The
average Canadian homebuyer takes 11 months to plan their purchase,
according to CMHC. If you’re thinking about buying in the next year, our
four-part series will explain how you should be dividing your time.
Part 4: The Home Search
Now that you’ve been pre-approved for a mortgage and know your housing
price range, it’s time to start looking!
While a Realtor can definitely
help you find that ideal home (at no cost to you, since the seller pays
their commission), it’s wise to have a sense of what you’re looking for
before heading in.
If you’re worried about the direction of the real estate market in your
area, your best bet is to find a home that will suit your needs for the
next five years or more, if you can afford it. Sit down and think about
what your short-term and long-term priorities are, how many bedrooms
you’ll need to grow into, what your ideal area looks like, and whether
your lifestyle is best suited to a condo or house. You might also want
to take into consideration such things as commute times and proximity to
sports teams and other community activities.
If your price point doesn’t allow you to purchase a home that you can
grow into, try to find one that will give you the most bang for your
buck – and the biggest return on your investment. This can mean
purchasing in an up-and-coming area, or buying close to soon-to-be-built
infrastructure improvements like public transit lines. The old real
estate adage, “location, location, location!”, still rings true, so if
you can buy the worst house on a nice street it is likely worth the
investment. In the same sense, you may want to buy a home that’s a
little more expensive but well-located, so that you can rent out the
basement for some extra income.
Again, a Realtor is probably the best person to discuss your strategies
with. They’ll be able to highlight areas that make sense for you, your
budget and your current lifestyle.
Monday, August 29, 2011
Friday, August 26, 2011
Your Home Purchase: Part 3
The
average Canadian homebuyer takes 11 months to plan their purchase,
according to CMHC. If you’re thinking about buying in the next year, our
four-part series will explain how you should be dividing your time.
Part 3: The Budget
So now that you have a preapproval, and you’ve been taking strides to trim down your household spending over the last few months, it’s time to come up with a real budget that will determine the type of house you can afford.
This is usually a number that is significantly lower than the “maximum” made available to you by your lender (mainly because your lender only takes certain expenses into account, such as heating costs and outstanding debts, when determining this magic number. Others, like food, are completely left out of the equation).
The best way to come up with a realistic price tag is to look at where your money is currently going and work backwards from there to see what’s left over for mortgage costs and household expenses. At this point, it’s important to be realistic. You’ve already determined what extravagances you can do without – and which ones you definitely must hang onto. If you’re a couple that enjoys going out for dinner more than once a week, embrace this fact. There’s absolutely no use in saying that your weekend dine-outs will end once you sign that mortgage. In fact, chances are you’ll continue to dine out – and the additional cost will leave a growing balance on your credit cards.
It’s also important to keep in mind that ownership carries more costs than renting. Be sure to factor in condo fees, property taxes and unforeseen maintenance costs into your monthly housing budget. You may also want to factor in non-housing related costs – for example, if you’re moving from the city to the suburbs, you’ll likely have to pay for the additional costs of a car. If your new home is taking you further away from work, your gas bill will likely increase as well.
Once you know how much money you can devote to housing on a monthly basis, put those mortgage calculators back to good use and figure out how much of a total price tag you can afford. Once you have that maximum number, try not to look at homes that fall outside of it. It’s easiest just to avoid the temptation all together.
Part 3: The Budget
So now that you have a preapproval, and you’ve been taking strides to trim down your household spending over the last few months, it’s time to come up with a real budget that will determine the type of house you can afford.
This is usually a number that is significantly lower than the “maximum” made available to you by your lender (mainly because your lender only takes certain expenses into account, such as heating costs and outstanding debts, when determining this magic number. Others, like food, are completely left out of the equation).
The best way to come up with a realistic price tag is to look at where your money is currently going and work backwards from there to see what’s left over for mortgage costs and household expenses. At this point, it’s important to be realistic. You’ve already determined what extravagances you can do without – and which ones you definitely must hang onto. If you’re a couple that enjoys going out for dinner more than once a week, embrace this fact. There’s absolutely no use in saying that your weekend dine-outs will end once you sign that mortgage. In fact, chances are you’ll continue to dine out – and the additional cost will leave a growing balance on your credit cards.
It’s also important to keep in mind that ownership carries more costs than renting. Be sure to factor in condo fees, property taxes and unforeseen maintenance costs into your monthly housing budget. You may also want to factor in non-housing related costs – for example, if you’re moving from the city to the suburbs, you’ll likely have to pay for the additional costs of a car. If your new home is taking you further away from work, your gas bill will likely increase as well.
Once you know how much money you can devote to housing on a monthly basis, put those mortgage calculators back to good use and figure out how much of a total price tag you can afford. Once you have that maximum number, try not to look at homes that fall outside of it. It’s easiest just to avoid the temptation all together.
Monday, August 22, 2011
Your home purchase - Part 2
he average Canadian homebuyer takes 11 months to plan their
purchase, according to CMHC. If you’re thinking about buying in the next
year, our four-part series will explain how you should be dividing your
time.
