Looking to sell your existing home and upgrade?

Hey everyone, hope you are all eager for an early spring. I don't mind winter but this year I'm looking forward to a nice spring and with spring in the air many of you may be thinking about selling and perhaps upgrading to a larger home. Selling and buying is not too tricky but here are a couple quick tips to keep in mind:

1. Calculate how much money you will have net should you sell (at a responsible price), minus real estate broker fees (plus taxes), minus mortgage balance and bank penalty (assuming your mortgage is not portable or not worth porting).

2. Will the net proceeds all go towards the new down payment? Can I use some of that money to lower or pay off some debt?

3. Get pre-approved for the new purchase. You can get pre-approved without actually selling or listing. This not only helps set a budget for the new purchase, it also ensures that your credit, income, and incomes taxes are in order. It's not a bad idea to do all this before before listing your home.

4. Can I make a conditional offer on a new home pending the sale of mine? Yes you can however this type of offer is not the strongest because anyone else can walk-in and make an offer without that condition. In such cases, the vendor would give you 72 hours to sell your home otherwise you lose your offer. If your new purchase is really your dream home then sometimes it makes sense to first refinance your present home so you have the down payment. Thereafter you sell and port the new mortgage to the new home later.

5. What if the notary date for the sale of my home is scheduled after my new purchase? Not a problem. In such cases bridge loans are available through the banks.

I'm thinking of buying. Where can down payment come from?

That's right! We're slowing headed into another buying season in Quebec. Many Quebecers and Canadians alike are contemplating the sale of their property or perhaps that first purchase. This blog entry will focus on the latter. First time home buyers are my favorite clients to work with. Maybe it's the former teacher within me that's speaking. There is so much information to share and discuss. I often read the Globe & Mail, and I think the timing of Robert McLister's article on down payments is important to review. 

If you're looking to buy a primary home, condo or duplex for yourself then you will still need a minimum of 5% down. So the question is where can down payment originate from? Here is a down payment quick snapshot:

1. Many people like to tap into their RRSPs with the Home Buyer's Plan (HBP). As a first time buyer you are permitted to use up to $25,000 per person. after buying you have a 2 year grace period upon which your 3rd year you will need to reimburse 1/15 of your amount borrowed. Rob is very correct in that bank's do not take into account that new future debt as part of their TDS calculation but also future debt planning. In other words think twice about using your RRSPs as some Canadians are having trouble repaying that loan.

2. Some folks with generous family members (parents, brother, sister, grandparents) provide a down payment gift. This remains fairly popular given the price of homes. Rob is right in that banks try to ensure that the cash is genuinely a gift rather than a personal loan. This is something that is challenging to monitor after the purchase.

3. In my opinion, building up your personal savings is still the best way to create down payment. Yes it is slow and old fashioned but less potential headaches later.

4. If you are pressed to buy and are low on down payment, in certain circumstances banks will permit you to dip into your credit cards and personal line(s) of credit for the missing down payment. The banks refer to this as alternative sources of down payment. Rob is correct to highlight that the borrower(s) must be well qualified, i.e. great credit, good job. Also, borrowing money towards your down payment has to make financial sense given the your overall indebtedness increases and that needs to be taken into account. In such circumstances approving such mortgages are case-by-case and not the norm.

Once upon a time prior to 2012 mortgage changes, many people took advantage of the "cash-back mortgage" programs. In such cases, the bank would give your 5% down in exchange for paying a much higher 5 year fixed rate. Usually the bank of Canada posted rate. In essence, you self-finance the cash back. However, the penalties for such mortgages should you sell or refinance are costly as you are expected to reimburse some or all of the original cash-back.  If you have such a mortgage, ride out your term before refinancing unless the penalties aren't an issue.

Stay on course with the right financial and mortgage plan

I agree with Rob's sentiment throughout his article in that buying a home without having  properly saved down payment and with having the right financial/mortgage plan is risky.

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McLister, Robert "Canadians can still buy a house without saving their pennie" Published Monday, Jan. 07 2013, The Globe & Mail.
http://www.theglobeandmail.com/globe-investor/personal-finance/mortgages/canadians-can-still-buy-a-house-without-saving-their-pennies/article6970799/

Are you new to Canada and looking to buy here?

