Welcome to My General Blog

Here you will find answers to frequently asked questions and topics for both real estate and mortgages.

RSS

6 Things To STOP PAYING RENT and OWN YOUR HOME INSTEAD

…and what you need to know to get you started toward buying your 1st home!

People fear what they don't understand. A good example is the purchase of a home. The average consumer knows very little regarding the home buying process. Between finding the right house, making sure it won't fall apart the day after it is purchased, and finding the best financing, it is no wonder that so many people are afraid to purchase homes.

Buying a home is one of the most important financial decisions an individual will make. For a first-time homebuyer, the decision to purchase a home can be daunting. It will represent a major step forward as the individual/family will be assuming potentially its largest responsibility. As with any major decision, it is important that everyone, especially first-time homebuyers, take full advantage of the information and training that is available to more clearly understand the home buying process.

To prepare, you should do research and be fully informed before beginning the search for a dream home. Here are six steps to get started:

STEP 1: Before you start your house search, think carefully about what it will be like to be a homeowner. For most people, homeownership can be one of the most significant financial turning points in their lives. The advantages (tax benefits, pride of homeownership, financial investment) far outweigh any drawbacks.

STEP 2: Your credit history is one of the first things a lender will look at in making a decision on your loan. Visit www.equifax.ca to obtain a credit report.  Review it carefully to be sure all the information is correct. If you find discrepancies, you should work with the credit agencies to resolve them.

STEP 3: Saving for a down payment can be one of the biggest barriers to homeownership. Mortgage lenders recognize this dilemma and many now offer low down payment loans. Five percent is usually the minimum requirement for a down payments.

STEP 4: Before you begin working with a realtor, find a mortgage broker you can trust and ask them to pre-approve (not prequalify) you for a mortgage. Getting a pre-approval is easy. You just call a mortgage broker, provide some basic financial information, ie. documentation to confirm your employment, the source of your down payment and other aspects of your financial circumstances.

Most lenders will provide this service free of charge. Pre-approval will let you know exactly how much you can spend on a home purchase BEFORE you start your search. A preapproval in hand also makes you a more attractive buyer when you are ready to make an offer on a home. Home sellers are more likely to accept an offer from a buyer who can demonstrate the ability to secure financing.

STEP 5: Many mortgage lenders, nonprofits, and even realtors offer homebuyer education guides to prepare you for homeownership. Some of the topics covered are how to apply for a loan, find the right realtor, make an offer on a home, and the advantages and responsibilities of homeownership.

STEP 6: The mortgage broker vs. banks and mortgage companies. A mortgage broker has many different banks, savings and loan companies and mortgage companies that they "broker" their loans to, something like a stockbroker or independent insurance agent.

 Since a mortgage broker does business with lots of banks throughout Canada, they can:

  • Send the loan to many different underwriters  

  • Shop for the best rates and programs

  • Save you money by not charging loan origination fees

So, what's in it for you?

 You can finds ways to get out of the "trap" of paying rent.

 You are confident that you made the right decisions about your mortgage.

Nobody rushed you into the wrong mortgage program because you had to apply for your mortgage within 3 days of signing your purchase agreement.

 Is 3 days long enough for you to make a decision that could last for 30 years?

 Your desire to own a home, combined with my knowledge, will increase your chances dramatically.

 Most banks want to "cherry pick" the easy ones.

 Not me, because I have so many more options than they do.

 Well, I hope I got you thinking.

 You probably have some questions.

 However, we guarantee that you can save thousands of dollars. Your time is precious too, so we won't waste that either.

 We can give you a detailed analysis of how much you will save by owning instead of renting.

 Please give me a call while this is fresh on your mind and you are excited about the possibilities.

 Even if you are skeptical, which is only natural, a phone call can't hurt.

 The worst that you will do is spend a few minutes learning.

 The best you can do is have "peace of mind" and save yourself lots of money.

Or, if you wish, we can send a pre-approval package out to you today, or fax information to you.

