February 15, 2023 Mortgage, Uncategorized

How To Know If You’re Ready To Buy A House

Are you considering buying a house? This is a substantial financial step, and it’s vital to ensure you’re ready for it! These are some things you can do to make sure that you have the resources necessary to pay for a house:

Secure stable employment.
Improve your credit score.
Save up a down payment.
Have a solid emergency fund.
Take a look at your debt-to-income ratio.
Research the housing market.
Think long-term, not short-term!
Obtain professional advice.

Secure Stable Employment

Having a stable job with a consistent income is crucial for obtaining a mortgage and being able to make monthly mortgage payments. If you can’t prove you can afford the payments, no bank or credit union will approve you for a mortgage!

Improve Your Credit Score

Your credit score will play a significant role in determining the interest rate you receive on your mortgage. According to Remax Canada, the higher your score, the lower the interest rate you will be eligible for. A percentage or two makes a big difference when looking at a mortgage for hundreds of thousands of dollars!

Save Up A Down Payment

It can take quite a while to save up a down payment, so start on this as early as possible. You can take a loan from your RRSP or use the newly proposed tax-free First Home Savings Account to save up for your house. Most lenders require a down payment of at least 20% of the purchase price, and if you don’t have a down payment that high, you’ll have to get mortgage insurance.

Have A Solid Emergency Fund

Owning a home comes with unexpected expenses, so it’s essential to have an emergency fund in place to cover any unexpected costs. You don’t want to lose your house because you can’t pay for vital repairs!

Take A Look At Your Debt-To-Income Ratio

Your debt-to-income ratio determines your ability to take on a mortgage. Lenders typically look for a 44% or lower ratio, so paying down debt and lowering your ratio can improve your chances of getting approved for a mortgage.

Research The Housing Market

Take the time to research the housing market in your area to determine what type of home you can afford. Remember that housing prices vary significantly depending on location, so finding a home that fits your budget is crucial.

Think Long-Term, Not Short-Term

Buying a home is a big commitment, so it’s important to consider whether you’re ready for the long-term financial and personal responsibilities that come with homeownership.

Obtain Professional Advice

Consulting both a financial advisor and a real estate professional can provide valuable insights and guidance to help you make the best decision for your financial situation. Be sure to get pre-approved for a mortgage, and be clear with your real estate agent about how much you can afford to pay for a house.

How Did You Know You Were Ready To Buy A House?

Or if you haven’t bought one yet, how will you know when you’re ready? Let me know in the comments!

March 15, 2022 Mortgage

March Mortgage Madness – Introduction to Mortgage Terms: Part 2

I hope you enjoyed Part 1 of this series. So far, I’ve covered two of the most important terms you need to know – interest rates and mortgage terms. This week I’m going to cover:

Pre-qualification or pre-qualifying for a mortgage
Closing costs – this covers several different costs

1. Pre-qualification

Before looking at houses or condos, you need to go to a lender (such as a bank or a credit union) and get pre-qualified (sometimes referred to as pre-approved.). When you do this, you can find out the maximum amount of mortgage you (and your partner, if you are buying a house together) qualify for. You can also determine what interest rate the lender will give you.

There are several advantages to pre-qualifying for a mortgage:

You know in advance what price range you should be looking for when house shopping.
You can get an idea of your mortgage payments and how they’ll fit in your budget.
You can “lock” in an interest rate for up to 120 days, which protects you if interest rates go up. If they go down, you can take the lower rate instead!

For a lender to agree to pre-qualify you, you’ll need to provide them with the following information:

Details about any assets you have (e.g. a car) as well as any debts (e.g. car loan)
Proof of employment
How much of a down payment you’ll have
Proof you can afford costs outside the mortgage, such as closing costs (more on that soon!)

Once you are done pre-qualifying and have all the necessary information, you’re ready to start house hunting! Remember that it’s best not to buy a house for the maximum amount approved, as this can leave you “house poor.”

