Save For Home: 6 Tips to Help Get Your Home Down Payment
By Elizabeth Cutten
Saving up for a down payment to purchase a home may seem like a task that takes forever, but if you know how to save additional cash, you can actually save it rather fast. Before you start the process of saving for a home, you will want to keep in mind that you will want to purchase a home within your budget. Experts will tell you that your home mortgage payment should be no more than 25-35% of your monthly take home pay, and your down payment should always be more than 20%. If you have your eyes set on a home that is in the $200,000 payment range that would be a $40,000 down payment. How can you save for this, you might be wondering? Let’s take a look at what you can do.
Tip #1
Can you work extra hours at work? What kind of job do you have? Can you head into the office and ask your boss for more hours? Some employees have the luxury of doing this. Even if you make an additional $200/week by doing this, it can add up fairly fast if both you, and your significant other are doing the same thing.
Tip #2
Start selling your junk: Look around your house and see what you can do to get rid of some items in your home. There’s a good chance that you have $1,000 or so worth of junk just laying around. Start up a garage sale, sell on Craig’s list or even sell on eBay. You’ll be surprised what you can get for some items.
Tip #3
Cut down the bills: Do you have a cable package that has more than 250 channels? Do you have the latest smart phone? Try to lower these monthly “premium” bills. I was able to do this when saving for a home and it saved me around $250/month in savings alone. All I did was get rid of Netflix, drop my cell phone to a cheap plan and I signed up for a basic cable package.
Tip #4
Look at your cars: I hope that you’re not driving around a $40,000 car with a $600 payment. Car insurance can be expensive and so can the car payment itself. Try and highly consider purchasing a car that is only around $5,000 or so. Yes, the cars are still going to work and trust me, the payments are going to be a lot lower.
Tip #5
Snag a side job: What kind of side jobs are in your area? If you can’t find one, then maybe you will want to start up one yourself. What you can do is mow lawns, deliver papers, help out the elderly and so much more. Hey, you don’t even know if this can turn into a lucrative, full time job for the future.
Tip #6
Invest: Try hard to not spend your money. You don’t want to go out to the bars, or out to eat every other night. Instead, throw your money into a stock, or even a small CD. Every interest point is going to help you for the future.
As long as you have a goal and you stick with it, anything is going to be possible. Strive hard to get that down payment because not only are you going to avoid things such as PMI, you will also have a lower mortgage payment as well!
This was a guest post provided by Elizabeth Cutten. You can find more of her work over at FindSecuredCards.com, a blog dedicated to helping people get out of debt, as well as avoid it in the future.
Tips on Getting the Best Mortgages
By Nicole Rodgers
Shopping around for a mortgage is not as difficult as it may seem. Although there is a lot of paperwork involved, comparing offers and searching for a good deal is worth your effort. Before going for a mortgage loan you should understand how things work and then try to get lower interest rates. Here are some tips on getting the best mortgage:
Improve Your Credit Rating
Before you start shopping for a home loan or mortgage, check your credit record. Paying down your financial obligations and getting rid of debt is a good start. Individuals with a poor credit record have a difficult time finding competitive deals. It is highly recommended that you improve your credit score before applying for a mortgage. Credit scores over 620 are usually approved.
Shop Around and Compare Costs
Although you might be tempted to go to a local bank because you have a checking account there, it is advisable that you first research your options to make an informed decision. Contact a broker, use the Internet to get loan quotes and search for information in your local newspaper. Each bank, loan association or mortgage company has its own interest rates, so be sure to evaluate a number of offers from different providers.
Make a Large Initial Deposit
The size of your deposit is very important when it comes to getting a mortgage. The best rates out there are available only to those with a large deposit. The larger the deposit you have, the more money you will save. The good news is that there are a couple of things you can do in order to build up your deposit. Getting an unsecured loan is a viable option. You may also ask your family or friends for help, reduce daily expenses or use your other savings.
Decide on the Right Mortgage
If you decide to apply for a mortgage, be sure to do proper research. Potential homeowners can choose from various types of loans. Some of them prefer a 30-year mortgage, while others opt for fifteen-year fixed rate loans. Evaluate your budget and decide how much you can afford paying every month. Remember to ask each lender and broker about the loan’s annual percentage rate (APR). The APR includes broker fees and points, as well as the interest rate that applies to the loan.
Act Fast
Once you find an offer that suits your needs, act quickly to secure the mortgage. Although you need to do research and evaluate your options, it is important that you act quickly to avoid disappointment and get the best deal out there. You may hire a broker and ask for expert help. A good broker can move quickly to secure funds for you.
Applying for a mortgage loan requires your full attention. Be sure to get all the information you need from several lenders or brokers. Ask about the lender’s requirements for a down payment and try to find out what each fee includes. Make lenders compete with one another for you. Examine your credit report and make sure you don’t borrow more money than you need. Don’t hesitate to contact a broker; he can help find a loan that best suits your needs. Get loan quotes from multiple sources and check the reputation of the brokers and lenders you interested in working with.
Nicole Rodgers has been in the mortgage industry for 4 years; she currently contributes to blogs dealing with ways for people to refinance a home loan and how online trading can help families earn extra income.