What are you waiting for...give me a call and lets get started!

 Antonietta Gaudet (250) 218-2184 (call or text)  

Fill out an application today!

http://www.lowest-rates.ca/how-to-apply-mortgage

 P.S. Think about it. Now is the time to escape from endless rent payments. We can mail you a Pre-Approval Kit to get you started on your road to homeownership today!

 P.P.S. More people who are renters now qualify to become a homeowner. Don't let fear or ignorance stand in your way. Our job is to educate and advise you. Call us today to take one step closer toward realizing your dream of one day becoming a homeowner.

Read

How does a Separation or a Divorce affect your Mortgage

It is a very difficult time going through a separation or divorce especially if you have children.   Your home is your most valuable asset and stability for your children. Decisions regarding possession, division of equity and liability for repayment of the mortgage loan are all tied together. Once your relationship has come to an end there are two basic options. One is to sell your property, split the proceeds and go your separate ways. The other is for one of you to keep the home.

Do you buyout your spouse and keep the house?
In a buyout the person who remains in the home refinances the mortgage and pays the other spouse his share of the equity. A Separation Agreement may specify that one spouse make the mortgage payments, but if both spouses’ names are on the mortgage, both are liable even if the paying spouse defaults on the loan. Also do not assume that because you transferred title to the property to the other that you have been released from your mortgage obligations. Make sure to get a release or letter from the bank releasing you of your obligation.

The person who chooses to remain in the home can either assume the mortgage or refinance the home in their sole name.   As your mortgage professional I will find out your options on your existing mortgage as not all mortgages are assumable or if you decide to refinance I will work with you to meet the credit and income requirements to qualify you for that new mortgage. Let me do the homework for you to find out what works best for your situation.

Reapplying for that Mortgage
After a separation or divorce, you must provide the lender with your Separation Agreement if you have one. You may also be required to have an appraisal or valuation of your property done. You will have to prove to the lender that you are capable of covering the mortgage payments on your own, without the help of your spouse because the lender is under no obligation to remove the other from the mortgage unless you can demonstrate you can afford the payments on your own. Even if you do qualify for a mortgage on your own you may want to consider borrowing more in order to buyout your spouse. Spousal and child support will also impact your mortgage qualifications so you will have to consult with your me, your mortgage professional, to determine your specific situation.

Get Pre-Approved
If you plan on keeping your home or purchasing a new home, get a mortgage pre-approval to see how much you can afford to spend. It is likely you will have a good down payment for your next home if you have enough equity in your previous home and you receive funds from either the sale or a buyout. As a mortgage professional I will analyze your situation in detail to get you the best financing that suites your needs.

Credit Rating
A separation or divorce can get very messy. Try to keep your credit rating as clean as possible during this difficult time. Joint debts during your relationship are considered to be the responsibility of both parties. Even if the other person is responsible for that debt during your separation and they miss a payment your credit rating could be affected. Make sure any joint debts are handled in a timely fashion. Try to close all joint accounts and credit cards. Put a freeze on any accounts you cannot close and try to make the minimum payment in the meantime until you can transfer the joint debt to the other or pay it out.

If you do not have a credit history, it is important that you start to establish one independently of your spouse. Begin by applying for your own credit card, even if it’s for a small amount of credit and make sure you make your minimum payment on time.

Bad credit? Let me work with you to help you improve your credit score before applying for a mortgage.

Read

Ten Most Commonly Asked Mortgage Questions

1. What’s the best rate I can get?
Your credit score plays a big part in the interest rate for which you will qualify, as the riskier you appear as a borrower, the higher your rate will be. Rate is definitely not the most important aspect of a mortgage, however, as many rock-bottom rates often come from no frills mortgage products. In other words, even if you qualify for the lowest rate, you often have to give up other things such as prepayments and porting privileges when opting for the lowest-rate product.

