Category: first time buyers (4)

It’s easy to get swept up in the excitement of buying a home. Once you’ve had an offer accepted on your dream house, you’ll probably be anxious to move in. However, before you make a significant financial commitment, it’s best to know exactly what you’re buying.

When you hire a home inspector, you get a professional, in-depth examination of the property’s structures and systems. It’s a worthwhile investment that can save you money in the long run, either by warning you away from a bad purchase or by providing a list of deficiencies you can use to negotiate with the sellers.

The inspector’s report will also list minor repairs that, if made, will help to maintain your home over the long term. Additionally, a good inspector can often predict the standard life expectancy of your roof, HVAC, and other big-ticket items so you can start planning for their eventual replacement.

However, many buyers make mistakes during the inspection process that cost them time and money and lead to unnecessary stress. Avoid these eight common buyer blunders to minimize your risk, protect your investment, and give yourself peace of mind and confidence in your new home purchase.

 

MISTAKE 1: Skip Your Own Inspection

Many buyers rely on their home inspector to point out issues with the property. However, by conducting your own visual assessment before you submit an offer, you can factor expected expenses into the offer price. Or, if you suspect major problems, you may choose to move on to a different property altogether.

Examine the walls and ceilings. Are there suspicious cracks, which could point to a foundation issue? Any discoloration? Yellow spots can indicate water damage, while black spots are typically mold. If there’s a basement, look for powdery white deposits along the walls and slab, which can result from water seepage.1

To assess the plumbing, start by turning on a bathroom sink or tub, then flushing the toilet. Check for a drop in water pressure or a gurgling sound coming from the pipes. You can also try running the water in sinks and tubs for several minutes to test for drainage issues. Peak underneath sinks to spot signs of leaks or drain pipes that go into the floor instead of the wall.1

Look for fogged or drafty windows, which may need replacing. Examine the roof for signs of cupped, curled, or cracked shingles. Check siding, decks, and other wooden structures for evidence of rot.

Overall, does the home appear to be well maintained? Unless it’s a highly-competitive seller’s market, consider the overall condition of the property BEFORE you submit an offer. Work with your real estate agent to factor in repairs and updates you know you’ll need to make when you determine your offer price.

 

MISTAKE 2: Hire the Cheapest Inspector

We all love to save money, but not all inspectors are created equal. Before you hire one, do a little research.2 You may even want to start shopping for an inspector before you complete your home search. Inspection periods are typically short, so it never hurts to be prepared.

You can start by asking around for recommendations. Check with friends and family members, as well as your real estate agent. Then contact at least two or three inspectors so you can compare not only price but also levels of experience and service.

Ask about their background, years of experience, and the number of inspections they have completed. Verify their certifications and credentials, and make sure they carry the proper insurance.

Find out what is (and what isn’t) covered in the inspection and if they utilize the latest technology. Ask to see a sample report so you can compare the style and level of detail provided. Finally, make sure you feel confident in the inspector’s abilities and comfortable asking him/her questions.

 

MISTAKE 3: Miss Attending the Inspection

Make every effort to be on-site during the inspection. Buyers who aren’t present during their inspection miss out on a great opportunity to gather valuable information about their new home.

If can attend the inspection, don’t spend all your time picking out paint colors or chatting with your new neighbors. Instead, use your time there to shadow the inspector. It’s the perfect chance to find out where everything is located, ask questions, and see first-hand what repairs and updates may be needed.3

Of course, if you do choose to tag along with your inspector, exercise good judgment. Don’t get in the way, become a distraction, or do anything to jeopardize your (or the inspector’s) safety.

If you can’t make it to the inspection, ask if you can schedule a time to meet in person or speak by phone to go over the report in detail. It will give you an opportunity to ask questions or request clarification about issues in the report you don’t fully understand.

 

MISTAKE 4: Skim Over the Report

Inspection reports can be long and tedious, and it can be tempting to skim over them. However, buyers who do this risk missing crucial information.

Instead, you should read over the report carefully, so you don’t miss anything significant. Now is the time to address any areas of concern. You have a limited window of time to request repairs or negotiate the selling price, so don’t squander it.

Your inspector may also flag some minor items that you wouldn’t typically expect a seller to fix. However, ignoring these small issues can sometimes lead to bigger problems down the road. Make sure you read everything in the report so you can take future action if needed.

