First-Time Home Buyer

General Greg Weaver 26 Jan

Being on the path to purchasing your first home is one of the most exciting and most rewarding moments in life! While people don’t always dream of the perfect mortgage, we do grow up thinking of a white picket fence and our dream home. Even if you imagined your dream home as a 6-bedroom mansion, we all have to start somewhere!

Regardless of whether you’re buying an apartment, townhouse, rancher or two-story family house, there is nothing quite like your first home. Not only is it an amazing accomplishment and a great sense of freedom and security, but buying your first home is also a great step into the real estate market and can provide you equity and a leg-up towards future expansion.

are you ready to own a home?

Before you jump on in, there are some things you should ask yourself. As amazing as it is to be a first-time home buyer, it is important to remember that this is likely the largest financial decision you will ever make. There are a few questions you can ask yourself to make sure you’re ready to take this incredible leap!

  1. Are you financially stable?
  2. Do you have the financial management skills and discipline to handle this large of a purchase?
  3. Are you ready to devote the time to regular home maintenance?
  4. Are you aware of all the costs and responsibilities that come with being a homeowner? Let’s find out!

COSTS OF HOMEOWNERSHIP:

There are two major costs of homeownership – let’s make sure you’re ready to take it on!

Upfront Costs: The initial amount of money you need to buy a home, including down payment, closing costs and any applicable taxes.

Ongoing Costs: The continued cost of living in a home you own, including mortgage payments, property taxes, insurance, utility bills, condominium fees (if applicable), and routine repairs and maintenance. It is also important to keep in mind potential major repairs, such as roof replacement or foundation repair, that may be needed now or in the future. In addition, if you choose a property that is not hooked up to municipal services (such as water or sewer) there may be additional maintenance costs to consider.

buying your first home

If you’ve decided to take the plunge, you now need to start by figuring out what you can afford. Fortunately, there are all kinds of calculators and tools available. A great place to start is the free My Mortgage Toolbox app which can help you find the best rate in the market, as well as save you time by doing the leg work for you!

Regardless of whether you choose a mortgage broker or a bank, the first step begins with your down payment.

SECURING YOUR DOWN PAYMENT

If you are ready to get your first mortgage, you will need a down payment. The minimum down payment on any mortgage in Canada is 5 percent but putting down more is beneficial whenever possible as it will lower the amount being borrowed. However, if you can only afford the minimum that is perfectly okay! Just remember, if you are putting down less than 20% to purchase your home, default insurance will be mandatory to protect the investment.

Ideally, individuals looking to purchase their first home will have built up a nest egg of savings that they can apply towards a down payment. However, we know this is not possible for everyone so if you don’t have it all saved, don’t worry! Besides being a vital savings plan for retirement, RRSPs can be a great resource for first-time homebuyers and can be cashed in up to $25,000 individually towards a down payment. In fact, most mortgage brokers will tell you nearly half of all first-time buyers use their RRSPs to help with the payment. Those first buyers who choose this option will have 15 years to pay it back and can defer these payments for up to two years if necessary. Always remember though, deferring a payment can increase the time to pay off the loan and you will still owe the full amount!

Another option for securing your down payment is a gift from a family member, typically a parent. All that is required for this is a signed Gift Letter from the parent (or family member providing the funds) which states that the money does not have to be repaid and a snapshot showing that the gifted funds have been transferred.

MORTGAGE PRE-QUALIFICATION

The first step to realizing the dream of owning your first home is pre-qualification. This process provides you with an estimate of how much you can afford based on your own report of your financial situation. The benefit of this is that it sets the baseline for a realistic price range and allows you to start looking for that perfect home within your means! Now this process is not a mortgage approval, or even a pre-approval but it helps to establish your budget. You must supply an overview of your financial history (income, assets, debt, and credit score) but the real requirements come with the pre-approval process where you submit your actual documentation.

MORTGAGE PRE-APPROVAL

This is the meat of the pre-purchase process and determines the actual home price you can afford. The difference between this and pre-qualification is that pre-approval requires submission and verification of your financial history to ensure the most accurate budget to fit your needs.

