How to buy a house with none of your own money

More commonly referred to as creative down payment options.

teeter_home_money

Did you know that you can still buy a house in 2015 with no down payment (of your own money), cause sadly the days are gone where the zero down payment was available. So here are all the options including the one where you have spilled blood, sweat & tears and saved it yourself.

1) 5% saved from your own resources. You have worked long and hard and you have been able to put away a few dollars. If this is you I must congratulate you and say that you have job well done. However before you pat yourself on the back there are a few things you should know. The lender will ask for confirmation that you have had the funds in your position for at least 3 months. To do this you just simply have to provide bank statements that show your name, your account number and the balance. This is to prove that you did not borrow it, but we will get to that later.

2) RRSP Home Buyers Plan. You can borrow up to 25,000 from your registered retirement savings plan ( tax free) and have 15 years to pay it back as it is considered a loan. If you buying the home with someone else who is buying for the 1st time then you can borrow up to 50,000.  This is a great way of doing it as you most likely did not miss the automatic deduction off your pay check the past few years anyway.

3) Gift letter. As in it’s all in the family, borrowing the downpayment from a blood relative. Like Mom, Dad, Sister or Brother. This is a true gift and not a loan, and the mortgage lender is some cases will ask to see confirmation that the funds are in your position before giving you an approval. They also require a signed gift letter by all parties as well.

4) From Peter to pay Paul. This is the one that most people are not aware of, where you can borrow from existing credit to make up your required downpayment. However here is the kicker, you must be able to debt service both the mortgage and the borrowed downpayment to make this happen. It can come from your credit card, line of credit or existing mortgage. You should also know that not every lender allows this type of downpayment, but for those that do it makes an excellent way to make the leap into home ownership.

This concludes our lesson for the day. However don’t forget that will need more than the minimum required down payment to close your transaction. You will also need deed transfer tax ( 1.5% of the purchase price) plus legal fees. The lender will need confirmation of the former along with your deposit.

Feel free to contact me if you have any questions.

Cheers,

Pat

Ma & Pa say it’s time to move out

Also known as yes you can afford your own place.

They think you’re ready, your significant other thinks your ready, heck even the family dog thinks your ready. Here is why they know that.

1) You have a good job and are getting a steady pay check.

2) You have credit established and pay all your bills on time.

3) You plan on buying something that should increase in value over time, unlike that Xbox you bought a few years ago.

4) You have put away enough to cover your downpayment.

That covers a few of the major C’s of mortgage borrowing right there, so you’re heading in the right direction. In case you were wondering the 5 C’s of credit are Collateral, Credit, Capacity, Character and Capital.

Now you should find out how much you can afford to buy. To do this the lender is going ask you some questions like the following:

  • Name, date of birth, SIN, current and past address.
  • Where you work.
  • How long you have worked there.
  • Employment status.
  • Income level.

And lastly info about your assets and liabilities. All of these are important to determine your credit worthiness and to calculate your debt service ratio’s to prove your ability to carry the loan.

You should be able to so most of this on your own to prepare for your meeting. For a small fee you can log on to Equifax Canada website and pull your credit to see where you stand. Once you have that you should sit down with a pen, paper and calculator to figure out your debt service ratio’s.

Ok you found out by visiting CMHC’s website that they require that you meet the debt service ratio’s of 32% Gross Debt Service (GDS) and 40% Total Debt Service (TDS).  I know at this point you may be a little confused so I’ll explain some of the jargon. GDS is a percentage of your gross income to support house hold expenses and TDS is a percentage of your income to support all your debts.

Ok now comes the fun part. Let’s write down some numbers so we can calculate your ratio’s. Your engineering job pays you 65K a year, your car payment is 248 a month, your credit cards are paid in full every month and you have been able to save 30K to use as a downpayment thanks to hotel Ma & Pa.

So here we go. Let’s look at GDS first. 65,000 /12=5,416.66 X 0.32=1,733.33 this is the maximum mortgage payment for GDSR before house hold expenses. You calculate that the 250K house you  like will cost $2,485  (12/2485=207.08 monthly)per year in property tax and you were told that the monthly heating bill would be $125. Now take 1,733 – 207 ( taxes) – 125 ( heat) and you get 1,401.33 which is your maximum mortgage payment for GDS

Now for the TDS. 65,000 / 12= 5,416.66 X 0.40= 2,166.67, this is your maximum mortgage payment for TDSR before house hold and debt payments. So to finish the ratio we take 2,166.67-207 (tax) – 125 ( heat) – 248 ( car pmt) =1,586.76. This is your maximum monthly mortgage payment for TDSR.

