Adrian's Articles:
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How You Can Add an Extra $80,000 Towards Your New Home!

Stan & Judy are a young couple in Hamilton ON.  They are just under 30 years old have been living together and renting for about 5 years.  In that time they have saved up $20,000 for a down payment on their first home.

Stan works as sales rep for a reputable company earning roughly $60,000 a year and Judy works as an admin assistant and earns $45,000 per year.

Together their house hold income is $105,000 per year.

Without any debt Stan & Judy could qualify for a new home that is worth roughly $515,000 (depending on the property taxes)

However, Stan likes to drive trucks, especially pickup trucks.  And because of his great credit and their monthly income, Stan just bought himself a brand new Chevrolet Silverado for $55,000

With taxes his monthly truck payments are $660 / month.

Judy on the other hand, enjoys her Nissan Kick and paid $22,000 with a monthly payment of $234

They have really no other debt other than a couple of Visa cards that have a balance of less than $1,000

Since they make good money, how much of a house do you think they can afford now?

Go ahead take a guess.

With the car payments combined they are now paying $894 a month just in car payments.

They went from being able to afford a $515,000 purchase down to just 435,000, an $80,000 drop in price.

That $894 a month could be going towards their Mortgage of their first home and can cost them over $80,000 for a new home

It’s a common theme among home buyers, especially first time home buyers.

Is there a solution?

What can Stan and Judy do to offset these car payments?

As I am sure you are aware, the down side of owning a brand new car is that they lose their value quickly.  In fact, new cars lose their value the moment it’s driven off the lot.

Buying used vehicles can save you money and help you buy that dream home.

It doesn’t have to be clunker, but if you can find a great deal on a car that is less than 5 years old, chances are you can still get a decent warranty and your maintenance costs are still affordable.

Please understand, I am not here to sell you a used car.  I am here to help you understand what car payments can do to your home affordability.

If Stan were to buy a pickup truck for around $22,000 and keep his car payments the same as Judy’s, here’s what the numbers look like.

If they can keep their car payments and all other debts under $500 per month, they can still afford that home for $515,000.

A $426 per month drop in car payments can add $80,000 towards your new home.

In fact, there are 3 things that can have an impact on your affordability when buying a home:

  1. Income
  2. Debt
  3. Down Payment

Sometimes those who earn less income, can buy a home that is worth more than others who may earn more money, but have far too much debt.

And when it comes to the down payment, it needs to be substantial in order to offset affordability.

In the case of Stand and Judy, if Stan wants to keep his truck payments they would need to put down roughly $100,000 in order to get the numbers in line for a $515,000 purchase.

When it comes to buying a new home, we need to have monthly cash flow in check.

For more information on what you can afford, please check out my website and if you are ready check out my VIP – Lowest Mortgage Rate Guarantee.

Thanks for your time!

 

How To Buy a Home With No Money Down

Over the weekend I received a frantic message from a family member talking about an ad they had seen on Facebook about 0 money down mortgages.

Did you happen to see it?

The first question I get from many people is do no money down mortgages exist and more importantly how do I get that?

To answer the first question, it’s important to understand that in Canada, we need a minimum of 5% to purchase a home…this is true whether you are a first time home buyer or not.

It’s also important to understand that also in Canada that we still have cashback mortgages.  The idea is that there are programs that allow you to “borrow” the down payment.  Usual sources are from credit cards are unsecured lines of credit.  If you can qualify for a mortgage with the added expense of the borrowed funds, you can get a no money down mortgage.

But what if you don’t want to carry all that debt?  Does it make sense to get into debt just to buy a new home, so that you can carry even more debt?

That’s where the cashback mortgage can come in handy and with a cashback mortgage, a mortgage that gives you money after closing, can pay off the borrowed funds, and essentially you now have a no down payment mortgage.

There is another way that you can take advantage of the cashback mortgage and the no money down payment, more on that in a minute…

Coming back to the cashback mortgage how does that work?