Pre-Approval can help determine:

  • The maximum amount you can afford to spend
  • The monthly mortgage payment associated with your purchase price range
  • The mortgage rate for your first term

Not only does getting pre-approved make the search easier for you, but helps your real estate agent find the best home in your price range. The temptation will always be to start looking at the very top of your budget, but it is important to remember that there will be fees, such as mandatory closing costs, which can range from 1 to 4% of the purchase price. Factoring these into your maximum budget can help you narrow down a home that is entirely affordable and ensure future financial stability and security.

While getting pre-approved doesn’t commit you to a single lender, it does guarantee the rate offered to you will be locked in from 90 to 120 days which helps if interest rates rise while you are still shopping. If interest rates actually decrease, you would still be offered the lower rate. Another benefit to pre-approval is that, when it comes time to purchase, pre-approval lets the seller know that securing financing should not be an issue. This is extremely beneficial in competitive markets where lots of offers may be coming in.

PROTECTING YOUR PRE-APPROVAL

  • Refrain from having additional credit reports pulled once you have been pre-approved
  • Refrain from applying for new credit, closing off credit accounts, or making large purchases until after the sale is complete
  • Be prepared to show a paper trail – any unusual deposits in your bank account may require explanation. Also if your down payment comes from savings, the bank will want 90 days of statements to ensure the funds are accounted for.

FINANCING APPROVAL

You’re almost there! Financial approval is the last step to getting your mortgage and buying your first home! You will need to keep in mind that just because you are pre-approved, it doesn’t guarantee that the final mortgage application is approved. Being entirely candid with your home-buying team throughout the process will be vital as hidden debt or buying a big-ticket item during your 90-120 day pre-approval can change the amount you are able to borrow. It is best to refrain from any major purchases (such as a new car) or life changes (such as changing jobs) until after closing and you have the keys to your new home!

In some cases, pre-approval may not be guaranteed for reasons outside of your control. For instance, if the home was appraised below the purchase price, is a heritage home, or has safety issues like asbestos, the lender may deny financing. Find a realtor that will be your advocate while showing you homes and always utilize an appraisal and inspection from foundation to roof to ensure that you do not encounter any hidden roadblocks!

CLOSING DAY

Phew, you made it. Closing day is one of the most exciting moments where all the house hunting and paperwork really pays off! It is on this day that you will want to make use of your lawyer or a notary.

To complete the process of closing the sale, your lender gives your lawyer the mortgage money. You would then pay out the down payment (minus the deposit) and the closing costs (typically 1 to 4% of the purchase price). From there, the lawyer or notary then pays the seller, registers the home in your name, and gives you the deed and the keys!

Congratulations, you are now a homeowner!!

Reach out if you have any questions about becoming a homeowner. I would be happy to help you take the first steps!

 

 

Article Published by DLC Marketing Team

How to Save with a Variable Mortgage

General Greg Weaver 17 Jan

When it comes to mortgages, the age-old question remains: “Should I go with a variable or fixed-rate?”. To make an informed decision, it is important to look at the type of buyer and the historical trends.

When it comes to variable versus fixed-rate, it is important to understand what these mortgages are based on. Fixed mortgages are so named as they are based on a fixed interest rate that is set for the duration of the term with fixed payments. On the other hand, variable-rate mortgages fluctuate with the Prime Rate. This can either mean fluctuations in your payment, or if you choose to have set payments, the interest portion of the payment.

In the last 10 years, the prime lending rate has gone from 2.50% to 3.95% and now sits at 2.45% as of April 2020. Due to recent events, these rates have seen even more of a downturn providing huge benefits to new borrowers looking to pay as little as possible.

While a variable-rate mortgage is linked to the Prime Rate, which could cause fluctuations, historically the choice of a variable rate mortgage over a fixed term has allowed borrowers to save in interest costs.

However, due to the uncertainty and potential fluctuations that can occur with a variable-rate mortgage, it comes down to the borrower’s comfort. Some individuals have no wiggle room in their budget for potential changes in mortgage payments, or they do not like the uncertainty. For these clients, a fixed-rate would be the best choice.