Hope your are still with me cause we are almost done. Now we take the lower of the two maximum ratio’s, in this case that’s 1,401.33 and divide that by the 5 year posted mortgage rate of 4.74% and multiply by 1,000, and now we find out your maximum mortgage you can afford is 295K based on the info provided.

If math is not your favourite past time, I would be happy to act as your personal mortgage calculator. I look forward to hearing from y0u.

Cheers,

Pat

P.S- Now that you know how to do it on your own, you can use CMHC calculator for the next time. Playing with the downpayment amount will also effect how much you can afford to buy.

Getting with the times

I know that it has been a very long time since I have last written a blog article. I have no excuse other than “stuff” got in the way. Anyway I am back with a new and improved website thanks to my good friends at Kim Squared.

Please take a tour and let me know your thoughts. I welcome any and all feedback. The new site is now able to be viewed on your mobile device of choice and as well as your computer.

I did a short test with a Facebook ad for my company fan page last month and discovered that over 92% of people viewed the ad on their mobile device. Yet at the same time my site and many others in the industry were only designed to be viewed on a computer.

I hope you enjoy it and I look forward to hear from you.

Cheers,

Pat

First Time Home Buyer

Should you grow your nest egg or pay off your mortgage?

Sometimes the question arises that what is best option between growing on investment and paying off mortgage. Here I would like to suggest that one should take his own financial decision as per his or her circumstance. But, I will put my opinion in my own way as I see that staying out of debt has potential impact on anything I can do.

Somebody may speak rubbish when they tell you to stop paying mortgage since you forfeit your tax benefits on your mortgage. On the other side, some may suggest you to stop paying mortgage because you could utilize it for any high growth investment. This way, they suggest you the way to benefit from compounding interest. Instead of paying at low interest mortgage, you can invest in high return investment tools. This point of argument sounds good. But, you must understand that you will still be in debt. Therefore, it seems as if not having a mortgage is profitable than having one.

It is always wise to have sound resources of savings funds at your possession and pension plan like CPP. It could be risky sometimes when you undertake a long term mortgage taking it granted that nothing unpredictable would happen to force you take a big slice out of your savings fund. Therefore, what’s greater than having absolutely debt free? If you stay in a debt free status, you can build your wealth faster than ever. Otherwise, if any unavoidable circumstances arise, you may lose your house. A paid off house is an asset and a source of strength for you in time of economic crisis. You stay in control with it no matter what economic hard time goes on around you.

Nothing is better than owning a house without a mortgage. But, for most of us, the possibility is slim to none because we don’t have the patience and guts to think the other way. If anyone can sacrifice for a span of time, he can save up a lot to purchase a house without mortgage. Personal finance is always a mater of individual choice and mindset. There is no rigid guideline. So, one has to take up a way what he would feel comfortable to own his house.

This guest article was written by Patricia Briggs.

Author’s Bio:Patricia is a guest columnist, blogger, author for various websites and communities. She has completed her Post Graduation in Social Welfare from California University. She loves to write articles especially on topics like mortgage, loan, investment opportunities, monetary policies, etc.

Demystifying the 5 year fixed rate mortgage

If this title alone does not get you I don’t know what will. Most people opt for the 5 year fixed rate mortgage because of the security of knowing what your payment will be from month to month over the next 5 years. However how do you know if you got the best 5 year product. In case you did not know there is more than one out there.

Lender’s price their fixed rate products based on how long that they have to guarantee the rate. These rate guarantee’s range from 30 days all the way up to 120 days. So as a result the quicker you can close the more likely you will get the best rate in town.

Here are a few examples. Read more

5 Ways to Avoid a Personal Financial Crisis

Here are some tips on what you should do to avoid a personal financial crisis:

1) Have an emergency slush fund

You should have at least 3 months of living expenses put away in case the worst happens. I am not talking about putting it in your mattress or in a coffee can. These funds should be liquid and fairly easy to access quickly but not so that you can dip into them & buy something if the whim strikes you. My wife and I have used an ING investment savings account, you could do something similar or open a Tax Free Savings account, that way your emergency fund is tax protected.

2) Know your income and expenses

Most people might know how much they make but have no idea how much they are spending. When I got out of University I worked as a personal trainer for a few years. When I took on a new client, I would have them keep track of what and when they ate for a week to give them a better idea of what is really going on in regards to their health. Your finances are no different, take a 30 day period, create an excel spreadsheet for example and track all income and expenses. Then sit down and take a real good look at it and decided if it is needed or not. Trim the fat and put the saving’s into your newly developed emergency fund.