 

MISTAKE 5: Avoid Asking Questions

Some buyers are too embarrassed to ask questions when there’s something in the inspection report they don’t understand. Afraid they might look foolish, they avoid asking questions and end up uninformed about important issues that could impact their home purchase.

The reality is, questions are expected. You hired your inspector for their professional expertise, so don’t be shy about tapping into it. For example, you might ask:

  • Would you get this issue fixed in your own home?
  • How urgent is it?
  • What could happen if I don’t fix it?
  • Is this a simple issue I could fix myself?
  • What type of professional should I call?
  • Can you estimate how much it would cost to make this repair?
  • How much longer would you expect this system/structure/appliance to last?
  • What maintenance steps would you recommend?

Don’t bother asking your inspector if you should buy the property, because he/she won’t be able to answer that question for you. Instead, use the information provided to make an informed decision. A skilled real estate agent can help you determine the best path.

 

MISTAKE 6: Expect a Perfect Report

Some buyers get scared off by a lengthy inspection report. But with around 1600 items on an inspector’s checklist, you shouldn’t be surprised if yours uncover a large number of deficiencies.4 The key is to understand which problems require simple fixes, and which ones will require extensive (and costly) repairs.

Your real estate agent can help you decide if and how to approach the sellers about making repairs or reducing the price. Whatever you do, try to focus on the major issues identified in the inspector’s report, and don’t expect the sellers to address every minor item on the list. They will be more receptive if they perceive your requests to be reasonable.

 

MISTAKE 7: Forgo Additional Testing

There are times when an agent or inspector will recommend bringing in a specialist to evaluate a potential issue.5 For example, they may suggest testing for mold or consulting with a roofing expert.

Some buyers get spooked by the possibility of a “red flag” and decide to jump ship. Or, in their haste to close or desire to save money, they choose to ignore the recommendation for additional testing altogether.

Don’t make these potentially costly mistakes. In some cases, the specialist will offer a free evaluation that takes minimal time to schedule. And if not, the small investment you make could provide you with peace of mind or save you a fortune in future repairs.

 

MISTAKE 8: Skip Re-inspection of Repairs

Most buyers request receipts to prove that repairs have been correctly completed. However, it’s always prudent to go a step further and have negotiated repairs re-evaluated by your inspector or another qualified professional, even if there’s an additional charge.6

While the majority of sellers are forthcoming, some will try to save money by cutting corners, hiring unlicensed technicians, or doing the work themselves. A re-inspection will help ensure the repairs are completed properly now, so you aren’t paying to redo them later.

To avoid having to go back to the sellers, be specific when requesting repairs. Identify the problem, how repairs should be completed, who should complete the work, and how the repairs will be verified.7

Some buyers prefer to avoid this step altogether by completing the work themselves. They either request that the seller fund the repairs or reduce the selling price accordingly. Whichever path you choose, protect yourself and your investment by ensuring the work is done properly.

 

WE CAN HELP

A home inspection can reduce your risk and save you money over the long-term. But to maximize its effectiveness, it must be done properly. Avoid these eight common home inspection mistakes to safeguard your investment.

While these are some of the most common missteps, there are countless others that can trip up home buyers, cost them time and money, and cause undue stress. Fortunately, we have the skills and experience to help you avoid the potential pitfalls.

If you’re in the market to buy a home, we can help you navigate the inspection and all the other steps in the buying process … typically at no cost to you! Tap into our expertise to make the right decisions for your real estate purchase.

Contact us today to schedule a free consultation!

 




 

Sources:

  1. Family Handyman –
    https://www.familyhandyman.com/tools/diy-home-inspection-tools/view-all/
  2. HGTV –
    https://www.hgtv.com/design/real-estate/finding-the-right-home-inspector
  3. The New York Times –
    https://www.nytimes.com/2018/03/23/realestate/home-inspection.html
  4. com –
    https://www.realtor.com/advice/buy/what-does-a-home-inspector-look-for/
  5. Realty Times –
    https://realtytimes.com/advicefromagents/item/37369-top-5-biggest-home-inspection-mistakes
  6. com –
    https://www.realtor.com/advice/buy/home-inspection-mistakes-buyers-should-avoid/
  7. Star Tribune –
    http://www.startribune.com/who-verifies-repairs-after-the-home-inspection/132844523/

 

Don’t wait until you’re ready to move to start preparing financially to buy a home.