 2. What’s the maximum mortgage amount for which I can qualify?
To determine the amount for which you will qualify, there are two calculations you’ll need to complete. The first is your Gross Debt Service (GDS) ratio. GDS looks at your proposed new housing costs (mortgage payments, taxes, heating costs and 50% of strata/condo fees, if applicable). Generally speaking, this amount should be no more than 32% of your gross monthly income. For example, if your gross monthly income is $4,000, you should not be spending more than $1,280 in monthly housing expenses. Second, you will need to calculate your Total Debt Service (TDS) ratio. The TDS ratio measures your total debt obligations (including housing costs, loans, car payments and credit card bills). Generally speaking, your TDS ratio should be no more than 40% of your gross monthly income. Keep in mind that these numbers are prescribed maximums and that you should strive for lower ratios for a more affordable lifestyle. Before falling in love with a potential new home, you may want to obtain a pre-approved mortgage. This will help you stay within your price range and spend your time looking at homes you can reasonably afford.

 3. How much money do I need for a down payment?
The minimum down payment required is 5% of the purchase price of the home. And in order to avoid paying mortgage default insurance, you need to have at least a 20% down payment.

 4. What happens if I don’t have the full down payment amount?
There are programs available that enable you to use other forms of down payment, such as from your RRSPs, a cash-back product, or a gift.

 5. What will a lender look at when qualifying me for a mortgage?
Most lenders look at five factors when determining whether you qualify for a mortgage: 1. Income; 2. Debts; 3. Employment History; 4. Credit history; and 5. Value of the Property you wish to purchase. One of the first things a lender will consider is how much of your total income you’ll be spending on housing. This helps the lender decide whether you can comfortably afford a house. A lender will then look at your debts, which generally include monthly house payments as well as payments on all loans, credit cards, child support, etc. A history of steady employment, usually within the same job for several years, helps you qualify. But a short history in your current job shouldn’t prevent you from getting a mortgage, as long as there have been no gaps in income over the past two years. Good credit is also very important in qualifying for a mortgage. The lender will also want to know that the house is worth the price you plan to pay.

 6. Should I go with a fixed- or variable-rate mortgage?
The answer to this question depends on your personal risk tolerance. If, for instance, you’re a first-time homebuyer and/or you have a set budget that you can comfortably spend on your mortgage, it’s smart to lock into a fixed mortgage with predictable payments over a specific period of time. If, however, your financial situation can handle the fluctuations of a variable-rate mortgage, this may save you some money over the long run. Another option is to opt for a variable rate, but make payments based on what you would have paid if you selected a fixed rate. Finally, there are also 50/50 mortgage options that enable you to split your mortgage into both fixed and variable portions.

 7. What credit score do I need to qualify?
Generally speaking, you’re a prime candidate for a mortgage if your credit score is 680 and above. The higher you can get above 700 the better, as you will qualify for the lowest rates. These days almost anyone can obtain a mortgage, but the key for those with lower credit scores is the size of the down payment. If you have a sufficient down payment, you can reduce the risk to the lender providing you with the mortgage. Statistics show that default rates on mortgages decline as the down payment increases.

 8. What happens if my credit score isn’t great?
There are several things you can do to boost your credit fairly quickly. Following are five steps you can use to help attain a speedy credit score boost:

  1.  Pay down credit cards. The number one way to increase your credit score is to pay down your credit cards so they’re below 70% of your limits. Revolving credit like credit cards seems to have a more significant impact on credit scores than car loans, lines of credit, and so on.

  2. Limit the use of credit cards. Racking up a large amount and then paying it off in monthly instalments can hurt your credit score. If there is a balance at the end of the month, this affects your score – credit formulas don’t take into account the fact that you may have paid the balance off the next month.