3) Diversify your income

What I mean by this is don’t put all your eggs into one basket. Develop a secondary income stream incase something were to happen to your day job. Turn that passion or hobby into a business. Invest in real estate. Build a residual income stream by joining a network marketing or direct selling company. Make sure that what ever you do, it’s something that you are passionate about and will allow you to add to your bottom line. The other advantage is that your new business could become a great tax deduction, check with your accountant to make sure that it is structured properly.

4) Give your self an immediate 18-20% return!

How is this possible you may ask? It’s easier than you may think. Do it by paying off your debt. Start with your higher interest debt, your credit cards which are anywhere from 12%-18%, or if it is a department store card, it could be as high as 24%. Next your car payment, unless you have a 0% loan, you are probally paying 7-9%. Lastly your mortgage 3-7%. If you need a detailed plan on how to do this quickly, let me know I have designed quite a few of them.

5) Lastly make sure that your affairs are in order.

I am not trying to sound morbid, but we don’t live forever. Have a proper estate plan, have health insurance for your and your loved ones, and have an insurance policy big enough so that the one’s you leave behind are not faced with an immediate financial crisis. For this point I suggest consulting with your personal estate lawyer as well as your financial planner. If you don’t have one I can suggest for legal advice or here are two good options for financial planning.

Bonus point….and this should be a no brainer.

To achieve anything on this list, you should have a plan. Start with a clear picture of the current state of your finances. How much time do you have between where you are now and where you want to be? With the help of one of the financial planners above or your own, develop your plan and work your plan. Remember to be flexible in your approach, know what’s working or not, and be willing to make the necessary changes to insure that you achieve your goal.

*Note that I receive no gain monetary or other wise from promoting the services or products in this post.

As always, feel free to contact me if you have any questions and I look forward to hearing from you.

Cheers,

Pat

p.s- You can find me on Twitter,Linkedin, Facebookand friendfeed.

Make a difference

Earlier this week I received a story in my e-mail that I want to share with you.

I made a difference to that one…

A man was walking on the beach and ran into a little boy throwing starfish into the ocean.  When the man asked the little boy what he was doing, the little boy explained that the tide had gone out and left the starfish on the shore.  They wouldn’t survive the day in the sun and if they didn’t get back in the water, they would dry out and die.

Amused, the man looked down the beach and noticed that there were thousands of starfish washed up on the shore and they went out as far as the eye could see.

“Little boy, while I appreciate what you are trying to do, there are thousands and thousands of starfish on this beach. You can’t possibly make a difference.”

Without flinching, the little boy picked up another starfish and threw it back into the ocean.  “I made a difference to that one!”

While we can not help them all, we can make a difference to the ones that we do help. If you can do one thing to make a difference today, you should think about donating to your local Red Cross
. Organizations such as these are usually the 1st on the scene to aid the victims of disaster such as the one that just hit Japan.

If there is anything that I can do to help you, please feel free to contact me.

Cheers,

Pat

Economic stats for March 2011

Bank of Canada Interest Rate

January 18, 2011 1.00 %
March 1, 2011 1.00 %
April 12, 2011 Next meeting date

Bank Prime Lending Rate

January 19, 2011 3.00 %
March 2, 2011 3.00 %
April 13, 2011 Next meeting date

Conventional Mortgage – 5 Year Rate*

January 19, 2011 5.19 %
February 9, 2011 5.44 %
February 23, 2011 5.44 %

*Determinant for high ratio mortgage variable qualifying rate

US Federal Reserve Board Discount Rate

December 14, 2010 0.00 % – 0.25 %
January 26, 2011 0.00 % – 0.25 %
March 15, 2011 Next Meeting date

Exchange Rate $CDN($US)

January 31, 2011 0.9985 $CDN ($US)
February 11, 2011 1.0134 $CDN ($US)
March 1, 2011 1.0257 $CDN ($US)

Government of Canada Bonds

Bond Type January 26, 2011 February 9, 2011 February 23, 2011
1 year Treasury Bill 1.33% 1.36% 1.36%
3 year Benchmark
Bond Yield		 1.91% 2.06% 2.15%
5 year Benchmark
Bond Yield		 2.56% 2.74% 2.61%
10 year Benchmark
Bond Yield		 3.31% 3.95% 3.32%

Total New Housing Starts (Seasonally adjusted and annualized)

Province November

2010

 November 2009 December 2010 December 2009 January 2011 January 2010
Newfoundland/Labrador 3,100 3,200 3,200 4,200 3,800 3,600
PEI 1,000 1,000 1,100 1,300 800 600
Nova Scotia 3,600 2,800 2,800 2,900 4,600 2,800
New Brunswick 3,600 3,900 3,100 3,600 3,500 5,200
Quebec 44,100 40,400 47,900 51,600 48,800 55,100
Ontario 83,300 53,000 46,400 56,300 51,400 55,500
Manitoba 5,500 4,200 6,500 3,400 3,900 5,100
Saskatchewan 9,400 6,100 7,500 4,500 6,100 6,400
Alberta 21,500 24,800 20,500 27,800 19,300 23,500
British Columbia 20,800 19,200 30,000 22,200 28,200 27,600
CANADA 195,900 158,500 169,000 177,800 170,800 185,400