2. Closing costs

The term “closing costs” refers to the fees you must pay to finalize your home purchase. These are the three main ones:

Land Transfer Tax. If a property is transferred from one person to another (basically, someone sells a property, and someone else buys it), then the buyer must pay a land transfer tax. Some locations, such as Toronto, have two land transfer taxes – a provincial one and a municipal one. The land transfer tax is a percentage of the price of the property. They vary across Canada – anywhere from 0.5% and 2%. Alberta and Saskatchewan do not charge a land transfer tax but have land title transfer fees.
Legal Fees and Disbursements. Buying a house is a legal transaction, so you will have to get a lawyer involved. Your real estate agent will most likely have one they work with regularly. You’ll have to pay for preparing and recording various official documents. Depending on how complicated your real estate transaction is and where you live, you may pay as little as $500 or up to $3000.
Title Insurance. You need to buy title insurance to protect yourself against a loss if there is a property ownership dispute over your house. This will typically cost a few hundred dollars. You’ll also have to pay for a title search – this is done to ensure that a) the person selling the home has the legal right to do so and b) there are no issues with the home (such as a lien on it).

I hope you’ve enjoyed learning about mortgage terms. It’s essential to pre-qualify before you start looking for a home to have a reasonable idea of how much you can afford. Happy house hunting! Let me know in the comments how you’ve found house hunting!

March 1, 2022 Mortgage

March Mortgage Madness – Introduction to Mortgage Terms: Part 1

Hello, and welcome to my first post on mortgage terms. There are A LOT of things to consider when you want to get a mortgage, but jargon, unfamiliar terms, and acronyms can overwhelm getting a mortgage! So I’m here today to run through two of the most important terms with you – I’ll cover some more terms next week.

Rate of interest – adjustable (variable) or fixed
Mortgage Term

1. Rate of interest

There are basically two choices regarding mortgage rates – you can select a fixed rate or an adjustable or variable rate.

A fixed rate is exactly what it sounds like – it will stay the same for your entire mortgage term (more on that soon!). So if you are quoted a fixed rate of 3% interest on your mortgage, and your mortgage term is five years, you will never pay anything other than 3% for your entire term. A fixed term has a lot of advantages – you always know how much your mortgage payments will be, and you don’t have to worry if interest rates go up. The main disadvantage is that you could have paid less with a variable-rate mortgage if the variable rate is consistently lower than the fixed rate.

A variable rate mortgage is exactly what it sounds like -the rate of interest you pay will vary. It is quoted as being more or less than the “Prime” rate. The prime rate is a set interest rate that all central Canadian banks use to set interest rates for loans and lines of credit.

If you have a variable-rate mortgage, your mortgage rate will change with the prime lending rate. Your lender will quote your rate as prime plus or minus a specific amount, such as a prime of 0.40%. Even though the prime lending rate may fluctuate, the relationship to prime will stay constant over your term.

For example, the prime rate is 2.5% for six months. And the terms of your mortgage indicate you pay prime – 0.40%. That means your actual interest rate for those six months is 2.1%. If the prime goes up – to 3.0%, you pay 2.6%.

The advantages and disadvantages of a variable mortgage are the exact opposite of a fixed-term one. With a variable mortgage, you don’t know what your mortgage payment will be for the length of your term – so if you’re on a fixed income or a worrier, a variable rate mortgage may not be the best option. The advantage of a variable-rate mortgage is that if the prime rate stays low, you may pay less over the long term than you would with a fixed-rate mortgage.

2. Mortgage term

A second phrase you’ll hear a lot is “mortgage term.” This is the amount of time that you are committed to:

A mortgage rate (as covered above – this is fixed or variable)
A lender – this is likely a bank or credit union
Any conditions set by your lender (e.g. if you are allowed pre-payments – I’ll cover these in my next post!)

In Canada, the most popular mortgage term tends to be five years. After the five years, you can renew your mortgage (unless you’ve paid it off!) with your existing lender or go to a new one (although this can be complicated). The interest rate and conditions you had in the previous term are no longer applicable.

The more you know!

Now you’ve learned what two of the most important terms associated with a mortgage mean:

Rate of interest. This is the amount of interest you’ll pay on your mortgage, and it can be fixed (it will never change) or variable (it can go up and down).
Mortgage Term – this is the amount of time you are committed to a lender. The most common term in Canada is five years.

Come back next week, and I’ll cover more terms! Let me know in the comments if any of this information is new to you!

August 15, 2020 Mortgage, Saving money

How to get started saving for home ownership

Image by Nattanan Kanchanaprat from Pixabay

So you’re finally ready and you want to take the plunge into homeownership! You realize that in order to do this, you need to start saving up money. But how? It may seem like every dollar you make is already accounted for – and you think there’s no way you can find the extra money you need to put towards a down payment.