If you’re like the vast majority of home buyers, you will choose to finance your purchase with a mortgage loan. By preparing in advance, you can avoid the common delays and roadblocks many buyers face when applying for a mortgage.

The Office of the Superintendent of Financial Institutions (OSFI) issued new mortgage guidelines, which went into effect at the beginning of the year and raised the standards for mortgage applicants. The requirements may seem overwhelming, especially if you’re a first-time buyer. But we’ve outlined three simple steps to get you started on your path to approval.

It’s never too early to start preparing to buy a home. Follow these three steps to begin laying the foundation for your future home purchase today!

 

STEP 1: CHECK YOUR CREDIT SCORE

Your credit score is one of the first things a lender will check to see if you qualify for a loan. It’s a good idea to review your credit report and score yourself before you’re ready to apply for a mortgage. If you have a low score, you will need time to raise it. And sometimes fraudulent activity or erroneous information will appear on your report, which can take months to correct.

There are five factors that impact your credit score: history of payments (35%), debts (30%), credit length (15%), new inquiries (10%), and diversity (10%).1

Credit scores range from 300 to 900. A higher credit score will help you qualify for a lower mortgage interest rate, which will save you money.2

The two major credit bureaus in Canada are Equifax Canada and Transunion Canada. For information on how you can request a free copy of your credit report from each bureau, visit https://www.canada.ca/en/financial-consumer-agency/services/credit-reports-score/order-credit-report.html. The bureaus may charge you a fee to access your actual credit score.

 

Minimum Score Requirements

The new OSFI rules require a minimum credit score of 600 for a mortgage under $1,000,000. However, many lenders prefer to see a score of at least 650.

Generally speaking, banks and other traditional financial institutions have the strictest requirements. If you have a credit score below 600, you may still be able to secure a loan through a credit union or private lender, however you should expect to pay a higher interest rate and additional fees.3

 

Increase Your Credit Score

There’s no quick fix for a low credit score, but the following steps will help you increase it over time.4

  1. Make Payments on Time

At 35 percent, your payment history accounts for the largest portion of your credit score. Therefore, it’s crucial to get caught up on any late payments and make all of your future payments on time.

If you have trouble remembering to pay your bills on time, set up payment reminders through your online banking platform, a free money management tool like Mint, or an app like BillMinder.

 

  1. Avoid Applying for New Credit You Don’t Need

New accounts will lower your average account age, which could negatively impact your length of credit history. Also, each time you apply for credit, it can result in a small decrease in your credit score.

The exception to this rule? If you don’t have any credit cards—or any credit accounts at all—you should open an account to establish a credit history. Just be sure to use it responsibly and pay it off in full each month.

If you need to shop for a new credit account, for example, a car loan, be sure to complete your loan applications within a short period of time. The credit bureaus attempt to distinguish between a search for a single loan and applications to open several new lines of credit by the window of time during which inquiries occur.

 

  1. Pay Down Credit Cards

When you pay off your credit cards and other revolving credit, you lower your amounts owed, or credit utilization ratio (ratio of account balances to credit limits). Some experts recommend starting with your highest-interest debt and paying it off first. Others suggest paying off your lowest balance first and then rolling that payment into your next-lowest balance to create momentum.

Whichever method you choose, the first step is to make a list of all of your credit card balances and then start tackling them one by one. Make the minimum payments on all of your cards except one. Pay as much as possible on that card until it’s paid in full, then cross it off your list and move on to the next card.

 

Debt Interest Rate Total Payoff Minimum Payment
Credit Card 1 12.5% $460 $18.40
Credit Card 2 18.9% $1,012 $40.48
Credit Card 3 3.11% $6,300 $252

 

 

  1. Avoid Closing Old Accounts

Closing an old account will not remove it from your credit report. In fact, it can hurt your score, as it can raise your credit utilization ratio—since you’ll have less available credit—and decrease your average length of credit history.

Similarly, paying off a collection account will not remove it from your report. It remains on your credit report for seven years, however, the negative impact on your score will decrease over time.