Source: CMHC Housing Now – February 2011 and February 2010. This seasonally adjusted data goes through stages of revision at different times of the the year.
Average MLS® Resale Price for Local Markets

City January 2010 January 2011
Halifax $241,968 $252,141
Saint John $168,439 $171,788
Quebec $224,088 $240,646
Montreal $284,384 $294,436
Ottawa $323,762 $329,640
Toronto $409,058 $427,159
Hamilton/Burlington $288,397 $325,732
Winnipeg $213,134 $229,716
Saskatoon $270,191 $300,353
Regina $240,276 $260,133
Calgary $382,009 $394,455
Edmonton $314,783 $315,483
Vancouver $637,637 $762,562
Victoria $509,514 $486,384

Source: Canadian Real Estate Association
Household Financial Vulnerability

The index is not a predictor, but is aimed at capturing which regions are more vulnerable in the event of an unexpected adverse economic shock, such as a rise in the unemployment rate or a spike in interest rates.
Snapshot of Canadian Household Debt Indicators by Region

level as of 2010-to-date*

Debt-to- Income Ratio (%) Debt Service Ratio (%) % of households

with a debt-service ratio above 40%

 Debt-to- Asset Ratio (%) Home Price to Income Ratio Personal Savings Rate (%) Est.
Can 127.0 18.6 6.5 28.7 5.9 3.9
Atl. 96.7 17.3 6.3 29.8 3.7 0.7
QC 99.5 16.9 5.6 29.3 5.2 4.2
ON 135.2 18.9 6.9 28.6 5.3 2.9
MB 100.1 14.3 1.9 25.5 4.1 3.1
SK 116.8 18.1 8.8 25.7 4.4 4.1
AB 143.2 19.2 8.4 30.2 4.8 15.0
B.C 160.5 22.0 5.9 27.2 8.8 -4.2

Source: Ipsos Reid Canadian Financial Monitor, Statistics Canada, Haver Analytics

TD Economics, February 2011

Note: Note micro-data data differs from national aggregates due to methodological differences

*Includes first three-quarters of 2010, for households who hold debt

To break or not to break?

Well that is the question. Wondering whether to break your current mortgage to take advantage of the lower rates that are currently offered. Well here is an example that you can apply to your situation to see if now is a good time to take advantage of the lower rates.

Interest Rate Differentials (IRD)

Often a client needs an “idea” of how much their existing mortgage penalty might be before he decides to refinance or do an “early switch” with pre-payment penalty.

If the penalty is based on a rate differential, here is a BASIC calculation to figure out a close amount…..

Based on a:

$200,000 with 3 years remaining on a 5 year term of 5.70%….

…because there are 3 years remaining, the current 3 year rate is used to calculate the differential.

If the lenders current 3 year rate is 4%, there is a difference of 1.7%. Because there’s still 3 years left, the principal is also multiplied by 3

$200,000        x      1.7%      x       3     =       $10,200 penalty

(remaining principle)(Difference btw rates) (# yrs remaining)

**This is an estimate and will change every time rates change. If the differential increases, the penalty will also increase.

Now next you have to determine if the savings will exceed the penalty, and make the refinance worth while so here is another example. Interest rate in the before example is 5.7% and after is 3.99. Both with a 20 year amortization and a $2,400 annual tax bill included in with the mortgage payment, and house value of 400,000.

Before
After
Creditor
Balance
Payment
Creditor
Balance
Payment
Mortgage
$200,000
$1,590.89
Mortgage
$280,200
$1,681.02
Credit Line
$10,000
$300.00
Credit Line
0
0
Bank Loan
$20,000
$405.53
Bank Loan
0
0
Credit Cards
$40,000
$1,200.00
Credit Cards
0
0
Total Owing
$270,000
$3,496.42
Total Owing
$280,200
$1,891.65
Your Savings
$1,604.77

So as you can see in this case you will save $1,604.77 in monthly payments. Here is the big picture, by paying the $10,200 penalty, you will save $57,771.72 in payments over the next 3 years.

Please contact me for your personal analysis of your debts as every situation is different.

Cheers,

Pat

Thanks to Rachelle Gregory-Marshall my business development manager with Merix Financial for this great example of how to calculate our IRD penalties.

* Penalties in every mortgage are different. Please contact me to see if you are able to break with a lower penalty.