Ready to Buy? Advice From A Realtor
By Colette Gerber
Ladies, did you know that it’s a Buyer’s market? And did you know about 35% of people buying their first home are single women? As a group we (yes, I too am single) have more disposable income than any other time in history. After you’ve made the decision to buy, the first step should be to obtain mortgage pre-approval.
Lenders are beginning to recognize the power women wield with their disposable income and are willing to lend generously to single females. Personally, I prefer to use a mortgage broker since they will shop a number of lenders to ensure you get the best possible rate without gender bias. Mortgage pre-appproval gives you clout when it comes time to make an offer to purchase. Knowing that you have financing in place, sellers will take your offer seriously. As well, the pre-approval letter-which you should get in writing- establishes how much you can spend on real estate. This ensures you are looking in the correct price range.
In the current Buyer’s market there is a larger inventory of real estate than there are people wanting to buy. As a Buyer, this gives you the opportunity to look at multiple properties and give some thought as to what you like. For most properties, multiple offers are not currently a concern. This is good news since it takes the pressure off having to make a quick decision. However, having said that, if you find something you really like you should have your Realtor write an offer as soon as possible. If the property is that good, chances are others will feel the same way and you don’t want to take a chance and lose the property.
Let’s talk about Realtors for a moment. Did you know that as a Buyer it doesn’t cost you anything to work with a Realtor? Realtors get paid by the Seller only when a deal completes. Working with a Realtor can save you time, money and inconvenience. Time: they search the listings every day to see if anything suits your criteria so you don’t have to spend time on the computer. Money: when it comes time to negotiate, they will do everything they can to ensure you get the best possible purchase price. Inconvenience: they know the pitfalls a Buyer can encounter so a good Realtor will stay involved in the entire buying process, until they hand you your keys. Women know the importance of listening. They understand you want great bathrooms, need closet space to accomodate your shoes and that you don’t care if the floor is ¼” or ½” real or faux wood. I encourage you to work with a female Realtor who “gets” what you want…..
Colette Gerber is RE/MAX Realtor who works anywhere in the Lower Mainland that the business takes her. She was recently awarded her Accredited Buyer’s Agent designation, joining the 1 ½% of BC Realtors with this prestigious accreditation. You can contact Colette by visiting www.colettegerber.com
Down Payment For A House: You Have Options!
By Karen Boies
Many renters feel they cannot afford to purchase a home because they have not saved for a down payment. There are solutions available today that can help first time buyers with their down payment.
The minimum down payment is 5%. Many lenders allow for a gifted or borrowed down payment. Some lenders offer a cash back option that can be used for your down payment.
Gifted down payments are provided by an immediate family member. The family member must sign a letter showing the amount of the gift and that no repayment is expected.
If you have excellent credit and very little debt, but have access to a line of credit or a personal loan, you may be able to borrow the down payment. The loan will have to be accounted for in the debt servicing ratios. You will need to have 1.5% of the purchase price saved to show you can cover the closing costs.
Some financial institutions offer a “free down payment” or “flex down” program. This covers your down payment. You do pay a slightly higher interest rate. But this program will allow you to invest in home ownership and start accumulating equity earlier. You must remain with the original lender for the full initial five year term or you will have to pay back the down payment.
There is also the RRSP Home Buyers Plan option. If you are a first time home buyer you can withdraw up to $25,000.00 from your RRSP tax free to purchase a home. This is for owner occupied property purchases only. You must repay the RRSP within 15 years, commencing no later than the second year in which the withdrawal was made.
There are many options available to those wanting to buy their own home. It is important to speak to a mortgage professional to learn all of your options. They will provide you with the education and support to help you make an informed decision.
I am a mobile mortgage planner in Greater Vancouver. I am honored to work with women to help them understand the home financing process! I want to help you make financial decisions that you are comfortable with and that save you money in the long run. If you have any mortgage related questions, please call me at 604-726-9550 or email me at Karen@mortgagecentrecitywide.com
New CMHC Policies That Could Effect You
By Leah Coss
Well, today, April 9th 2010, starts a new era of mortgage insurance policies from CMHC (Canadian Mortgage Housing Corporation). Upon the government’s review of our economic situation they decided to make some new government mandated changes that will be officially starting as of April 19th, 2010.
CMHC, however, has created additional new internal policies (not government mandated) that will effect who can and cannot get approved for their mortgage insurance. If you put down less than 20% down payment then you will have to also be approved by a mortgage insurer in addition to your mortgage lender. If you can’t get approved by the insurers, then you can’t get approved.
Keep in mind, CMHC is only 1 of 3 mortgage insurers out there. These changes ONLY apply to CMHC’s policies
The changes will apply to people who are:
1. Self employed or 100% commissioned
2. Own rental or investment properties
So what are these new changes that we will have to work around in addition to the already restricting Government changes?
Let’s start with the changes to people who are self employed or 100% commission. There was a program where you could just state your income and not have to declare it or “prove” it on paper. This was really only applicable to self employed or commissioned sales people because it is often difficult for them to document their income according to traditional bank guidelines. This is due to tax write offs with self employed borrowers. With the stated income program you could also just put 5% down for a down payment.