It’s very difficult to believe that banks dole out money to their customers.  They are in the business to make money so how is it possible to get a cashback mortgage?

Simply put, it’s all about the rate.

That, up to 5% cashback mortgage, gets paid back to the bank by the rate.  Here’s an example.

Let’s say you can get a mortgage for 2.19% for a 5-year fixed, and we are looking at getting you a cashback mortgage.  The term remains the same, what does change however is the rate.  The banks add a full percentage point to your 5-year rate to get their money back.  Now that rate has gone from 2.19% to 3.19%

As well, if you go to sell your home before the 5-year term has matured, that cashback MUST be paid back upon closing.  Unless you are porting that mortgage with the same institution, that cashback you received must eventually be paid back.

Whether it’s through the 5-year term, or if you go to sell your home.

So to keep things in order, as long as you complete the 5-year term, the money is now considered paid back, and if you do need to move and break the mortgage before the term is up, so long as you port that mortgage (which includes a blended rate), that money will be considered paid back again, once the end of the mortgage term is reached.

The question then becomes; is doing a no money down mortgage worth it?

The answer lies within your situation.  If you have good credit and little to no debt, it might be worth looking into.

As well, as I mentioned there is another way, contact me (send me an email) and I will give you the scoop on how to take advantage of the 5% cashback so that you don’t have to “borrow” the funds for your down payment.

Send me an email: adrian@mfco.ca or call me today: 905-730-4446

Thanks for your time!

The Truth About Unsecured Credit and Credit Cards

When we are looking at how much clients can afford for a purchase and ultimately how much they can qualify for, for a Mortgage, there are 2 numbers that we look at.

One is called the GDS and the other is called the TDS.  These are known as service debt ratios.

The GDS represents gross debt service ratio.  It’s a fancy way of saying how much we can afford based on our current income.  The GDS consists of the Mortgage payments, the property taxes and the utilities (usually just heat using $85/month).  We add that up and then divide that by your Monthly gross (income BEFORE taxes) and it comes out to a score. 

In Canada we can never use 100% of your monthly gross income to qualify you for a mortgage we just use a percentage of that.  And as long as we don’t go beyond 39% of your total Monthly gross income, we say that you can “afford” X amount of dollars based on that.

Are you with me so far?

Ok good!

The TDS consists of everything we just mentioned but it also includes any debts that you currently have.  These debts could be, but not limited to; credit card debts, unsecured lines of credit, car loan payments,  student debts etc.  Cell phone bills and cable bills are not considered debts.

Debts are monies that is owed.

In Canada we use a slightly higher ratio and we cap clients at 44% of their total monthly gross income.

It may be difficult to understand this at first, but just know that we are only allowed to use a percentage of your monthly gross income to qualify you for a Mortgage.

And when it comes to debts this is where things get interesting.

There are some debts that banks consider at face value.  Car payments for example remain static and so we use whatever car payments you currently have to factor into these ratios.  Student debts are the same and any other loans you may have (like boats, cars, trucks, motorcycles etc.) fall into this category.

Other monies that is not debt but is still factored in are things like; spousal support and child support payments.

Revolving debts such as, credit cards and unsecured lines of credit however, are calculated differently.

Institutions have to use 3% a month of the balance of these debts when calculating your TDS ratio.

What does this mean?

Let’s say you have a credit card that has a limit of $10,000.  And you currently have a balance of $5,000.  Although your minimum payments might be $83, when qualifying for a mortgage, that now jumps to $150 per month that is used to calculate your TDS score.

Here’s another example. 

Let’s say you have an unsecured line of credit that has a limit of $35,000 with an interest rate of 6% per year.  And on this unsecured line of credit you have a balance of $18,000

Your minimum payments may only be $360, but we now have to use $540 to use in your TDS ratios.

This has a serious affect on your bottom line when looking to qualify you for a Mortgage.

Even though you might make a significant amount of money, depending on how much debt you carry, also impacts how much you can afford.

It may not seem fair, but that is how we must calculate your debts.

If you are in the market for a home, just be aware that having a ton of debt could be detrimental to qualifying for a Mortgage.