  3. Check credit limits. If your lender is slower at reporting monthly transactions, this can have a significant impact on how other lenders view your file. Ensure everything’s up to date as old bills that have been paid can come back to haunt you. Some financial institutions don’t even report your maximum limits. As such, the credit bureau is left to only use the balance that’s on hand. The problem is, if you consistently charge the same amount each month – say $1,000 to $1,500 – it may appear to the credit-scoring agencies that you’re regularly maxing out your cards. The best bet is to pay your balances down or off before your statement periods close.

  4. Keep old cards. Older credit is better credit. If you stop using older credit cards, the issuers may stop updating your accounts. As such, the cards can lose their weight in the credit formula and, therefore, may not be as valuable – even though you have had the cards for a long time. Use these cards periodically and then pay them off.

  5. Don’t let mistakes build up. Always dispute any mistakes or situations that may harm your score. If, for instance, a cell phone bill is incorrect and the company will not amend it, you can dispute this by making the credit bureau aware of the situation.

 9. How much will I have to pay for closing costs?
As a general rule of thumb, it’s recommended that you put aside at least 1.5% of the purchase price (in addition to the down payment) strictly to cover closing costs. There are several items you should budget for when it comes to closing costs. Property Transfer Tax is charged whenever a property is purchased. The tax will vary from jurisdiction to jurisdiction, but I can help with the calculation. GST/HST is only charged on new homes, and does not affect homes priced at less than $400,000. Even homes that exceed the price threshold are only taxed on the portion that exceeds $400,000. Certain conditions may apply. Please contact you lawyer/notary for more detailed information. Your lawyer/notary will charge you a fee for drawing up the mortgage and conveyance of title. The amount of the fee will depend on the individual that you use. The typical cost is $900. If you’re purchasing a single-family home, you’ll need to give your lender a survey certificate showing where the property sits within the property lines. Some exceptions are made, however, on low loan-to-value deals and acreage properties. A survey will cost approximately $300-$350, but the lender will often accept a copy of an existing survey. Other costs include such things as an appraisal fee (approximately $200), title insurance and a home inspection (approximately $350).

 10. How much will my mortgage payments be?
Monthly mortgage payments vary based on several factors, including: the size of your mortgage; whether you’re paying mortgage default insurance; your mortgage amortization; your interest rate; and your frequency of making mortgage payments. You can view some useful calculators to find out your specific mortgage payments. Click below to view it: 

Open Up Ultimate Mortgage Calculator

Read

First Time Home Buyers Guide

1. Get Pre-Approved
Talk to your mortgage professional about how much home you can afford and get pre-approved before you start looking. If you find a house you’re crazy about, you can make an offer knowing exactly how much you can reasonably afford to pay each month on your mortgage.

2. Keep Your Credit Clean
Run a credit check on yourself and contact any creditors who haven’t updated your record in terms of canceled cards, balances that have been paid off, etc. Pay off outstanding high interest credit as soon as possible to make it easier to obtain approval for a mortgage.

3. Determine Your Priorities
Make a list of what you want, need and don’t want in a home.   Give a copy to your Realtor. If certain home types are definitely not for you, let your Realtor know. It will save both of you invaluable time and effort.

4. Check Out the Neighborhood
Familiarize yourself with the schools, property taxes, and other neighbourhood features. You’re getting more than just a home,, you’re buying the whole neighborhood package. Also review any covenants or homeowner’s association agreements thoroughly.

5. Consider Your Future Needs
As you look around the house, determine if it has adequate space for you and your family both now and in the future.

6. Keep Your Eyes Open
When you’re looking at a home, pay close attention to anything that might appear out of place, such as furniture awkwardly arranged to hide holes or stains in the carpeting. Turn on lights and appliances to see if you notice any irregularities in the wiring. Ask the seller when the roof, water heater and furnace were last replaced.

7. Write Out the Details
When you do make an offer, be sure to include everything you want from the seller, such as home inspection contingencies, items included with the sale of the house and any concessions you’d like the seller to make. Put everything in writing. Don’t trust any verbal agreements.