 

  1. Correct Errors on Your Report

Mistakes or fraudulent activity can negatively impact your credit score. That’s why it’s a good idea to check your credit report at least once per year. The Financial Consumer Agency of Canada posts instructions for disputing errors on your report.

While it may seem like a lot of effort to raise your credit score, your hard work will pay off in the long run. Not only will it help you qualify for a mortgage, a high credit score can help you secure a lower interest rate on car loans and credit cards, as well. You may even qualify for lower rates on insurance premiums.

 

 

STEP 2: SAVE UP FOR A DOWN PAYMENT AND CLOSING COSTS

 The next step in preparing for your home purchase is to save up for a down payment and closing costs.

 

Down Payment

When you purchase a home, you typically pay for a portion of it in cash (down payment) and take out a loan to cover the remaining balance (mortgage).

The minimum amount you’ll need for your down payment depends on the purchase price of the home.

 

PURCHASE PRICE MINIMUM DOWN
$500,000 or less ●     5% of the purchase price
$500,000 to $999,999 ●     5% of the first $500,000 of the purchase price

AND

●     10% for the portion of the purchase price above $500,000

$1 million or more ●     20% of the purchase price

Source: Financial Consumer Agency of Canada

 

It’s important to note that these are the minimum requirements for securing a mortgage. If you’re self-employed or have a low credit score, your down payment requirements may be higher.

Generally speaking, the higher your down payment, the more money you will save on interest and fees. For example, if your down payment falls below 20 percent, you will be required to purchase mortgage loan insurance, which will cost you between 0.6 to 4.5 percent of the overall mortgage amount.5

If you don’t have the minimum requirements for a down payment, the Home Buyers’ Plan (HBP) might be an option for you. It enables you to withdraw up to $25,000 (or $50,000 if you are buying as a couple) from your Registered Retirement Savings Plan (RRSP) to buy or build a qualifying home. You have up to 15 years to repay the amount you withdrew. Click here for more information and to find out if you are eligible to participate.6

 

Current Homeowners

If you’re a current homeowner, you may have equity in your home that you can use toward your down payment on a new home. We can help you estimate your expected return after you sell your current home and pay back your existing mortgage. Contact us for a free evaluation!

 

Closing Costs

Closing costs should also be factored into your savings plan. These typically include legal fees and other administrative fees associated with the purchase of your home. Closing costs typically range between 1.5 to four percent of the purchase price.7

If you don’t have the funds to pay these outright at closing, you can often add a portion to your mortgage balance and pay it over time. However, you’ll have a higher monthly payment and pay more over the long term because you’ll pay interest on the fees.

 

STEP 3: ESTIMATE YOUR HOME PURCHASING POWER

Once you have the required credit score, savings for a down payment and a list of all your outstanding debt obligations via your credit report, you can assess whether you are ready and able to purchase a home.

It’s important to have a sense of how much you can reasonably afford—and how much you’ll be able to borrow—to see if homeownership is within reach.

Your gross debt service ratio (GDS) and total debt service ratio (TDS) are the two primary measurements mortgage companies use to determine how much they are willing to lend you.

 

Gross Debt Service Ratio

Your GDS ratio is the percentage of your income that would go toward housing each month, including principal, interest, taxes, heat and 50 percent of condo fees (if applicable).

To calculate your GDS ratio, a lender will add up your expected housing expenses and divide it by your gross monthly income (income before taxes). The maximum GDS ratio most conventional lenders will accept is 32 percent.8

 

Total Debt Service Ratio

The TDS ratio takes into account all of your monthly debt obligations: your expected housing expenses PLUS credit card bills, car payments, child and spousal support, and any other debt that shows up on your credit report.

To calculate your TDS ratio, a lender will tabulate your expected housing expenses and other monthly debt payments and divide it by your gross monthly income (income before taxes). The maximum TDS ratio most conventional lenders will accept is 44 percent.8

 

New “Stress Test” Requirements

Under OSFI’s new rules, all mortgages issued by federally-regulated lenders are required to undergo a “stress test.” Under this test, applicants must fall below the GDS and TDS ratio maximums at either the Bank of Canada’s five-year benchmark interest rate, or at their qualified contract interest rate plus two percent, whichever is higher.8

The purpose of the stress test is to ensure that home buyers will still be able to afford their mortgages if interests rates rise.

