extent, Toronto.  Pulling out the data from these markets reveals a much more moderate 3.7% year-over-year price increase.

Second, while he does believe that "prices in the Canadian market and its sub-segments are higher than can be explained by factors such as income growth, rent and household formation", the "pace of any correction is likely to be gradual".   He demonstrates that we only have a small segment of the population that is vulnerable to interest rate hikes (families with less than 20% equity and/or whose debt payments total more than 40% of their gross income).  Further, he maintains that such interest rate increases are expected to be moderate. 

Tal concludes that there may indeed be a period of time where housing "underperforms" compared to other assets, but that eventually we will see a return to equilibrium.

If you're house-hunting and wondering whether to get into a bidding war on one of those "hot" houses, this is something to keep in mind.  More and more, the answer is you probably shouldn't.

 


Photo credit: [c] Jasenka Petanjek for openphoto.net

Rate watch - rates on the rise

A couple of the chartered banks announced rate increases yesterday and today, and with bond yields going up recently, it is likely that the other lenders will do the same. 

If you're in the market for a home and don't have a pre-approval yet, or you've been considering refinancing soon, don't delay calling your mortgage consultant.  Lock in these low rates while you have the chance!

Thinking of helping your kids to buy a home? Three ways to do it

Abigail Van Buren once said, “If you want children to keep their feet on the ground, put some responsibility on their shoulders.”

This holds true even once they’re grown. What better way to give responsibility to your adult children than by helping them to become homeowners?  Further, once your kids are old enough to go to university or first start working, they likely won’t have the funds to buy their own home, yet many of us feel that it is better to own the home we live in, rather than paying off someone else’s mortgage. So, how can this be accomplished? 

Here are three alternatives. Which is most appropriate for you depends on your financial situation and your lifestyle and retirement goals.

Option 1. Provide cash to your child as a gift, for a down payment on a home.

PROS: Your child can buy a home sooner, and start building up equity, rather than paying rent to someone else. If the amount of the gift is more than 20% of the value of the home they wish to buy, you enable them to obtain a conventional mortgage, avoiding mortgage default insurance fees.

CONS: You will have to provide a letter confirming that the funds are a gift, with no repayment required. The child is free to use the money as they choose.

Option 2. Co-sign on your child’s mortgage.

PROS: The mortgage will be obtained based on your financial circumstances. Your child may not have an established credit rating, high enough salary, or a proven track record of employment, to qualify for a mortgage. If your financial situation allows, you can co-sign or guarantee their mortgage. This may result in a better interest rate, larger mortgage amount, and a more ideal home for your child.

CONS: You will be responsible for paying the mortgage, if your child becomes unable to do so. As well, if you later need to borrow money yourself, the debt may impact your own ability to qualify for funds.

Option 3. Use your own cash, or equity you have available in your own home, to buy a home and have your child pay you rent.

PROS: If you feel your child is not yet ready to own their own home, for example, while going to university, becoming the landlord may make the most sense. Using money you have in the bank, or equity in your own paid-off home, you could invest in a rental property. If you do finance the purchase, your interest on the loan is tax-deductible since this is not your primary residence (and if you choose a home equity line of credit, all you have to pay is the interest).   Best of all, your child and their roommates will pay the rent to you, keeping the money in the family.

CONS: If you finance the purchase, the equity in your own home will be tied up and not available to you for your personal needs. The same holds true of you use your own funds. Also, if your child moves away, you might be stuck holding property in an area that was chosen only because your child was attending school there.

The key benefit in these scenarios: the help you have provided will keep money in the family, instead of paying someone else’s mortgage via rent payments.  Talk to your accountant or financial planner to review your options and ensure they are appropriate for your situation, and then enjoy helping to make your child a homeowner!

Photo credit: [c] Microsoft Clip Art

Mortgage and homebuying tools - free for the taking!

If you do a quick google search you will find that there is an overwhelming amount of information available for new homebuyers.  Save yourself some time and check out one of the best sites out there:  the CMHC website.  It contains literally thousands of articles on everything from homebuying to mortgages to renting and dealing with home ownership issues.  And it's not just in English; translations are available in French and eight other languages.

Check out this first time homebuyer video, then spend some time looking at the homebuyer guides, easy-to-use calculators, and of course, information about CMHC mortgage insurance.

I'm a big believer in getting educated.  Since a home purchase is the biggest financial investment most of us will ever undertake, it is worth knowing about a resource that gives you so much unbiased, high quality information about home buying.

Let me know what you think!

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

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. 

$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!

Our first house

I was talking to several people this week about their plans to buy their first home and I think I was getting almost as excited as they were.

So I got to thinking about my first childhood home, and how thrilled we were, as new immigrants to Canada, to be buying a house.  We'd never had so much space before - and the back yard with its stand of mature lilacs was heavenly!

Here's a snapshot from our basement rec room on Mccrie Street in Sarnia.  I had friends over for my birthday.  Don't you love the panelling?

What are your favourite memories of your first home?