8. Get the Best Deal
Don’t be afraid to negotiate. This is especially true in a buyer’s market or when the seller is motivated to sell. Don’t worry if your first offer is rejected. You may have to offer more money the second time around, but at the same time you can ask for additional repairs. The offer you sign is a legally binding contract!

9. Get An Inspection
Have an inspection done to protect yourself. Skipping it could cost you several thousand dollars in the end so don’t skimp to save a couple hundred now. After you have the inspection done, read the report carefully and ask about anything you don’t understand. Follow the inspector as he/she performs the inspection. Ask any questions you may have.

10. Closing Costs and Considerations
Go over your closing costs before you close and ask any questions that may arise. You need to include these in your budget. They’ll include your first mortgage payment, property tax payments, legal fees, appraisal fees, mortgage application fee and any other fees. Your mortgage professional will provide you with written good faith estimate of closing costs. They will be happy to explain anything that is unclear to you at the time.

Read

Getting a Mortgage

Once your Offer to Purchase has been accepted, go to see your lender. Your lender will verify (and update, if necessary) your financial information and put together what’s needed to complete the mortgage application. Your lender may ask you to get a property appraisal, a land survey, or both. You may also be asked to get title insurance. Your lender will tell you about the various types of mortgages, terms, interest rates, amortization periods and, payment schedules available.

Depending on your down payment, you may have a conventional mortgage or a high-ratio mortgage:

  • A conventional mortgage is a mortgage loan that is equal to, or less than, 80% of the lending value of the property. The lending value is the property’s purchase price or market value — whichever is less. For a conventional mortgage, the down payment is at least 20% of the purchase price or market value.

  • If your down payment is less than 20% of the home price, you will typically need a high-ratio mortgage. A high-ratio mortgage usually requires mortgage loan insurance. CMHC is a major provider of mortgage loan insurance. Your lender may add the mortgage loan insurance premium to your mortgage or ask you to pay it in full upon closing.

Mortgage Term
Your lender will tell you about the term options for the mortgage. The term is the length of time that the mortgage contract conditions, including interest rate, will be fixed. The term can be from six months up to ten years. A longer term (for example, five years) lets you plan ahead. It also protects you from interest rate increases. Think carefully about the term that you want, and don’t be afraid to ask your lender to figure out the differences between a one, two, five-year (or longer) term mortgage.

Mortgage Interest Rates
Mortgage interest rates are fixed, variable or adjustable:

  • A fixed mortgage interest rate is a locked-in rate that will not increase for the term of the mortgage.

  • A variable rate fluctuates based on market conditions. The mortgage payment remains unchanged.

  • With an adjustable rate, both the interest rate and the mortgage payment vary, based on market conditions.

Open or Closed Mortgage

  • A closed mortgage cannot be paid off, in whole or in part, before the end of its term. With a closed mortgage you must make only your monthly payments — you cannot pay more than the agreed payment. A closed mortgage is a good choice if you’d like to have a fixed monthly payment. With it you can carefully plan your monthly expenses. But, a closed mortgage is not flexible. There are often penalties, or restrictive conditions, if you want to pay an additional amount. A closed mortgage may be a poor choice if you decide to move before the end of the term, or if you want to benefit from a decrease of interest rates.

  • An open mortgage is flexible. That means that you can usually pay off part of it, or the entire amount at any time without penalty. An open mortgage can be a good choice if you plan to sell your home in the near future. It can also be a good choice if you want to pay off a large sum of your mortgage loan. Most lenders let you convert an open mortgage to a closed mortgage at any time, although you may have to pay a small fee.

Amortization
Amortization is the length of time the entire mortgage debt will be repaid. Many mortgages are amortized over 25 years, but longer periods are available. The longer the amortization, the lower your scheduled mortgage payments, but the more interest you pay in the long run. If each mortgage term is five years, and the mortgage is amortized over 20 years, you will have to renegotiate the mortgage four times (every five years).

