How Do the Banks Determine Home Affordability?

When prospective homebuyers step into our London office, the first words out of their mouths are usually, “can we afford it?” Even if you have a decent understanding of how mortgages work and have worked hard to save up a down payment, it can take some time to get a good grasp on how mortgage lenders process your application and determine that coveted number: your pre-approval amount.

And it’s no wonder: in the past few years, mortgage approval rules have completely changed, and banks take a very thorough look at your financial picture before determining your affordability.

If you’re just starting to think about the home buying process, using online resources, such as a mortgage calculator, is where many hopeful home buyers start. We have a very simple and easy mortgage affordability calculator on our website, which takes into account your annual income, current debt load and the additional costs of home ownership, such as property tax charges, condo fees and heating costs.

While this calculator is a great place to start and can help you get a sense of the size of mortgage that you will be able to afford, keep in mind that it’s not a one-size-fits-all approach, as banks also take into account specific aspects of your situation, such as your credit score and down payment amount.  If you are looking to understand your mortgage affordability in more detail, our mortgage payment calculator examines a more detailed scope and helps you understand the way that your payments will be structured over time, including how much interest you will be paying over the life of your mortgage.

In addition to all the factors that go into getting approved for a mortgage, it’s also important to assess the amount of debt that you are comfortable carrying. It’s understandable if you are eager to see how much home you can afford, but if there are homes in your area for less than your pre-approval amount, you may wish to think about whether you would be happy in a less expensive home with a smaller mortgage. Just because the banks say yes doesn’t mean you have to max out your financing options!

We work for you at no cost to you. This means that if you have questions about how affordability works or what level of debt you should be comfortable with considering your unique financial situation, our mandate is to give you honest, professional advice that is in your best interest.

Tips for First Time Homebuyers Saving for a Down Payment

When it comes to buying a home, saving up for a down payment can seem like a daunting task. It makes sense to put down as much money as you can on your home, because that translates into lower monthly payments, reduced mortgage insurance costs and more home equity. With many hopeful first time home buyers already financially committed to student loans, car payments and perhaps even the financial demands of starting a family, however, it can be really difficult to find extra money at the end of the month to set aside for your dream of owning a home.

As hard as it can be to save up, studies show that you shouldn’t let worries about a down payment overwhelm you to the point of taking too much time to buy your home. According to the Globe and Mail, 55% of first time homeowners said they would have bought their first place sooner if they had the chance to go back in time. Studies also show that it takes under 2 years to save up a 5% down payment and somewhere between 1-4 years, on average, to save a 10-20% down payment, which means that home ownership can be a realistic goal for you to achieve, no matter where you currently stand financially.

Here are a few tips to help make your dreams a reality as quickly as possible:

  1. Reduce your expenses. Saving for a home is good incentive to tighten the belt a little bit.
  2. Look at your options for using your RRSP as a down payment under the Home Buyers’ Plan (HBP)
  3. Evaluate if you can cut down from 2 cars to 1 car in your household.
  4. Ask for cash for birthday, holiday or even wedding gifts. Cash gifts from parents are a common way that Canadian first-time home buyers speed up the saving process.
  5. Wait on your next vacation or plan a stay-cation. If you’re used to going away every year, skipping a year or postponing it by six months will help save you a nice chunk of change.

We have helped countless numbers of first time home buyers get their foot in the door. Even if you’re at the saving stage, it’s a great idea to speak with a mortgage broker to help you plan your savings’ strategies and get a professional opinion on how long it will take you to be ready. Because who knows? You might be more ready to buy your first home than you think!

How to Optimize Your Real Estate Investments

Sophisticated real estate investors know that there is a lot of background research to fully understand the market value–and potential–of any given property. Even if all of your investments are located in the same city, there are variance in neighborhoods and even certain streets, that can affect your ability to get a solid return on your investment.  Here are some of the top ways to assess a location’s potential and whether a listing would make a good addition to your real estate investment portfolio:

  1. Mortgage Interest Rates
    When interest rates are low, there will be fewer renters and more first time home buyers. This often–but not always–means that prices will move up, especially in areas that tend to attract that type of buyer.
  2. Up and Coming NeighborhoodsLook closely at the type of homes in a potential area. Is there a mix of run-down homes and well-kept, recently updated houses? This is a sure sign that the neighborhood is ready for a boost in property values.
  3. Sweat Equity
    If you are choosing between two investment properties, pick the house that is more solid, with regular maintenance updates, and requires more cosmetic, rather than structural work or big-ticket repairs. You are much more likely to get a better return on your kitchen upgrade or new hardwood flooring than replacing a roof.
  4. Understand the Value of Good Marketing
    Whether renting out or selling your investment property, knowing how to market your property well will give you a much better return. Staging, lighting, good photography, well-written descriptions and strategic use of online marketing channels are all essential for getting the word out there to the renter or buying who is willing to give you the most bang for your buck.

We work closely with many real estate investors to make sure that their portfolio is properly financed and positioned for growth. Once we’ve laid out all your options, all you have left to do to grow your wealth is choose which house will be your next investment!

10 Facts You Need to Know About Reverse Mortgages

More Canadian seniors are looking to reverse mortgages to help them plan a great retirement. There are many misconceptions about reverse mortgages and it can be difficult to get the education you need to help you make the right decision about this option. Are you thinking about getting a reverse mortgage but not sure how to decide if it’s a good idea for you? We have helped countless people experience a better quality of life while setting up a great financial plan for the future by helping them understand how to use a reverse mortgage to their advantage.

We are here to help you evaluate all your options to choose the best financial arrangement for your home financing needs. If you are thinking of a reverse mortgage, here are 10 reasons why it might be perfect choice for you:

  1. When you get approved for a reverse mortgage that means you are approved for life.
  2. You can get approved for a reverse mortgage even if you have low credit or low income.
  3. Many of our clients with reverse mortgages still hold approximately 50% of their home equity. A reverse mortgage does not mean that you lose all your home equity.
  4. Getting Independent Legal Advice is a requirement prior to getting a reverse mortgage, which means that you can be assured that you are receiving a financial arrangement that best suits you.
  5. Getting a reverse mortgage is simple! Many Canadian seniors say that their reverse mortgage was the easiest financial arrangement they have ever made.
  6. You can get low rates for reverse mortgages. Depending on the market, you can get a reverse mortgage rate at as low as prime + 1.25%!
  7. Reverse mortgages are a great tax planning tool as the money received is tax free.
  8. There are no changes to qualifications or payments if your spouse passes away.
  9. Many Canadian seniors are choosing reverse mortgages as a great way to diversify their portfolio.
  10. Reverse mortgages are different in the US, so look to Canadian lenders to learn more.

If you are a Canadian senior who is considering a reverse mortgage as part of your financial plan for the future, speak to one of our mortgage specialists today to discover why more Canadian seniors are discovering reverse mortgages as a way to reduce financial stress, stay in their home longer and enjoy retirement more than ever before!

Thanks for reading!

Mike De Sousa and Mindy Small

Your London, Ontario Mortgage Brokers at Dominion Lending Centres Forest City Funding FSCO# 10671