Start planning for your first home purchase

If you are thinking of buying a house soon, here are some good tips to help you get started:

1. Begin saving cash for your downpayment. The larger your downpayment, the lower your mortgage obligation will be. You can also place saved funds into an RRSP, and then cash them out to use towards your downpayment. Remember that an RRSP will also give you some tax benefits each year, as you save. Seek out the assistance of a good financial planner to help you towards that goal. Based on the Canada Revenue Agency Home Buyers’ Plan (HBP) guidelines, first-time home buyers can now withdraw from their Registered Retirement Savings Plan (RRSP) avoiding the requirement to pay taxes on the withdrawal amount. The new withdrawal limit is now $25,000 compared with the previous limit of $20,000. An individual, or an individual and their spouse, or common-law partner can combine their maximum limit to make a total HBP withdrawal of $25,000 each, thus bumping the maximum allowed HBP withdrawal to $50,000 for the pair.

Alternatively, you can begin saving a portion of your downpayment, with Canada’s new Tax Free Savings Account or TFSA. Please visit the following website link to learn more:

http://www.budget.gc.ca/2008/pamphlet-depliant/pamphlet-depliant2-eng.asp

2. All applicants on the mortgage should be using credit and be working towards building a credit history. Use credit, pay it off. Some examples of items that will develop your credit history are credit cards, line of credit, a car loan, a personal loan. Remember that if you do not have a credit history, when applying for a mortgage, your application may be categorized as a “higher risk”, thus the mortgage rate offered to you will also likely be higher.

3. Always pay your credit card bills, utility bills and anyone who provides you services ON TIME. Remember that if you do not pay other companies, that may have provided services to you, and you owe money to them, those same companies could file “collections” against you for those monies owed and these collections may get published on your credit report. Removing derogatory items from a credit report is a lengthy and tedious process which you will want to avoid. Maintaining a good credit score is especially important today, as we face a lending environment where underwriting guidelines have tightened up considerably making it much harder to qualify for a mortgage compared with a year ago.

4. Avoid running up too many balances on cards or too much debt: A common one I see is car loans. Car loans are much easier to obtain, however, when it comes time to apply for a mortgage, and you have combined monthly car payment obligations of $900 a month, it may greatly reduce your ability to qualify for the mortgage amount that you really wanted especially if you are carrying other credit cards and loan obligations as well. I always tell first-time buyer clients, to go out and buy the least expensive well-maintained used car they can find, pay cash for it, and drive it around until after they take possession of their home. After purchasing a house and understanding what the month-to-month expenses are, you will then know what you can comfortably afford on a car payment balancing this new payment along with the expense obligation that owning a house brings.

5. Do not sign up as a co-signer or guarantor for anyone else’s debt. If you do, you could be disqualified for a mortgage if you have a financial obligation to someone else’s debt. Even though you may only have co-signed, that debt obligation would have to be disclosed on your mortgage application and depending on what that amount is, you may not be able to qualify for the amount you need on your mortgage application.

6. Don’t switch jobs just before you apply for a mortgage unless you can wait out the probation period on the new job. If your new position does not have a probationary period, that would be fine with most lenders reviewing your mortgage application.

7. Be sure you understand the whole financing process when purchasing from a builder. Often qualifications are given by the ‘in-house’ lender at the builder’s office, but clients often walk away without ever really understanding what happens with their mortgage qualification down the road, for example, 18 months away or whenever their new home is ready and built. I recently received a phone call from a very distressed individual who made a deposit with a builder, over a year ago and was about to lose their deposit on closing date, because they could not now qualify for their mortgage, one month before possession date.

They thought that when they had that intial interview with the builder, that everything was completed then and the house belonged to her because she had already made progress payments of over $30,000 during the 12-month period. The lender could not approve the mortgage loan since the client’s financial status had changed and more debts had been accumulated since that original application was initiated. It is very important to remember that a lender reserves the right to review all applicant’s financial status (and can verify your debt status by retrieving a new credit report), right before your closing date, and if there is some substantial change in your financial status (for example, you purchased $30,000 of new furniture on your credit card) the lender could refuse to fund the mortgage regardless of what you may have signed or discussed when you visited that builder’s site initially. The lender can only refuse to advance mortgage funds if your new debts prevent you from “qualifying” for the mortgage. Ensure you read the fine print of that contract you sign, and understand that while you may have put down a large deposit with a builder, the house is not really yours until your financing is affirmed by the lender.