 

Home Affordability Calculator

To get a sense of how much home you can afford, visit the Canadian Real Estate Association’s Affordability Calculator at https://www.realtor.ca/Residential/calculator.aspx?tab=3.

 

This handy tool will help you determine how much you can afford to borrow depending on your income, debt, property taxes, condo fees, heating costs and interest rate. It also offers a projection of your monthly mortgage payment. Add the “maximum mortgage” estimate to your down payment amount to find out your total home purchasing power.

When you enter the interest rate, be sure to use either the Bank of Canada’s five-year benchmark rate or two percentage points above your estimated rate (whichever is higher) to ensure you can meet the “stress test” requirements.

If the monthly cost estimate is significantly higher than what you’re currently paying for housing, you need to consider whether or not you can make up the difference each month in your budget.

If not, you may want to lower your target purchase price to reflect a more conservative TDS ratio.

(Note: This tool only provides an estimate of your purchasing power. You will need to secure pre-approval from a mortgage lender to know your true mortgage approval amount and monthly payment projections.)

 

Can I Afford to Buy My Dream Home?

Once you have a sense of your purchasing power, it’s time to find out which neighbourhoods and types of homes you can afford. The best way to determine this is to contact a licensed real estate agent. We help homeowners like you every day and can send you a comprehensive list of homes within your budget that meet your specific needs.

If there are homes within your price range and target neighbourhoods that meet your criteria—congratulations! It’s time to begin your home search.

If not, you may need to continue saving up for a larger down payment … or adjust your search parameters to find homes that do fit within your budget. We can help you determine the right course for you.

 

START LAYING YOUR FOUNDATION TODAY

 It’s never too early to start preparing financially for a home purchase. These three steps will set you on the path toward homeownership … and a secure financial future!

And if you are ready to buy now but still aren’t sure if you meet the minimum requirements, don’t get discouraged. You may be able to secure a loan through a credit union or a private lender. We can connect you with one of our trusted mortgage providers.

 

Want to find out if you’re ready to buy a house? Give us a call! We’ll help you review your options and determine the ideal time to begin your new home search.

 

The above references an opinion and is for informational purposes only.  It is not intended to be financial advice. Consult a financial professional for advice regarding your individual needs.

 

Sources:

  1. Loans Canada –
    https://loanscanada.ca/credit/what-your-credit-score-range-really-means/
  2. Office of Consumer Affairs (OCA) –
    https://www.ic.gc.ca/eic/site/oca-bc.nsf/eng/ca02179.html
  3. Loans Canada –
    https://loanscanada.ca/mortgage/minimum-credit-score-required-mortgage-approval-2018/
  4. Office of Consumer Affairs (OCA) –
    https://www.ic.gc.ca/eic/site/oca-bc.nsf/eng/ca02178.html
  5. Financial Consumer Agency of Canada –
    https://www.canada.ca/en/financial-consumer-agency/services/mortgages/down-payment.html
  6. Government of Canada –
    https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan.html
  7. Which Mortgage –
    https://www.whichmortgage.ca/article/the-truth-about-closing-costs-118698.aspx
  8. Deposit Financing –
    http://depositfinancing.ca/mortgage-stress-test-calculator-canada-2018/

If you’re in the market for a new home or investment property, one of the first questions you’ll probably ask is, “What can we afford?” Many buyers become so caught up in how much they can afford that they don’t realize their total buying power—that is, the total amount of purchasing potential they actually have.

 

Buying Power Defined

Your buying power is comprised of the total amount of money you have available each month for a mortgage payment. This means the money you have each month after fixed bills and expenses. Any money you’ve saved for a down payment, the proceeds from the sale of your current home, if applicable, and the amount of money you’re qualified to borrow all impact your buying power as well. When you take all of this into account, you may find you are able to purchase a larger home or a home in a more desirable neighborhood, or you might realize you should be looking for homes in a lower price range.

 

What About Housing Affordability?

Housing affordability is a metric used by real estate experts to assess whether or not the average family earning an average wage could qualify for a mortgage on the average home.1 Although this figure is essential to creating a comprehensive overview of the real estate market, it’s not a factor you should consider in your home search. What may be considered affordable to you based on your income and other factors may be different than what’s affordable to the average buyer.

