With so many changes to the mortgage landscape in Canada it can be very hard to know which way is up. At some point it is quite possible that you would like to see your children be in a position to purchase their own home. Here is the advice your friendly neighbourhood mortgage broker wants you to pass their way. A home may be where the heart is but it is also a large responsibility which it is best to be prepared for.
1. Build yourself a strong credit picture. The magic number for credit is 2. You must have 2 types of credit established for 2 years to give the lenders an accurate report of how you handle credit. One should be a credit card with a limit of at least $2500. Do not exceed 50% of the available limit, pay it on time every month. Credit is a necessity anymore.
2. Be aware of large debt loads on your purchasing power. If your plan is to purchase a home, please be careful not to incur debts which will drastically decrease your purchasing power. A $13,000 balance on a credit card or a $400 a month vehicle loan will EACH decrease your purchasing power by $100,000.
3. Savings is a habit. This is a reality. If a huge income guaranteed financial stability you would never see a well-paid athlete, actor or musician in a bad financial position. A savings account set up as a monthly automatic withdrawal is very easy to set and forget.
4. Budget for the new home properly. There are costs beyond the mortgage payment. Property taxes, homeowners insurance and utilities are there forever. You will also be faced with both small and large costs to maintain the home. The number one reason for mortgage default is disability in Canada so be sure to allow funds for disability, critical illness and life insurance to protect your home and your loved ones.
5. If you are in a profession which is seasonal, receives tips, commissioned, paid bonuses or overtime or any other manner of unusual pay structure you will have to show a 2 year history of all income on your tax return before we can use it for the mortgage qualification.
6. You will need to have at least 5% of the purchase price for the down payment plus an additional 1.5% to cover the closing costs. Mortgage lenders these days also like to see a bit more savings for a fallback position.
Hopefully you are reading this article and can share the info before any missteps are made due to an overwhelming lack of info on this subject. Building the credit and saving for a down payment can take some time but the sooner they start, the sooner you the parent can turn their room into a lovely version of whatever you would like. Talk to a mortgage professional today to get more info.
Pam Pikkert is a mortgage broker with Dominion Lending Centres – Regional Mortgage Group in Red Deer.