Part 2: The PreApproval
There is no better tool to help you obtain a true picture of your housing budget than a mortgage pre-approval. Unfortunately, less first-time buyers are taking the time to get one.
According to TD Canada Trust’s First Time Homebuyers report, 91% of first-time buyers were pre-approved for a mortgage before house shopping in 2010, and that number fell to 76% in 2011.
There’s no real reason why less homebuyers should be taking advantage of the opportunity to get pre-approved for a mortgage – especially if you’re dealing with a mortgage broker. With one glance into your credit score, we can use the information to see which lenders are willing to approve you for a mortgage, at what rate and for how much.
While this approval isn’t etched in stone – the lender will still want to see proof of income and other personal details upon approval, and if you’re putting less than 20% down, your mortgage insurer (i.e. CMHC or Genworth) will also have a final say – it nevertheless gives you a good picture of what type of funds are available to you, and at what rate.
Not only does this help you put a more accurate budget together – and ensure your house hunting endeavours fall within your allotted price range – but, in many cases, it also allows you to secure the best available rate. Most lenders will hold their best rate for you for 90 days (and sometimes 120 days) upon pre-approval. If you don’t find a home within that time (or if you just haven’t had a chance to start looking) you can obtain another pre-approval hassle-free.
For the amount of effort it takes to call up your mortgage broker and obtain a pre-approval (which is close to zero), it’s definitely worth the added convenience. In many cases, we can do the legwork online, and have it turned around within a business day or less.
Part 2: The PreApproval
There is no better tool to help you obtain a true picture of your housing budget than a mortgage pre-approval. Unfortunately, less first-time buyers are taking the time to get one.
According to TD Canada Trust’s First Time Homebuyers report, 91% of first-time buyers were pre-approved for a mortgage before house shopping in 2010, and that number fell to 76% in 2011.
There’s no real reason why less homebuyers should be taking advantage of the opportunity to get pre-approved for a mortgage – especially if you’re dealing with a mortgage broker. With one glance into your credit score, we can use the information to see which lenders are willing to approve you for a mortgage, at what rate and for how much.
While this approval isn’t etched in stone – the lender will still want to see proof of income and other personal details upon approval, and if you’re putting less than 20% down, your mortgage insurer (i.e. CMHC or Genworth) will also have a final say – it nevertheless gives you a good picture of what type of funds are available to you, and at what rate.
Not only does this help you put a more accurate budget together – and ensure your house hunting endeavours fall within your allotted price range – but, in many cases, it also allows you to secure the best available rate. Most lenders will hold their best rate for you for 90 days (and sometimes 120 days) upon pre-approval. If you don’t find a home within that time (or if you just haven’t had a chance to start looking) you can obtain another pre-approval hassle-free.
For the amount of effort it takes to call up your mortgage broker and obtain a pre-approval (which is close to zero), it’s definitely worth the added convenience. In many cases, we can do the legwork online, and have it turned around within a business day or less.
Wednesday, August 17, 2011
Your Home Purchase - getting started
Your Home Purchase:
Part 1
|
The
average Canadian homebuyer takes 11 months to plan their purchase, according
to CMHC. If you’re thinking about buying in the next year, my four-part
series will explain how you should be dividing your time.
Part 1: Getting your ducks lined up While you don’t necessarily need a year to plan your home purchase, a little preparation never hurt anyone – in fact, it’s been known to save people money. Below are a few things you can do right out of the gate that can save you hassles (and plenty of headaches) in 11 months’ time:
a)
Become one with your credit score
There’s
nothing worse than finding your dream home and realizing, upon talking to the
bank, that you don’t have good enough credit to obtain a mortgage. That’s why
the more in tune you are with your credit score – and the earlier you’re in
tune with it – the better.
Both of Canada’s two major credit bureaus – Equifax and TransUnion – offer one free credit report per year. Take advantage of this offering to make sure you don’t have any outstanding bills you didn’t know about, or incorrect charges on your report. If you do, a year is usually enough time to clear up any minor blemishes so that your score is in tip-top shape when it comes time for that pre-approval. Remember – the better your score, the better your rate (and the more money you’ll save in the long run). b) Establish your household budget
If you
don’t already have one, now is the time to sit down and draft an accurate
household budget. This means going through your expenses, tracking your
spending and figuring out which luxuries you can’t live without – and which
ones you might be able to trim.
This will likely be a work in progress, and something you’ll revise over the coming months as you (and, potentially, your partner) receive raises, change jobs or simply learn to reign in your spending. Once you get into the habit of it, you’ll be able to determine how much you can really afford to spend on housing every month, which will come in handy later on. c) Estimate your potential mortgage payment.
While
you don’t have to know the details quite yet, it pays to know roughly how
much your “ideal” home is going for price-wise, where interest rates are
sitting, and how much you’re aiming to have for a down payment.