 

Why Buying Power Matters

A common misunderstanding is that a home’s list price determines whether or not you can purchase it. Although it’s important to look at the price tag, it’s essential to consider what your monthly payment will be if you own the home. After all, the purchase price doesn’t include the housing-related expenses, such as annual property taxes, homeowner insurance, associated monthly fees and any maintenance or repairs. Figuring out the payment will prevent you from overestimating or underestimating your buying power. After all, you’ll live with your monthly payment, not the sales price.

Once you have clarity on your buying power, you’ll be able to buy the home you want, instead of settling for a home because you feel it’s the only one you can afford. It will also prevent you from becoming “house poor,” a common term for someone who’s put all their money toward the down payment, leaving them nothing left over for fees outside of their monthly house payment. Both scenarios can negatively impact the lifestyle you want to live. Understanding your buying power can help you get the home you want without sacrificing the lifestyle you desire.

If you haven’t sold your current home yet, a Comparative Market Assessment (CMA) will give you a general idea of how much you may get for your home based on what other homes have sold for in your area. Contact our team for a FREE CMA or sign up online using the link below!

GET MY HOME VALUE
Calculating Your Buying Power

You might be wondering, “How do I know what my buying power is?” Buying power is calculated by adding the money you’ve saved for a down payment and/or the money you made from selling your home (minus fees and mortgage payoff) to all of your sources of income and investments that could be used to make your monthly payment. Make sure to include your monthly pay, commissions or tips, dividends from investments, payments from rental properties or other monthly income you receive as well as the mortgage amount you’re willing to finance and qualify for.

Most lenders advised buyers to spend no more than 35 to 45 percent of their pretax income on housing, meaning all your income and sources of revenue prior to paying taxes. Make sure you factor in not only your mortgage payment, but also property tax and home insurance to the cost of housing.2 However, other financial experts advise spending no more than a very conservative 25 percent of your after-tax income on your housing expenses.2 Whether you plan to spend the average, play it conservative or split the difference is up to you.

However, these figures bring up an important point: you don’t have to spend all of your savings and available monthly income on a mortgage payment. It’s important to set money aside for regular home maintenance, unexpected repairs and monthly fees, such as a condominium or homeowners association fee. While the above ratios are commonly accepted, a lender will look at your total financial picture when they decide how much they’re willing to lend. It may be tempting to take out a large loan in order to purchase the home of your dreams, but keep in mind the less money you have to borrow, the stronger your buying power may be.

 

4 Things That Impact Buying Power
  • Credit score. A great score can help you lock into a lower interest rate.
  • Debt-to-income ratio. The lower the ratio, the better risk you may be to lenders as long as you have an established credit history.
  • Assets, including the documentation of where the money for the purchase is coming from and the mix of your investments.
  • Down payment. The more you’re able to put down, the less you will have to borrow. With a down payment of 20 percent or more, you won’t have to purchase private mortgage insurance and you may also be able to negotiate a lower interest rate.

 

How to Save for a Down Payment

If you’re thinking of buying a home one day, one of the first steps to take is to start saving for a down payment. Here are some tips to make saving easier.

First-time buyers:

  • Set a savings goal. One way to figure out how much to save is to use the average sales price for homes that are similar to what you want and figure out your target down payment percentage. For example, if homes are selling for $200,000 in your area and you want to put 20 percent down, you’ll have to save $40,000. Set a goal to save that amount within a specific time frame; just keep in mind the longer you save, the more the average selling price will change. Although the majority of buyers saved for six months or less, 29 percent of all buyers (and 31 percent of first-time buyers) saved for more than two years for a down payment.3
  • Cut back on expenses. Review your monthly expenses and look for ways to save. Twenty-nine percent of buyers cut spending on non-essentials items and 22 percent cut spending on entertainment while they were saving for a home.Think about items you can live without or cut back on temporarily while you’re saving.
  • Look for ways to boost your income. Get a side job or sell items online or at a garage sale to increase your income in a short amount of time. Be sure to save any windfalls you get, including your annual income tax refund or work bonuses.
  • Check out home-buying programs. Federal, provincial and even local governments may offer special programs, such as grants, for first-time buyers to use.
  • Ask your family. Thirteen percent of all buyers, and 24 percent of first-time buyers, were given money from family or friends to use toward the down payment of their home.3