I’m here to tell you that’s not true – here are the first three steps you need to take to get started on saving for homeownership.

Figure out your net monthly income
Figure out your fixed expense
Figure out your variable expenses – and where you can cut back to start saving

1. Figure out your monthly net income

Figuring out your net monthly income can be easy or hard depending on how many sources of income you have. If your income varies from month to month, then figure out the average of what you make each month. Take into account:

Your regular salary
Tips
Other regular income – such as child support, dividends etc. you can count on

2. Figure out your fixed expenses

Fixed expenses are expenses where you really don’t have any wiggle room. For example:

Rent
Student loan payments
Child care

It’s possible you could negotiate a lower rent or child care, but you can’t count on that lasting. You could also choose to move or switch child care providers, but the amount you’d save is not likely worth the hassle unless the savings are quite large.

3. Figure out your variable expenses and where you can cut back

After you’ve figured out your monthly net income and your fixed expenses, you should sit down figure out what your variable expenses are. They tend to be irregular and can happen from as little as once a year to as often as every other week. The good news is that they are expenses that you have more control over.

Here are some sample variable expenses:

Vacations
Gifts
Cell phone
Internet and cable
Subscription boxes
Groceries, takeout food, Meals and drinks out
Entertainment, such as movies, concerts, etc. (Not that any of us are spending much money on big-ticket events these days!)

Now take a look at these expenses and figure out where you can cut back. Perhaps you can eat out less. Or maybe you’re good with just Netflix and don’t need cable. Or you’ve enjoyed that subscription box – but really don’t need to keep getting it. You don’t have to cut out everything all at once – just see where it works for you to make changes.

The Takeaway

It can seem overwhelming to get started saving for a house. But by breaking it down into concrete steps (that you can break down into more little steps) you’ve found a way to get started!

If you have a house – how did you get started saving for it? If you don’t, but want to – how do you plan to start saving up?

August 1, 2020 Mortgage, Saving money

How I paid off my mortgage in less than 5 years

A mortgage is one of the biggest debts you’ll ever take on. Unless you inherit money or win the lottery, chances are, you’ll need to take out a mortgage if you want to buy a house. For our first house, my husband and I did take on a mortgage – but we paid it off in less than 5 years! It was a huge relief for us to have it paid off. It meant we saved a lot of money we could use elsewhere that we didn’t have to spend on interest.

In this post, I’m going to talk to you about the three main things we did to help ensure we could pay off our mortgage quickly:

Buy less house than we were approved for.
Opt for bi-weekly payments.
Put down a lump sum payment every year.

1. Buy less house than we were approved for

My husband and I were both working and making decent salaries. But we were house shopping in Toronto which wasn’t cheap! I think we were approved for a mortgage of over 500,000 dollars, but the idea that much debt just made me nervous. We certainly could have bought a much nicer, bigger house if we’d used that amount. But we would have been “house poor” and it would have taken us years to pay off. In the end, we took a mortgage of 100,000 dollars and paid for the rest of the house using savings.

2. Opting for bi-weekly payments

When you have a bi-weekly mortgage payment, you are giving the bank a payment every two weeks instead of monthly. I tied it to when my paycheck came in, so we’d always have enough in the bank to cover our costs – never had to worry about overdraft charges!

With bi-weekly payments, you actually ended up making one extra payment a year, which means you are paying your mortgage off that much faster. But you aren’t making any changes to your budget or payment schedule, so it doesn’t come as a surprise to you when that “extra” payment comes out of your bank account!

3. Put down a lump-sum payment every year

Another option we took advantage of was putting down a lump-sum payment. A lump-sum payment means that you put down a certain amount towards the principal once a year. Most banks have a limit on how much of a lump-sum you can put down (it’s usually a certain percentage, such as 10%, of the total amount you borrowed in the first place). This is a great way to quickly cut down how much of the principal you still owe – and you have total control over it. Even if you can only put 500 dollars down – it’s still helping cut down your principal.

Now it’s your turn!

You’ve now learned three great ways you can pay your mortgage off quickly:

Borrow a lower amount than you are approved for
Select bi-weekly instead of monthly payments
Make a lump-sum payment each year

Some banks may charge a few for selecting a bi-weekly payment schedule or lump-sum payments, so check with your bank before you proceed with either of these options.

Happy mortgage-free living!

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