Once you have these numbers in mind, you’ll be able to plug them into an online calculator and figure out how much a monthly mortgage payment is likely to cost. Once you know this magic number, determine the difference between that and the current rent you’re paying – and sock it away. Not only will this help you get used to the added costs of a mortgage payment, but it will also help you establish a bit of a savings fund – either to strengthen your down payment or use as an “emergency fund” for the day something inevitably needs repair in your new home. |
Saturday, August 6, 2011
Turning your principal residence into a rental
So, you're ready to move out of your starter home and into a larger
residence. The thing is, your first home is so well-located that you'd
love to hold onto it for a little longer - and maybe use it as a tool to
launch you into the rental market. Before you make the commitment,
however, here are a few things to consider:
1. Will you need to refinance?
Chances are, in the time you've owned your primary residence, you've had an opportunity to build up equity. The question is, will you need some of this equity to use towards a down payment on a second home - or do you have a separate down payment fund saved up?
If you need to tap into your home's equity, you're going to have to refinance - and you can only do so up to 85% of the value of your home. You'll also have to consider that, with a refinance, you'll likely have to take on a new mortgage term, rate and amortization - and, depending on the details of your mortgage, this may come with some hefty fees. It should also be noted that keeping that 35-year amortization with less than 20% equity can prove difficult since it's been phased out under new government rules.
2. Ensuring positive cash flow.
If you have to pull out some equity in your home for a second down payment, your mortgage payments are going to increase on your primary residence. For a rental property to make sense, you're going to have to make sure that you have positive cash flow - which means the going rental rate can cover your mortgage payments, property taxes and maintenance costs. Check out similar rental properties in your area either through viewit.ca, craigslist.com or kijiji.ca.
To keep your costs as low as possible, it's best to go with the longest amortization you can get your hands on - and the lowest mortgage rate.
3. Tax implications.
If you end up using the money from your refinanced first property as a down payment for your second, you're going to find it difficult to legally take advantage of the tax deductibility of your new rental property. This is because borrowed funds are only tax deductible if they're used to fund a rental property - and you'll be using them to fund a new primary residence. This article at Million Dollar Journey does a great job of explaining the issue, and ways to get around it:
http://www.milliondollarjourney.com/converting-a-principal-residence-into-a-rental-property.htm
4. Are you really ready to be a landlord?
Becoming a landlord brings on its own new set of responsibilities - and potential late-night emergencies. Before you pull the trigger, really think about if you're ready to take care of the maintenance needs of two residences - and if you're prepared to carry the costs of two residences if you can't rent your first one out for a month or two.
For further reflection, consider reading these articles about nightmare tenants:
13 outrageous tenant excuses
http://realestate.msn.com/13-outrageous-tenant-excuses?page=2
Tenants from hell
http://www.property118.com/index.php/tenants-from-hell-part2/
1. Will you need to refinance?
Chances are, in the time you've owned your primary residence, you've had an opportunity to build up equity. The question is, will you need some of this equity to use towards a down payment on a second home - or do you have a separate down payment fund saved up?
If you need to tap into your home's equity, you're going to have to refinance - and you can only do so up to 85% of the value of your home. You'll also have to consider that, with a refinance, you'll likely have to take on a new mortgage term, rate and amortization - and, depending on the details of your mortgage, this may come with some hefty fees. It should also be noted that keeping that 35-year amortization with less than 20% equity can prove difficult since it's been phased out under new government rules.
2. Ensuring positive cash flow.
If you have to pull out some equity in your home for a second down payment, your mortgage payments are going to increase on your primary residence. For a rental property to make sense, you're going to have to make sure that you have positive cash flow - which means the going rental rate can cover your mortgage payments, property taxes and maintenance costs. Check out similar rental properties in your area either through viewit.ca, craigslist.com or kijiji.ca.
To keep your costs as low as possible, it's best to go with the longest amortization you can get your hands on - and the lowest mortgage rate.
3. Tax implications.
If you end up using the money from your refinanced first property as a down payment for your second, you're going to find it difficult to legally take advantage of the tax deductibility of your new rental property. This is because borrowed funds are only tax deductible if they're used to fund a rental property - and you'll be using them to fund a new primary residence. This article at Million Dollar Journey does a great job of explaining the issue, and ways to get around it:
http://www.milliondollarjourney.com/converting-a-principal-residence-into-a-rental-property.htm
4. Are you really ready to be a landlord?
Becoming a landlord brings on its own new set of responsibilities - and potential late-night emergencies. Before you pull the trigger, really think about if you're ready to take care of the maintenance needs of two residences - and if you're prepared to carry the costs of two residences if you can't rent your first one out for a month or two.
For further reflection, consider reading these articles about nightmare tenants:
13 outrageous tenant excuses
http://realestate.msn.com/13-outrageous-tenant-excuses?page=2
Tenants from hell
http://www.property118.com/index.php/tenants-from-hell-part2/
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