Payment Schedule
A mortgage loan is repaid in regular payments — monthly, biweekly or weekly. More frequent payment schedules (for example weekly) can save some interest costs by reducing the outstanding principal balance more quickly. The more payments you make in a year, the lower the overall interest you have to pay on your mortgage.

Read

Top 5 Things Millennials Should Know When Buying Real Estate

There are 9 million Millennials in Canada, representing more than 25 percent of the population.
Born between 1980 and 1999, the eldest are in the early stages of their careers, forming households and buying their first homes.
Buying a home is a daunting process for anyone, but especially so for the first-time home buyer. This is the largest and most important financial decision you will ever make and it should be done with the appropriate investment in time and energy.
Making the effort to be financially literate will save you thousands of dollars and assure you make the right decisions for your longer-term financial security.

1. Don’t rush into the housing market--do your homework: learn the basics of savings, credit and budgeting.
Lifelong savings is a crucial ingredient to financial prosperity. You must spend less than you earn, ideally saving at least 10 percent of your gross income.
Put your savings on automatic pilot, having at least 10 percent of every paycheck automatically deducted. Money you don’t see you won’t spend. Contributing to an RRSP, at least enough to gain any matching funds your employer will provide, is essential. The Tax Free Savings Account (TFSA) is an ideal vehicle for saving for a down payment and now you can contribute as much as $10,000 a year.

You also need to establish a good credit record. Lenders want to see a record of your ability to pay your bills. As early as possible, get a credit card and put your name on cable, phone or other utility bills. Pay your bills and your rent in full and on time. Do not run up credit card lines of credit. The interest rates are exorbitant and the only one who benefits is your bank. Keep your credit card balances well below their credit limit.

Do a free credit check with Equifax every six months to learn your credit score and to see if there are any problems. Equifax tracks all of your credit history, which includes school loans, car loans, credit cards and computer loans.  Equifax grades you based on your responsible usage and payments.

Budgeting is also essential and it is easier than ever with online apps. You need to know how you spend your money to discover where there is waste and opportunity for savings. The CMHC Household Budget Calculator helps you take a realistic look at your current monthly expenses.

2. Make a realistic projectory of your future household income and lifestyle and understand its implications for choosing the right property for you.
Millennials are likely relatively new to the working world. Lenders want to see stability in employment and you generally need to show at least two years of steady income before you can be considered for a mortgage.  This also applies if you have been working for a few years in one career and then decide to change careers to something completely different. Lenders want to see continuous employment in the same field.
If you are self-employed, it is more challenging, and you need professional advice on taking the proper steps to qualify for a mortgage.

Assess the stability of your job and the likely trajectory of your income. Millennials will not follow in the footsteps of their parents, working for one employer for forty years. In today’s world, no one has guaranteed job security. Take a realistic view of your future. Will your household income be rising? Will there be one income or two? Are there children in your future? Will you remain in the same city? The answers to these questions help to determine how much space you need, the appropriate type of residence, its location and the best mortgage for you.

 Financial planning is key and it is dependent on your goals and expectations.

3. This is not a Do-It-Yourself project: build a team of trusted professionals to guide you along.
You need expert advice. The first person you should talk to is an accredited mortgage professional. There is no out-of-pocket cost for their services. Indeed, they will save you money.

 These people are trained financial planners and understand the ever-changing mortgage market. Take some time with them to understand the process before you jump in and find your head spinning with all the decisions you will ultimately have to make. They will give you a realistic idea of your borrowing potential. Before you fall in love with a house or condo, make sure you understand where you stand on the mortgage front. Mortgages are complex and one size does not fit all. You need an expert who will shop for the right mortgage for you. There are more than 200 mortgage lenders in Canada and they will compete for your business.