Repeat buyers:

More than 52 percent of repeat buyers used the proceeds from the sale of their primary residence toward the down payment on their next home.3 Similarly, 76 percent tapped into their savings accounts.3 If you’re thinking of buying another home, here are more ways to save more money, in addition to the tips listed above:

  1. Rent a room. If you have an income flat (or mother-in-law unit) attached to your home, rent it out and channel the income into a high-interest savings account.
  2. Make your money work for you. If you don’t plan to buy for at least five years, invest it and let the compound interest work for you. Discuss this option with your financial planner or broker to see if this is ideal for you and your goals.

If you want to buy an investment property

Whether you’re buying a second home or a rental property, here are a couple tips to save for a down payment.

  1. Tap into your equity. If you’ve paid off or paid down your mortgage on your primary home, you may be able to tap into your equity to purchase another property. Contact your lender to learn more about a HELOC or home equity loan.
  2. Get a partner. Find a friend or relative who’s willing to purchase property with you. Typically, you’ll split the costs and profits equally. Just make sure to work with an attorney to create a partnership agreement to fit your situation.

 

Work Out Your Buying Potential

What’s your buying potential? Click for a free printable worksheet that will help you get an estimate!

 

Monthly Payment on 25-Year Fixed Rate Mortgage

Loan amount 3% 3.5% 4% 4.5% 5% 5.5% 6%
$100,000 $473 $499 $526 $553 $582 $610 $640
$150,000 $710 $749 $789 $830 $872 $916 $960
$200,000 $946 $999 $1,052 $1,107 $1,163 $1,221 $1,280
$250,000 $1,183 $1,248 $1,315 $1,384 $1,454 $1,526 $1,600
$300,000 $1,420 $1,498 $1,578 $1,660 $1,745 $1,831 $1,919
$350,000 $1,656 $1,747 $1,841 $1,937 $2,036 $2,136 $2,239
$400,000 $1,893 $1,997 $2,104 $2,214 $2,326 $2,442 $2,559

 

Didn’t see your desired loan amount? We can connect you with a mortgage professional who will provide you with everything from a simple payment quote right through to a pre-approval that leaves you ready to buy.

Don’t forget to factor in property taxes and insurance. These are often added to your principal and interest of your mortgage payment—the money used to pay down the balance of your loan and the charge for borrowing the money. Since these numbers vary, contact your local tax office for the current property tax rate and your insurer for a home insurance quote. Once you have these figures, divide each by 12 to estimate how much they’ll add to the above payment amounts.

Do you want a clearer picture of your buying power? Would you like to see what kind of homes you can get with your buying power? Give us a call!

Sources:

1 National Association of REALTORS https://www.nar.realtor/topics/housing-affordability-index/methodology

2 Moneyunder30.com https://www.moneyunder30.com/percentage-income-mortgage-payments

3 National Association of REALTORS, 2016 Profile of Home Buyers and Sellers

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No matter if you’re in a buyer’s or seller’s market, there are a few critical steps you can take to make a smarter purchase. Since buying a home is likely the biggest single investment you will ever make, being prepared will help you make a better purchase. Here are our best tips to buying a home.

 

Know your buying power

What is your buying power? It is the combination of your credit-worthiness and how much you can realistically pay for a home.

First, you need to understand the hidden costs of buying a home. You will need to save not only for the down payment of your home — which is typically between 5% – 20% of the offer price — but also for additional costs, like legal fees & disbursements, property tax adjustments, appraisals & inspection fees, moving expenses and utility set-up fees & deposits – to name just a few.

Then you need to know what you can realistically afford each month to understand how much house you can buy. Your mortgage rate will depend on your creditworthiness — if you have a high credit score, your lender will likely approve you for a lower mortgage rate, which can save you thousands of dollars per year in interest.

How much of your budget should go to your monthly home costs? According to Canada Mortgage & Housing Corporation (CMHC), you can use the 32% rule as a rough guideline. This means that your monthly housing obligation (principle, interest, taxes & heating expenses) shouldn’t be more than 32% of your monthly gross income.