On the other hand, clients who qualify for variable-rate mortgages have a unique opportunity to take advantage of lower interest rates. If you have a variable-rate mortgage, you can either set a fixed-payment so that, if the interest rate drops, it means you are paying more on your principal loan each month. Or, if you have flexible payments, you may see your monthly payments drop in accordance to decreases in the Prime Rate. However, since every 10% increase in payment can save three years off the amortization of a five-year term, having fixed payments provide extra benefits. After all, extra pennies towards the principle can help make a difference over the life of a 25 or 30 year mortgage.

Let’s look at the following example:

Amy and Jake have a balance owing of $300,000 on their mortgage with a variable rate at Prime minus .80%, (giving us 2.65%) with current payments set at $703 bi-weekly. The mortgage matures in 24 months but they are considering locking in for a new five-year term at 3.34%. New payments would be $739. As much as they love their home, they are considering a move in the next couple of years.

When reviewing this mortgage, it is more beneficial for them to keep the remaining variable-rate in place for two years. However, if they set the payments based on 3.34% or $739 bi-weekly, this allows them to pay an extra $72 on their mortgage per month. In 24 months, the savings on interest is $4,000 and their outstanding balance is $4,000 less than by staying in the fixed rate.

Another benefit to variable-rate mortgages is that, if you choose to sell before the mortgage term is up, the penalty is typically only three months interest as opposed to much heavier interest rate differential (IRD) calculations used to determine fixed-rate mortgage penalties.

With this strategy, they don’t have to feel pressure to lock in today, plus they can continue taking advantage of the lower variable rate.

If your mortgage is maturing in the next 90-180 days and you’re not quite sure what to do, it is a good idea to contact a Mortgage Professional. Not only can they provide tips for your existing variable-rate mortgage to help save you money, but they can help you assess whether fixed-rate is right for you or if you should make the switch.

 

Published by DLC Marketing Team

Strong December Jobs Report in Canada

General Greg Weaver 14 Jan

Statistics Canada released the December Labour Force Survey this morning, reporting employment gains of 54,700 last month–double market expectations. The unemployment rate fell to 5.9% from the 6.0% rate posted in November and is only 0.2 percentage points above the 5.7% rate posted in February 2020 before the pandemic began.

More people were working full-time in December, particularly core-aged men aged 25 to 54. Most of the employment growth was in Ontario. Nationally, gains were driven by the construction and educational services industries. After having regained its pre-COVID level for the first time in November, total hours worked were little changed in December.

Full-time employment rose by 123,000 (+0.8%) in December, with most of the increase occurring among men of core working age (+95,000; +1.6%). In comparison, the number of people working part-time declined (-68,000; -1.9%). Since June, full-time employment has trended up and was 248,000 (+1.6%) higher than its pre-pandemic February 2020 level in December. In contrast, part-time employment has been mostly flat since June and remained at virtually the same level as in February 2020.

Average hourly wages increased 2.7% (+$0.80) on a year-over-year basis in December, similar to the average pace of wage growth observed from 2017 to 2019 (+2.6%). However, inflation accelerated considerably in 2021. The number of Canadians unemployed for 27 weeks or more fell for the second consecutive month (-25,000; -8.0%) and stood at 293,000 in December. While long-term unemployment fell in each of the previous two months, it accounted for a substantially higher share of total unemployment in December (24.1%) than in February 2020 (15.6%), before the onset of the pandemic.

The labour underutilization rate—the proportion of people in the potential labour force who are unemployed; want a job but have not looked for one; or are employed but working less than half of their usual hours—fell 0.4 percentage points to 12.0% in December, the lowest rate observed since the onset of the pandemic. While this remained 0.6 percentage points above the record low of 11.4% immediately before the pandemic in February 2020, it is within the range of monthly rates observed through 2018 and 2019, ranging from 11.5% to 12.2%.

In December, the decline in the labour underutilization rate was driven by a decrease in the number of people working less than half of their usual hours. The share of the population aged 15 years and older participating in the labour market held steady at 65.3% in December, virtually the same as before the pandemic.

Hence, there is little doubt that Canada is very close to full employment. This is what the Bank of Canada has been looking towards in making its first post-pandemic rate-hike decision. 

Bottom Line 

The December Labour Force Survey was conducted before the recent Omicron restrictions. I believe it is unlikely that the Bank of Canada’s Governing Council will hike rates at its next meeting on January 26. Though some market participants are betting on a January lift-off, The Bank’s forward guidance remains no sooner than Q2 action, and there is little reason, at this uncertain time, for them to accelerate that decision. Moreover, if they want to prove their inflation-fighting credibility, they could hike at the following meeting on March 2. Odds are the likelihood of an April 13 lift-off.