I hope everyone’s had a great week. The days seem to fly by don’t they? No doubt havinga mild winter helps. Lately, I’ve come across new immigrants andindividuals on work permits that have been looking to buy in Canada. Oftentimes it is not straight forward to find a mortgage. Using a mortgage brokercan help to quickly access your situation and choose the right mortgageproduct. Often times such families or individuals have no or little credithistory in Canada, or may be on be on contract rather than full time salariedemployment.

Some banks have issue with contract employment but don’t get discouragedas options do exist.  In cases like this youmay be required to put between 15% and 35% down depending on your specificcredit and employment circumstances. Something to keep in mind, if you aremoving down payment funds from abroad to Canada you will want to have the fundshere in Canada prior to having an accepted offer on a property. In most cases,you will not receive a final mortgage approval until the funds are in aCanadian bank account. Simply demonstrating that you have the funds abroad maynot be sufficient and you run the risk of losing that property.

If you have a mortgage, debt-related question or would like to share anexperience feel free to contact me. 

Self-employed and thinking of buying?

Hard to believe but another amazing week has flown by andnow we’re already into the month of October. A topic that I get askedfrequently about is first time buyers that are self-employed. Inother words, individuals that own their own registered company or professionssuch as independent copy-writers or truck drivers that are looking to buy ahome.  If it sounds like you fit in one of these categories then here area couple suggestions to help you get closer to qualifying for a mortgage.

First, whether you have your own registered company or notplease file both Federal and Provincial income taxes (personal and business) ontime. I know it sounds very basic but I’ve seen many mortgages both residentialand commercial either delayed or cancelled because the client has not filed. Ifyou are thinking of buying in the near future and your 2010 Notice ofAssessments show that you owe balance to either Government please pay offthe balance and keep proof of payment. More and more banks are asking to seethis documented.

Next, figuring out your buying capacity as a self-employedperson is the next order of business. In Canada, we can pin-point your incomebased on an average of 2 years notice of assessment and/or having a look atyour financial statements (specifically gross annual sales) for your company.The general rule of thumb is that figuring out your income needs to make sense.Banks typically balance between personal and business assessments to figure outone’s overall personal income. As a self-employed individual, we generateincome but we tend to expense as much as possible, hence why our Notice ofAssessments can show low declared income. Some of those expenses can bemade with a registered company.

Finally, if your income is solely based on an average ofyour Notice of Assessments then you can put a minimum of 5% down. Ifhowever, your income is qualified on your Notice of Assessments andbusiness’ financial statements or “self-declared sales” then you will berequired to put 10% down. This rule applies to all banks in Canada.

If you have any specific questions you’d like to discuss innext week’s article please feel free to email me.

Are you thinking of buying your first home?

The winter buying season is slowly upon us. If you’rethinking of buying your first home now is a good time to start planning ahead. Agood place to start is by putting aside some money towards a downpayment.Ideally, you need a minimum of 5% down for a home. If you don’t have exactly 5%then there are cash-back mortgage options available. In addition to downpayment,banks like to see that you have 1.5% of the purchase price meaning closingcosts such as notary fees and welcome taxes.

With some downpayment in hand you are now ready to getpre-approved. In other words, a pre-approval will access your buying capacity.Often times clients are anxious to know their buying capacity. That’s normal butit’s important to look closer into those numbers. A good rule of thumb is toask yourself, are these mortgage payments (including heat, property taxes,insurance) reasonable and sustainable for me over the next 5 years or so? Moreoften than not, I see clients that come to see me after they have bought andthey find themselves over-extended with mortgage payments and personal debts. Second,the pre-approval process will help identify any trouble areas that can hinderyour ability to buy (such as bad or no credit) but often such areas can befixed. This can take time but get you eventually into a position to buy.

With pre-approval inhand, I suggest meeting with a real estate broker. From there the home shoppingprocess can begin with a good foundation. 

If you have any specific questions you’d like to discuss innext week’s article please feel free to email me.