Those days are now gone with CMHC. You can now ONLY state your income if your business is LESS than 3 years old. If your business is older than that then you will have to document your dollars and prove your income just like all other borrowers.
The second change is that for those of you who do fall within the stated income guidelines of less than 3 years in the business, you will now have to put 10% down and not just 5%.
With respect to the changes to people looking to buy an investment property, or who already own investment properties, or have basement suites, these next changes may hurt you a little as the changes are drastic.
One part of the government mandated changes starting April 19th is that to purchase an investment or rental property you will now have to put 20% down, not just 5%. This is law.
What CMHC has done is take it a little further to ensure that no one gets in over their head when they purchase a home where they are depending on that rental income every month. For many, if your rental suite is empty for more than a couple months you may find yourself unable to make your large mortgage payments and eventually lose your home.
Without getting overly complicated for you, basically what they have done is change the math so that you will qualify for a smaller dollar amount. When we as a Mortgage Broker pre approve you for a dollar amount to buy a rental home, we take into consideration the fact that you will probably use the rental income to pay for your mortgage. The problem is they need to account for the months that will occur when your suite goes unrented as well as other expenses that come from having renters.
Previously we could take 80% of your rental income and use it to off set your other costs which was very beneficial for you. Now, we can only take 50% of the income and then only 44% of that to add to your income.
In simpler terms you are going from an 80% offset to a 22% offset. A Significant Difference! For the actual calculations on how this is done you can read about it here.
Lastly, with the old rules, a declaration from an appraiser of the amount of rent you can potentially collect for your suite you could simply submit that to your lender and nothing else needed to be done. As of now, if it is a new purchase than this is still the case.
When refinancing, however, with the new CMHC changes you will now have to show tax returns proving you have paid taxes and declared the rental income as income to the government. It will be the profit and loss that is shown on your tax return that will be used to qualify you.
This will also be the case if you are perhaps buying a new home for yourself and have a rental property in your portfolio already. You will only be able to use the income declared on your tax forms to help qualify you for a new home.
If you want more information on the CMHC changes and how they will effect you, call Leah at 604.313.9996 or email her at coss.l@mortgagecentre.com
Home buying? Use your RRSPs.
By Greg Andruff
Owning a home is one of the best investments a Canadian can make. Unlike stocks and bonds a person’s principal residence can grow in value and is exempt from capital gains tax.
Coming up with a down payment can be a real challenge but if someone has RRSP’s they can use the Federal Home Buyers Plan (HBP) to loan themselves a down payment. Currently almost half of all Canadian first time home buyers use the HBP. If someone has a down payment but doesn’t have any RRSP’s they could put the money into an RRSP (it must stay there for 90 days) and loan it back again. One might ask the question, “Why would you bother to do that?” Well, a tax deduction can be claimed, hopefully providing a tax refund from the government that can be used in the next tax year as part of a down payment!!!
Who qualifies for the HBP?
To qualify for the HBP a person has to have entered into a written agreement to buy or build a qualified home for themselves (or a related person with a disability) with the intention to occupy the home as their principal residence. Under The Income Tax Act the buyer must be considered a “First Time Home Buyer” (which means that neither the buyer nor a spouse/common law partner may have owned property in the last 5 years). Finally your HBP account must be at zero January 1 of the year that you intend to buy.
Once you qualify for the HPB you have a few more rules to follow….
The buyer(s) may not own the home for 30 days before the withdrawal is made and they must be a Canadian resident. All withdrawals must happen in the same calendar year and the purchase transaction/building of the home must complete before October 1, of the following year. (So be very careful when buying presale property as there is a chance that you will not be able to qualify and complete on time!)
Money….in and out
The HBP allows an individual to withdraw $25,000 from their RRSPs. If a couple (spouse/common law partner) are purchasing together, they can put $50,000 towards their purchase. The repayment process starts the second year following your withdrawal. The total amount must be paid off in 15 years with a minimum payment of one fifteenth a year at maximum value that is $1,666.66 per person ($20,000/15 = $1,666.66). Repayments do not count as new RRSP contributions and will not create any more tax incentives as that gain was already received the first time the original contribution was made…. Over payments can be made and they will lower the average payments that will be required on a yearly basis until the loan is re-paid in full.
Things to know
· A down payment on a property of at least 20% saves you money because you do not have to pay for CMHC mortgage insurance.
· If a loan payment is missed that amount will be charged against your taxes as income for the year and the contribution room in the RRSP will be lost.
· Even if bankruptcy is declared, yearly repayments to the RRSP are still required.
This article is for information purposes only. If you are considering using RRSPs to purchase a home talk to a qualified professional advisor.
Greg Andruff is a member of the residential real estate team, Team Andruff, with the slogan “Our product is homes…our passion is people.” This philosophy has enabled us to help several hundred buyers and sellers for many years and have achieved Medallion Club Team status. (Medallion Club achievers are in the top 10 per cent and excel in combined MLS® listings, sales and dollar volume.) To contact Greg visit www.TeamAndruff.ca or call 778-899-4267
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