We have quite the active Real Estate Market in Central Alberta for the start 2013. You may have seen some properties go up for sale and sell more quickly than you remember in past winters. Well, if your Considering buying, or even Considering selling perhaps you have some financial questions.
If your a new buyer thinking you are ready to get in the market what steps should you take financially?
There are three things that the lenders are going to put the weight of you application on. Your Income, Down Payment and Credit. When you are thinking about getting into homeownership these are the things you should focus on reviewing. Obviously your income is a easy part, You know if you are working and how much you make. For your down payment, you are required to put at least 5% of the purchase price as a down payment on your home. Your credit is the big thing. Have a look at your credit if you haven't in a while or never have. You can get a copy of your credit from Equifax at http://www.consumer.equifax.ca/home/en_ca. You should review this to make sure there is nothing that you do not know about on your report. If your credit cards are close to the limits, try and pay them down to at least the 75% mark of the limit. But the main thing on your credit is pay your stuff on time, late payments will lower your score and could take up to a year to come back. You want your credit score to be over 620, preferably over 680.
What are Debt Ratio's?
Debt ratio's is what the lenders will look at to get their feel of whether they think you can qualify for the mortgage or not. These are calculated by using a Gross Debt Service (GDS) Ratio and a Total Debt Service Ratio (TDS). Your GDS is a ratio that puts your income against the mortgage you are applying for plus the property taxes and heat. The GDS ratio the lenders will allow can go as high as 39%. The TDS is again the mortgage you're applying for, Property taxes, heat, then also includes any other debts you have like car payments, credit cards, Student loans ect. This TDS number can go as high as 44%. The key here is this is just a computer telling you what you can afford. Make sure you have a number in mind that you know you can afford.
What are the different types of methods are there for down payments?
Your traditional down payment ways are Personal Savings, Gift and RRSP's. For RRSP's you are able to withdraw these tax free as long as you are a first time home buyer or have not owned a home for 4 years or more. Gifts are able to come from immediate family members only. For personal savings all you have to show is a 3 month savings history.
Your more non traditional down payments could come from a flex down or a cash back. For a flex down, this is where you can borrow the money for the down payment from a Line of Credit or loan. As long as you can qualify carrying the loan payment and the mortgage payment in your debt ratios. A cash back is where the lender gives you the 5% for the Down Payment in return for a 5 year term at a higher interest rate. There is only 1 lender out there that still allows this, and this option will be going away sometime.
What about "credit scores"? How will they affect your pre-approvals?
Credit scores are calculated based on a variety of things on your credit - Payment history, how much available credit you have, how long you have had credit, how many times you have applied for credit. If you are looking at a mortgage with between 5% and 20% down you want your credit score over 620. The higher the better though, With a credit score of less than 680 you will not be able to get some of the products mentioned before like the Cash Back or Flex Down mortgages. If your score is under 620 it is very hard to get the mortgage insurer to put insurance on the mortgage. Without the mortgage insurance you have to have at least 20% down.
Looking into mobile/modular properties with lot rent(fees) or condo properties with a condo fee, how does that affect a purchase?
When looking at something that has leased land there is a couple things to consider. You will end up with posted interest rates (usually 1.5%-1.75% higher than discounted) as well the lot rent will have to be included in your debt ratios. The amortization length of the mortgage is also something that can be affected based on the age of the modular or mobile home.
For condo's the condo fees are also something that has to be included in the debt ratio's. Some condo fees include heat which usually will help with your debt ratio's when qualifying.
So when a client comes to sit down with you...what information are you looking for/discussing with them?
When we initially sit down I want to make sure you understand mortgages and the whole process. This is the biggest investment you are going to make so I want to make sure you are comfortable with what you are getting. My goal is to find out the comfort zones of where you are with your future mortgage payments. Like I mentioned in the debt ratios a computer say you can qualify for a mortgage payment of $1500 but if your comfort zone is only $1300 that's what we will work with. Nobody wants to live paycheck to paycheck.
What advice do you have for...
- first time buyer(s) - Take your time, Don't feel that you are rushed into anything. A pre-approval is usually good for 120 days. This gives you 4 months to look for a property you are going to call home.
- first time seller(s) - Review your mortgage. Maybe you have a penalty if you sell to early, maybe your mortgage is portable and you can avoid the penalty.
- seniors looking to downsize - Look into your mortgage options, if you are thinking of a age restricted property, some of them can be harder to get financing on.
I appreciate your time and knowledge, where/how can you be reached for further questions?
I can be reached on my cell anytime at 403-598-1055 or you can reach me by email at firstname.lastname@example.org
Thanks for reading,
Consider it Done!
Century 21 Advantage
Red Deer, AB
Century 21 Advantage
Red Deer, AB