This blog was written by Elizabeth Blair, a Licensed Mortgage Agent with Mortgage Edge in Richmond Hill, Ontario. Elizabeth services mortgage clients in Mississauga and all over the Greater Toronto area.

You can contact Elizabeth directly by phone at (905) 510-5785

by email at eblair@mortgageedge.ca

or you visit her website at: http://www.missmortgage.ca

Elizabeth is licensed with the Financial Services Commission of Ontario and is also a Member of IMBA (the Independent Mortgage Brokers Association of Ontario) http://www.imba.ca

Lic # M08005880

Brokerage Lic # 10680

Head office is located at: 15 Wertheim Court, Suite 210, Richmond Hill, Ontario, Canada.

Mississauga – Understanding your credit rating

What is your credit rating score?  If you don’t know, you are at risk of being refused credit, paying higher interest rates or being considered a high risk by banks, employers or others who have access to credit rating files.

If you have a credit card, a line of credit or a car loan, you have a credit history and it is being recorded in a credit report by credit reporting agencies, Equifax, Trans Union or Experian Canada Inc.   These Credit Reporting Agencies collect information on your ongoing use of credit and your repayment of that debt.  As you continue to utilize your credit cards, pay your car loan or your line of credit, you will be assigned something called a “credit score”.  A credit score is a numerical scoring measurement of an individual’s use of credit, specifically repayment of debt.   A higher score would indicate a borrower has better management of their consumer debt while a lower score would indicate poor management of consumer debt.  There are several factors that can affect your credit score, for example, whether you pay your debts on time, the total amounts that you owe, delinquent payments, collections that may have been filed against you or limits that have been exceeded or “maxed out”.  

 

If you currently have a mortgage or will be applying for mortgage financing, you may know that mortgage lenders will want to see your credit report.  You will need to provide permission to the bank or mortgage broker to retrieve your consumer credit report for review, at the time of your application for a mortgage.  Once the credit report is retrieved, it will be carefully reviewed, by the lender, to determine what mortgage rates you are eligible to receive.  Many applicants are surprised to learn that lenders establish very specific guidelines on what mortgage rates they will offer and it is usually based on an applicant’s credit score.  

 

Take the time to understand how you can achieve and maintain the best credit score.  When it is time for you to renew your mortgage financing in the future, you will be able to qualify for the best mortgage rates. 

 

Here are some quick tips to help you:

 

1.  Be sure to pay your bills on time.

 

2.  Avoid exceeding your credit limits.

 

3.  Avoid having too much available credit.

 

4.  You should always know, validate and protect your credit rating as much as your SIN number and credit cards.  

 

5.  You can check your credit rating for accuracy once a year free of charge.  Just call Equifax at 1-800-465-7166 or go on-line at http://www.equifax.ca and fill out the form at

http://www.equifax.com/EFX_Canada/consumer_information_centre/docs/request_report_form_e.pdf or you can purchase a copy of your credit report on-line.

 

6.  Often, a file contains data that is out-of-date or inaccurate.  If you find any information on your credit report that is not accurate, you should contact the Credit Reporting Agency to have it corrected.

 

7.  Be sure to download a copy of the document entitled “Understanding Your Credit Report and Credit Score” published by the Financial Consumer Agency of Canada by going to http://www.fcac-acfc.gc.ca.

 

 

This article was written by Elizabeth Blair, a Licensed Mortgage Agent with Mortgage Edge in Richmond Hill, Ontario.  Elizabeth Blair services mortgage clients in Mississauga and all over the Greater Toronto area.

 

You can contact Elizabeth directly by phone at (905) 510-5785,  by email at eblair@mortgageedge.ca  or you visit her website at:    http://www.missmortgage.ca 

 

Elizabeth is licensed with the Financial Services Commission of Ontario and is also a Member of IMBA (the Independent Mortgage Brokers Association of Ontario) http://www.imba.ca