Especially when you are in the middle of purchasing a home.  When you first receive a commitment letter from your bank does NOT mean that you are out of the woods.  I recommend that you keep your debts to a minimum until AFTER you close.  This way you won’t run into any issues when it comes time to get the keys to your brand new home!

Thanks for your time!

How to Buy Your Second Home with Just 5% Down

There is some confusion with regard to down payment and how much we need in order to secure a new home. Many Canadians may believe that putting 20% down is the best way to purchase a home, and I was of this mind set for a long time.

In this day and age however, unless you have already built up equity, it seems next to impossible to save for a 20% down payment. As of today, the average home in Hamilton ON is $680,000. That means that we would need $136,000 for a down payment. If you are averaging $60,000 per year as your salary, trying to save up $136,000 will be next to impossible.
As well, many Canadians may believe that having to pay for CMHC fees in some way is bad thing. It’s almost like the fear of “gotcha!”.

CMHC and other companies like Genworth and CGMI often get a bad rap, however, this is far from the truth. These companies offer Canadians many options for various types of scenarios. For example CMHC offers programs for New Residents to Canada, Purchase Plus Improvements Programs and the new First Time Home Buyers Incentive.

Genworth offers programs where Canadians can borrow the 5% for a home purchase, new construction mortgages and vacation homes.

These programs offer so much more than just your regular Conventional mortgages where we need to put down 20% and give Canadians options depending on your specific situation. As well, if you have previously owned a home you may believe that you are out of luck because you now need 20% to buy a home. Again this is incorrect.

Whenever we are purchasing a property for the purposes of living in the property, the minimum down payment is always 5% regardless of how many homes you currently own, or if you have ever owned a home before. This what we call “owner-occupied”.

So if we are looking to purchase that home in Hamilton for $680,000 we can use $34,000 (5%) instead of the $136,000 (20%) for a down payment. However, the $60,000 annual income is not going to get us a $680,000 home either.

With the regulations and home buying qualifying rates, Canadian who earn $60,000 can’t afford to purchase a $680,000 it’s out of their price range. In fact $60,000 can get you about $250,000 purchase price. An average household income of $80,000 can get you around $350,000, if you and your significant other generates $120,000 per year than you can afford around $480,000

Does this mean we are out of luck?
Not necessarily.

As I mentioned earlier, as long as the property is “owner-occupied”, we only need 5% for a down payment, this includes duplexes. Buying a duplex is a great way to get into today’s market without breaking the bank. We can use the rental income to offset your income.

Here’s how it works:

In the Haldimand/Norfolk are, there are properties that can be purchased for less than $400,000. If you are not sure where Haldimand / Nofolk area is, take Upper James past Rymal Road and keep driving South!

It’s a beautiful and peaceful area and is really only an hour or so drive to downtown Hamilton.

If we can find a duplex and your family combined income is $80,000 we can use the rental income to offset your income in other words we can add to it. Let’s say you are able to get $1200 for a 2 bedroom. We can use the 50% of that rent to offset your income, so we can now add $600 per month to your income. That’s an extra $7200 a year. So now your income is $87,200.

That extra $7200 a year is a $31,000 difference in your purchase price. Instead of being able to afford $345,000 you can now afford to purchase a home for $376,000. Plus that $1200 per month in rent can pay for your Mortgage payments.

What about buying a second home for a family member? We can use the Genworth Second Home Program using just 5% down to buy that home for your son or daughter to go to University, or for an immediate family member to help them get started with their first home.

There are many more options available to us that we know.

Thanks for your time!

The First Time Home Buyer Check List

Tired of renting from Mom & Dad, or from friends and family and you truly believe you are ready to buy your first home?

Let me help you get started with a simple check list that you can use right now.

1) Check Your Credit – this is the very thing that you need to do. There are websites that can help you with this; creditkarma.ca for example is a free site that you check over and over again and it won’t ding your score. Check for things like collections, or late payments as these will have a very serious impact on your score. 