 

Please Note: The source of this article is from SherryCooper.com/category/articles/

Refinancing Your Home

General Greg Weaver 7 Jan

One of the best parts about life is that it is ever-changing. This is one of the reasons that mortgages are available on short-term contracts (such as the standard 5-year) so that you can adjust your mortgage over time to best suit your needs. However, in some cases, you cannot wait until the term is up. In fact, roughly six out of ten homeowners with the standard five-year fixed-rate mortgage break their terms within three years.

There are a variety of reasons to refinance your mortgage such as wanting to leverage large increases in property value or get equity out of the home for renovations. In some cases, you may be unable to wait until the term is up due to life events such as divorce, a new relationship, kids going off to college, or needing to consolidate debt.

Before you refinance, it is important to understand that if you do this during your term you will be breaking your mortgage agreement and there are penalties that come with that. If at all possible, it is best to wait until the end of the mortgage term before refinancing.

If you cannot wait, it is important to understand how your lender is going to calculate the penalty if you break a fixed-rate mortgage. Canada’s big banks calculate mortgage penalties based on the discount you were given from the posted rate at the time that you signed your mortgage agreement. The bank firstly takes their new posted rate for whatever time you have left in your mortgage – if you break a five-year contract on year three, this would be two years – and apply the same discount they first gave you. The difference between the two shows them the amount of interest they would lose for the rest of the term based on your current balance. This is what then becomes the penalty for breaking your fixed-year term and, in many cases, can be quite hefty. Other lenders such as credit unions and monolines will use the interest rate differential or a flat three-month interest penalty.

Beyond the penalties, there are a few other points to consider before refinancing:

  • You can tap into 80 percent of the value of your home
  • You cannot qualify for default insurance which can limit your lender choice
  • You would have to re-qualify under the current rates and rules – including passing the “stress test” again

So what can you do? There is an option to sign a fixed rate for a shorter term, such as three years, or you can also consider a variable rate as the penalties for breaking these mortgages are much lower.

Talking to a mortgage broker about refinancing can provide you access to even greater rates and mortgage plans to best suit your needs and what you are trying to accomplish through your refinancing strategy.

BENEFITS OF REFINANCING

Regardless of why you are looking to refinance, it can come with a host of great benefits when done properly!

1.   A Lower Interest Rate

Depending on where you are in your mortgage term, you could refinance to get a better rate – especially when done through a mortgage broker. On average, a mortgage broker has access to 90 lenders and is able to find you the best rate versus traditional banks which only have access to their own rate.

2.   Consolidating Your Debt

When it comes to debt, there are many different types from credit cards to lines of credit to school loans to mortgages. However, many types of consumer debt have much higher interest rates than those you would pay on a mortgage. Refinancing can free up cash to help you pay out these debts. While it may increase your mortgage, your overall payments could be far lower and would be a single payment versus multiple sources. Keep in mind, you need at least 20 percent equity in your home to qualify.

3.   Modifying Your Mortgage

The beauty of life is that it is ever-changing and sometimes you need to pay off your mortgage faster or change your mortgage type. Maybe you came into some extra money and want to put it towards your mortgage or maybe you are weary of the market and want to lock in at a fixed rate for security. It is always best to do this when your mortgage term is up, but talk to a mortgage specialist about potential penalties if waiting is not possible.

4.   Utilize Your Home Equity
One of the biggest reasons to buy in the first place is to build up equity in your home. Consider your home equity as the difference between your property’s market value and the balance of your mortgage. If you need funds, you can refinance your mortgage to access up to 80% of your home’s appraised value in cash!

If you are considering refinancing your home, or wondering if it is the best option for you, don’t hesitate to reach out I would be happy to provide a custom budget proposal for your specific situation.

 

Published by DLC Marketing Team

Find Your Perfect Home Type

General Greg Weaver 5 Jan

When it comes to finding your perfect home, there are so many more options for potential homeowners! From a single-family dwelling to a townhouse to a modular home, the choices are seemingly endless. But, before you start widening your search, let’s take a look at what makes these home types different – and which one is perfect for you!

