HOW TO GET A 5% DOWN PAYMENT FOR A $500,000 PURCHASE

We have seen a return of the buyers’ market and many people are asking, how long will this last? While some renters without a down payment might be asking, how can o put a plan in place to own?

With the cost of living so high, and student debts coming out of school, many consumers question how they’re going to come up with a down payment for a home.

Here are some ways you can get it done.

Decide how much you can save and pick a plan that works for you:  a) A 36-month plan saving $700/month will get you $25,200 (you will need about $2,000 for closing costs if you qualify as a first-time homebuyer) b) A 24-month plan savings $600/month for $14,400

Get a gift from a family member

Borrow the down payment, or a portion (which may also help with credit building)

A combination of all of the above

For those of you that want to partner with government for down payment and profit of home ownership, a new government program can be a helpful tool provided it stays past the October election. https://www.cmhc-schl.gc.ca/en/nhs/shared-equity-mortgage-provider-fund

You might me reading this and thinking, ‘yeah right, that is not reality.’ Or for some people, you know it might just be exactly what will help them move forward.

Perhaps you have graduated from school and your parents don’t charge you rent. Imagine if you could put one of your paycheques every month aside and try living within those means and budgeting accordingly.

Or say you have a partner and one of you just started work in a specific trade and the other’s paycheque went towards the “home purchase plan.”

Also, if you are within the qualifications to buy, you will be earning a combined household income of $125,000-plus per year, so taking those funds right from your paycheque into your RRSP will have additional tax benefits too where you can use the refund for closing costs or amp up your down payment.

Here’s an example of how this worked for a lab technician and chef with a two-year old daughter.

They did a combination plan as they moved up to Canada from the U.S. two years ago, both got stable jobs and had no outside debt. They were paying $1700 a month rent. They used a $10,000 line of credit they took to put into investment to help establish Canadian credit. After getting the line of credit and placing it into a safe investment, they:

Set up an RRSP and placed $600 a month on the loan and $700 a month into their RRSP.

Now this family is used to having a cash outlay of $3,000 per month which will be the actual expectation they have for when they buy a home.

With this plan, they take a mortgage for a test drive, save money on taxes, establish a great credit score and worked away toward their goal.

Are there holes in the plan? Yes, home prices may go up, there was interest on the loan they paid and they may have to adjust or modify their plan. Their employment can change, however, this practice will only benefit them no matter what life brings their way and there is a sense of empowerment when you have a plan and can see how you can get there.

Do you or someone you care about want to know how they can be set up with a multifaceted plan to help them move forward with a goal of owning a home?

Every once in a while you get to help people out and make a real difference in their lives. Recently a couple was referred to me who wanted to renew their mortgage. The bank that they had been dealing with for over 20 years had offered them a 5 year fixed rate that was more than 1% higher than the going rate.

First I told them to accept the lender’s option for a 6 month open mortgage. While it had an interest rate twice as high as they usually pay, it’s open and we could switch them as soon as everything was done. I have had other lenders who automatically put people into a fixed rate 6 month mortgage if they did not hear back from the clients before the mortgage expired.

I was able to beat this rate without any difficulty, but I was wondering why they were offered such a high rate. On closer examination of their credit reports, I saw that in the three years since they had purchased their home, they had built up their credit card and line of credit debt up over $50,000. As a result, the debt ratios didn’t work with any lenders. Their lender knew this and decided to take advantage of the client and charge them a premium to renew.

What the bank was not counting on was a mortgage broker who doesn’t give up. Over the years, our brokerage has developed relationships with a variety of lenders. One of those lenders, a credit union, arranges RRSP loans for us. They were running a loan special with an interest rate of 4.95% for loans up to $50,000. I sent a copy of our application over to the credit union with my clients’ permission and they were able to consolidate $50,000 of the debt and lower the monthly payments by $500. In addition, they would be paying off all this debt in 5 years. Under the old 19% rate, it would take them 10-plus years to pay their credit cards.

Now I was able to arrange a loan and lower their payments by over $200 a month. As this took time to arrange the consolidation loan and then the mortgage switch approval, rates dropped again by another .10 basis points. I was able to get the mortgage rate lowered again saving the clients another $1080 over 60 months which paid for the higher interest rate they had for 2 months.
Now I have saved my clients $43,000 over the next 5 years. That was a good day. If you want to look at options for lowering your mortgage and credit debts be sure to speak to your local Dominion Lending Centres mortgage professional.

DAVID COOKE

Dominion Lending Centres – Accredited Mortgage Professional
David is part of DLC Jencor Mortgages in Calgary, AB.

 

4 WAYS TO MAKE THE MORTGAGE PROCESS SMOOTHER

Mortgages are complicated—we get it! But there are steps that you as a homebuyer can take to make the process a much smoother one (plus let you walk away with the sharpest rate!)

1. Use a Broker
This should be the first step you take when getting a mortgage! Enlisting a trusted broker to work with you can help you secure the sharpest rate and the right mortgage product too! This is one of the biggest (if not the biggest) purchase you will make in your lifetime. Working with a professional will make all the difference.