 It is a very good idea to get a pre-approved mortgage amount before you start shopping. This is a more detailed process than just a rate hold (where a particular mortgage rate is guaranteed for a specified period of time). For a pre-approval, the lender will review all of your documentation except for the actual property.There is far more to the correct mortgage decision than the interest rate you will pay. While getting the lowest rate is usually the first thing on every buyer's mind, it shouldn't be the most important. Six out of ten buyers break a five-year term mortgage by the third year, paying enormous penalties. These penalties vary between lenders. The fine print of your mortgage is key and that’s where an expert can save you money. How the penalty for breaking a mortgage is calculated is key and many monoline lenders have significantly more consumer-friendly calculations than the major banks. A mortgage broker will help you find a mortgage with good prepayment privileges.

 The next step is to engage a real estate agent. The seller pays the fee and a qualified realtor with good references will understand the housing market in your location. Make sure the property has lasting value. Once you find the right home, you will need a real estate lawyer, a home inspector, an insurance agent and possibly an appraiser. Make any offer contingent on a home inspection and remediation of significant deficiencies.

 4. Down payments, closing costs, moving expenses and basic upgrades need to be understood to avoid nasty surprises.
The size of your down payment is key and, obviously, the bigger the better. You need a minimum of 5 percent of the purchase price and anything less than 20 percent will require you to pay a hefty CMHC mortgage loan insurance premium, which is frequently added to the mortgage principal and amortized over the life of the mortgage as part of the regular monthly payment.

Your lender will want to know the source of your down payment. Many Millennials will depend on the largesse of their parents to top up their down payment.

 The down payment, however, is only part of the upfront cost. You can expect to pay from 1.5-to-4 percent of the purchase price of your home in closing costs. These costs include legal fees, appraisals, property transfer tax, HST (where applicable) on new properties, home and title insurance, mortgage life insurance and prepaid property tax and utility adjustments. These amount to thousands of dollars.

 Don’t forget moving costs and essential upgrades to the property such as draperies or blinds in the bedroom.

 5. Test drive your monthly housing payments to learn how much you can truly afford.
Affordability is not about how much credit you can qualify for, but how much you can reasonably tolerate given your current and future income, stability, lifestyle and budget. Most Millennials underestimate what it costs to run a home, be it a condo or single-family residence.

 The formal qualification guidelines used by lenders are two-fold: 1) your housing costs must be no more than 32 percent of your gross (pre-tax) household income; and, 2) your housing costs plus all other debt servicing must be no more than 40 percent of your gross income.

 Lenders define housing costs as mortgage payments, property taxes, condo fees (if any) and heating costs. But homes cost more than that. In your planning, you should also other utilities (such as cable, water and air conditioning), ongoing maintenance, home insurance and unexpected repairs. Taking all of these costs into consideration, the 32 percent and 40 percent guidelines might well put an unacceptable crimp in your lifestyle, keeping in mind that future children also add meaningfully to household expenses and two incomes can unexpectedly turn into one.

The best way to know what you can afford is to try it out. Say, for example, you qualify for a mortgage payment of $1400 a month and adding property taxes and condo fees might take your monthly housing expense to $1650.  A far cry from the $500 you pay now to split a place with 3 roommates. Start making the full payment before you buy to your savings account and see how it feels. Do you have enough money left over to maintain a tolerable lifestyle without going further into debt?

Keep in mind that this is not a normal interest rate environment. Don’t over-extend because there is a good chance interest rates will be higher when your term is up. Do the math (or better yet have your broker do it for you) on what a doubling of interest rates five years from now would do to your monthly payment. A doubling of rates may be unlikely, but it makes sense to know the implication.

 Do Your Calculations Look Discouraging?
If so, here are some things you can do to improve your situation:

  • Pay off some loans before you buy real estate.

  • Save for a larger down payment.

  • Take another look at your current household budget to see where you can spend less. The money you save can go towards a larger down payment.

  • Lower your home price — remember that your first home is not necessarily your dream home.

Read
MLS® property information is provided under copyright© by the Vancouver Island Real Estate Board and Victoria Real Estate Board. The information is from sources deemed reliable, but should not be relied upon without independent verification.