A qualified mortgage professional can help you figure out how much house you can afford.

 

Fix your credit with the help of a loan professional

According to the Financial Consumer Agency of Canada, a credit score between 725 – 759 would be considered “very good”. If yours is not in this range, you’ll want to clean up your credit as soon as you can, and definitely before you go to a lender for a mortgage pre-approval.

When you apply for your mortgage pre-approval, you don’t want to have anything to hide on your application. So don’t lower your credit score by doing anything that will originate more inquiries into your credit. For example, don’t open any new credit cards. Also, don’t omit any debts or loans when you apply. If the lender discovers them in the application process, they may deny you a pre-approval.

Get a mortgage professional to check your credit score for you. A professional can give you a clearer idea if your score is in the ‘good’ range, or if you need to do some credit cleanup before getting a mortgage pre-approval. You can also obtain a free copy of your credit report and purchase a copy with your current credit score on the Equifax Canada website.

 

Work with a knowledgeable buyer’s agent

Do you understand what kind of market you are buying into? Even within a city’s limits, there can be micro markets that are increasing or decreasing in value.

That’s why it’s important to hire a highly competent real estate agent who knows the specific market. You want to make sure that the professional who you’re working with really understands what the market is like and will help you find the home that you desire.

How can you tell if your agent knows the market? See if they can provide you with a buyer’s market analysis. A buyer’s market analysis report outlines which neighborhoods are still up and coming — with potential for increased property value — versus those that have peaked with inflated home prices. Having this analysis at your fingertips will help you know if a home’s list price is above comparable properties so you don’t overpay for a home.

Don’t be afraid to ask for references. And consider working with an agent who holds an Accredited Buyer’s Representative (ABR®) designation – they’ve received extra training specifically around representing home buyers.

 

Don’t try to time the market…

Even in a hot market, there’s never a perfect time to buy a home. It can take a while to know exactly what you like, and you may have to look at 10 or more homes before you can recognize what suits your lifestyle best. While you’re shopping, take photos of your favorite properties and the details that you liked the best so that you can remember what you liked.

When you start shopping, have a one-hour initial consultation with your realtor. Give them every single detail that you know about your lifestyle, buying power, needs, wants and desires for your home. The more detail you can provide, the easier it will be for them to help you find your future home. Your agent may also know of exclusive listings not available to the general public.

 

… But make the offer as soon as you find the right home

If you love it, make the offer. Otherwise, that dream home may disappear faster than you think, especially if you’re buying in a hot market.

Your buying agent may contact the listing agent before you submit an offer so that they can decide what’s important to include in the offer. If you’re serious about it, you want to increase the chances that your offer is accepted.

 

Get a home inspection

Once you’re in the negotiation process, it’s essential that you get a professional third-party inspector to run a thorough home inspection. The inspector will be looking for major structural issues, including problems with the foundation, plumbing, and electrical systems. Your inspector should be extra picky, pointing out the most minor faults.

Make sure to have the inspection conducted before it is too late to back out of a deal. If there are any major structural issues, you may be able to make the seller repair them as a contingency to solidifying your offer. Minor issues that you can repair on your own may be points for negotiating a lower offer.

 

Protect your credit before you close

Don’t raise any red flags with your creditworthiness in the weeks before closing. Any one of these moves could mean that you’re denied the loan and the deal falls through — even if you’ve already been pre-approved!

● Keep your spending to a minimum and don’t make any major purchases before closing — that includes buying furniture, or a car, truck, or van, or any excessive charges on your credit card.

● Keep your bank accounts stable. Don’t change banks, spend any of the money you have set aside for closing, or make any large deposits to your accounts without checking with your loan officer first.

● Keep your employment situation stable — do not change jobs, quit your job, or become self-employed. Any sudden change in your income can have that pre-approval offer rescinded.

● Do not cosign a loan for anyone. It will open an inquiry into your credit and add to your debt, which could raise your mortgage rate and cost you thousands of dollars over the life of the loan.

 

Looking for a home in our area? Check out CMHC’s Home Buying Step by Step for some great guidance. Then, let us help you find the home of your dreams. We’re well versed in the our local real estate market, and we can provide you with a buyer’s market analysis to help you find the right neighborhood for you. Contact one of us today.