2. Budget, Budget, and Budget Some More
Budgets aren’t the most glamorous element of homebuying but they are a necessity. Why? Because often you will have overlooked costs that can make or break you getting into your home. A few things to consider:
• Property transfer taxes
• Legal fees
• Home inspection/appraisal fees
• Down payment (this is kind of a big one)
• Mortgage insurance
And the costs don’t stop once you own the home.

3. Understand the Importance of the Down-Payment
Many home-buyers focus on just simply putting money aside for the down payment. While this is crucial, there are other considerations.
• How big of a down payment can you make? You must meet the federally mandated minimum down payment: 5% for all mortgages up to $500,000, and 10% on any portion above $500,000 up to $999,999.99 (CMHC-insured mortgage loans are only available on properties valued under $1 million). But the size of the down payment will also reduce the interest you pay out over the life of your mortgage and reduce the size of the CMHC mortgage premium too.
• Take advantage of the Home Buyer’s Plan to withdraw up to $25,000 tax free from their Registered Retirement Savings Plan (RRSP). This can help to supplement your down payment as long as you understand the rules for paying it back.
• Leave plenty of time to transfer the funds from whichever source you are pulling them from. You will also need to leave adequate time for a certified or cashier’s cheque to be produced before the closing

4. Don’t Become Hyper Focused On the Rate
Yes, the rate is important, but don’t be hasty and jump into a mortgage purely based on the rate. Consider other areas such as the terms, the penalty to break, the amortization, and all other factors before signing on the dotted line. Your broker can help you to understand the ins and outs of a mortgage.

Considering these four things can help you be more prepared when beginning the mortgage process. Remember, a Dominion Lending Centres mortgage broker will help you and guide you through each of these things to ensure you are getting the best mortgage possible and with minimal stress too!

GEOFF LEE

Dominion Lending Centres – Accredited Mortgage Professional
Geoff is part of DLC GLM Mortgage Group based in Vancouver, BC.

CREDIT REPORTS: YOU’VE SCORED! BUT ARE YOU PLAYING THE GAME?

For most people, your personal credit score and how a credit score is calculated are complete mysteries. How can you be expected to play and be successful if you aren’t even told the rules of the game? There are things borrowers can do to improve their score so they can access better mortgage products and save thousands of dollars, or qualify for their wonderful home when they otherwise might have trouble. Let’s stick handle through just some of the key things you should know about managing your credit score.

Amount owed and utilization accounts for 30% of your score. There are a lot of people that end up with high balances on their credits cards and struggle to meet the payments each month. If they manage to pay off their credit cards without seeing a mortgage broker to consolidate their debts, often the immediate response is to close the accounts. A better response is to cut up the cards and delete the numbers from your computer and devices and keep the accounts open. You want any remaining outstanding balances to be less than 75% of your total combined credit available, and if they are less than 35%, even better, because this keeps your utilization of available credit low and increases your credit score. Types of credit and the number of different credit products accounts for 10% of the score, so this is another reason you want to keep those accounts open. Cell phone providers are now reporting to the agencies that publish credit scores as well.

In some parts of the world where credit products are not well established, a borrower’s credit is evaluated based solely on how they have managed payments on their cell phone bills. It’s important to pay your cell phone bills on time; we’re all busy, so setup automatic payments to ensure a payment is not missed. My last word of advice for today is to monitor your credit score by purchasing your own credit report each year for about $25 so you know your score and to ensure the report is accurate. This will help you stay within the boundaries of the game.

There is a lot more to managing a credit score than I can get into in this short blog. If you would like to know more, contact me or your local Dominion Lending mortgage broker. We can provide advice to help you manage your credit score and put you in a better position to qualify for a mortgage with better rates. Know the rules of the game, plan ahead for your home financing, and play SMART.

TODD SKENE

Dominion Lending Centres – Mortgage Professional
Todd Skene is the founder of DLC Home SMART Mortgage with DLC Pilot Mortgage Group based in Vancouver, BC.

RENT-TO-OWN EXPLAINED

In some markets, it can take a long time to sell a property. An option available to some sellers is the Rent-to-Own sales method.

If you have someone interested in purchasing your property but they can’t obtain a mortgage either because they don’t have a down payment saved or their credit score is too low, this can be way to purchase a home. Usually the agreements run for 2 – 3 years.

A sales agreement is signed which states what the tenant and future owners are going to pay as rent while they save up a down payment and /or improve their credit score. The agreement has to state how much of their monthly payment is going towards the down payment. They also have to be paying market rents. In addition, the agreement must state that if the deal is cancelled the purchasers will get their down payment funds returned to them.

The reason that this must be stated in the agreement is that the mortgage insurers like Genworth and CMHC stipulate these terms must be in the agreement before they will approve a mortgage.

What are the pros and cons of this type of an agreement? The pros are that the tenants will maintain the property and not abuse it as they want to purchase it. The seller gets steady income while the buyer is saving for the purchase. The con is that as the price is determined in advance – radical changes to the local housing market may mean that the purchaser will get a great deal at the end of the agreement or walk away if the market drops significantly.

If you are considering this option, consult with a Dominion Lending Centres mortgage professional before you sign an agreement. They can determine if it will be valid with the mortgage companies and insurers before you’ve spent a cent.

DAVID COOKE

Dominion Lending Centres – Accredited Mortgage Professional
David is part of DLC Jencor Mortgages in Calgary, AB.