Not surprisingly, almost half (53.6%) of Canadian households occupy the classic single-family detached house. In a distant second are condominiums with over a quarter of homeowners (27.9%) opting for this type of home (especially in metropolitan areas such as Toronto and Vancouver). Next come duplexes at 5.6%. The remaining homeowner choices are other housing options, such as semi-detached houses, mobile or modular homes, and other single-attached dwellings such as urban infill homes, which come in at 12.9%.

So, which of these options is right for you!? Let’s take a look starting with the most popular option.

single-family detached

This is a single-family, stand-alone house that sits on its own lot and is the most common type of home you will find. As these are detached dwellings, they provide more privacy with less noise from neighbors. They also tend to be larger dwellings (complete with a yard!) which gives you the space and freedom to really make it your own. Due to the popularity of these homes, there is often high demand in them which can drive up selling prices. In some cases, this can lead to bidding wars and houses that sell for well over the asking price.

single-family, semi-detached

These homes are suitable for a single family and are typically attached to another house on one side. When compared to single-family detached homes, their semi-detached cousins are often more affordable to both buy and maintain. With this affordability does come somewhat less privacy and protection from noise due to the shared walls on one side. However, these homes typically have separate entrances and retain most of the privacy of a fully detached home.

duplex

These are considered structures with two single-family units on separate levels. These are great options for individuals looking to reduce home purchase and carrying costs – live in one unit, rent the second! This type of home also provides unique flexibility for older families, giving you the option to move adult children or aging parents into the second unit as needed.

As expected, these units offer less privacy than a single-family detached home and can sometimes have increased noise through the floor or ceiling.

townhouse or row house

Another popular home options are townhouses or ‘row houses’ as these are a row of single-family homes, which are connected on both sides to the next home (excluding the end unit, which is only connected on one side). Townhouses typically have private yards but, in some cases, it may be freehold or condo-style with shared ownership rights and responsibilities.

Due to the nature of these homes, they are typically more affordable than detached or semi-detached homes and also easier to maintain. Similarly, to duplexes however, these home types have less privacy and may have noise from shared walls. There are also monthly maintenance or strata fees to consider for the unit.

condominium

These are low- or high-rise buildings containing multiple apartment units. These units are individually owned, with shared ownership rights and responsibilities over the building and the common area. Condos are excellent starter homes for single adults, or couples, as they are affordable and require minimal maintenance. Some buildings even have shared amenities, such as a fitness center or swimming pool or party room.

Always check for these amenities and if you would be interested in using them. If not, why pay for them? In this case, you might be better off finding a condo with fewer amenities and lower strata fees. Additional considerations for condos are that these are typically much smaller than detached or semi-detached homes and there is generally more noise (depending on your buildings structure and soundproofing) and less privacy due to common areas.

modular or mobile home

Growing in popularity are modular homes, which are prefabricated homes delivered to a home-site for installation. These homes are owned by the individual, while the land it sits on could be rented or owned outright. Similar to modular homes are mobile homes such as campers and RVs.

These types of homes are highly affordable and extremely flexible; if you relocate, you can sell the mobile home with the property or keep the home and relocate it! As these are less common and somewhat newer home types, there is less resale demand than other housing types and they are much smaller than a detached or even a condominium. If renting land in a mobile home community, there are also those costs to consider.

carriage house or urban infill

A carriage house is located on the periphery of a single-family detached house. Similarly, are urban infill homes which are a modern solution to crowded cities whereby existing space in established residential or commercial areas has been repurposed to maximize density and reduce urban sprawl.

These homes are unique in that they are often located in interesting, urban environments and have their own character when compared to other homes. They are also generally less expensive than a single-family detached home and some of the other types on our list. That said, there is potential for noise pollution if you are in a busy location. Due to the size, there is also limited inventory and limited or non-existent yard space. But if you’re looking for something affordable and unique, these are perfect for you!

Finding the right home to suit your needs means considering your lifestyle and budget now, as well as where you’ll be a few years down the road. Want more information or need help deciding the best option for you? If you want to learn more about your options when it comes to buying and owning a home don’t hesitate to contact me.

 

Published by DLC Marketing Team