If you have anything in collections get those paid off immediately and make sure that you have the documentation to prove that they are paid.

What makes for a good credit score?  Anything over 680 will get you approved these days, but if you are in the 700-800 range that you are in very good position to purchase your first home.  Other things that may help build your credit is to keep paying your minimum payments on time and keeping your balances below 30% of your limit amount.  That means that if you have $1,000 limit on your credit card, keep your balance to a maximum of $300, or better yet just pay off the balance every month to save you on interest.

Having major bank credit cards vs ‘B Lender’ type cards will also help.  There’s nothing wrong with having a Capital One card or a Canadian Tire Master Card, but having at least one Major Bank visa card (TD, CIBC, RBC, etc.) also goes a long way.

2) Review Your Finances – CMHC released a report in 2020 found that 33% of home buyers who bought in 2019, did not have a monthly budget before purchasing a home.   Keeping an eye on your monthly budget will help you understand what you spend a majority of your money.  Upon one of my yearly reviews of my monthly budget, I found that I was spending almost $500 a month just on junk food and coffee.  $500 per month can go a long way towards saving for a down payment, or can even go towards your Mortgage payments.

Start with a simple excel spreadsheet, keep track of your Monthly NET income (income AFTER taxes), and keep track of your Monthly expenses.  After doing this for 3 months spending habits will emerge that you can take control of immediately.

3) Save for the down payment – you can have your down payment gifted from immediate family members, but saving for your first home is a sound way of getting approved.  Those with steady income, good credit AND have their own down payment, get approved much faster and more often than those with gifted funds, and poor credit.

How much should you save?  Many people will tell you that you need to save at least 20% for a down payment in order to save on CMHC fees.  As this is a true statement, trying to save for 20% can be no end solution that will keep you from buying your first home.  5% is all you need to buy a home, plus it just makes better financial sense.  Here’s an example:

The average house price these days (depending on the area) can get as high as $400,000 – $500,000.  In order to save 20% you will need to have $80,000 – $100,000 for a down payment.  Not sure about you but that’s a ton of money to try and save for.  Instead go with 5% and save $20,000 – $25,000 for a down payment.  It’s more realistic and will get you in your first home sooner, rather than later.

Besides, the CMHC premium is only $15,200 on a $400,000 purchase, and is added to your Mortgage which means that it is NOT an out of pocket expense.  Why would you spend $100,000 to save yourself $15,000?  It doesn’t make sense (or cents!).  Plus, insured deals, always get a better rate anyway!

4) Get your paperwork in order – the steadier your income the better chance you have of getting approved.  Paper work includes having your taxes completed every year and on time.  This includes T1 Generals and the associated Notice of Assessments for the same year.  Have 3 months bank statements (or 3 months investments statements if you’re using RRSP’s for your down payment) to prove the down payment.

Other documents include Employment Letters and pay stubs.  Have this ready to go when booking an appointment with a financial person.

5) Use a broker, not your bank – loyalty is a great thing but not when it comes to your local bank.  A Mortgage broker can save you thousands of dollars in interest by finding you an affordable mortgage with the best rate.  If you were to do the shopping on your own, you risk the chance of hurting your credit score by having each institution check your credit for every application.  A broker only ever checks your credit once, and can shop around for you.

It saves you valuable time and money.  Especially these days as you need to know what you can get approved for quickly as houses are not staying on the market very long.

If you’d like more information about the approval process, visit my website yourmortgageminute.ca and download my free e-book, where I go into depth about the mortgage approval process.

Until then, please feel free to contact me with any questions, thanks for your time!

The Truth About Your Credit

A recent survey showed that 44% of Canadians would rather check their grade after an exam than check their own credit score.

Your credit score is something that can you can take control of and can build over time to make it even stronger. If you fear your credit, I am here to tell you there’s nothing to fear. Building a strong credit score builds your financial confidence. When you take over your credit and understand it, you are taking control of your financial future and that is something to be excited about!

I’d like to share a story with you.

Just before the market crash of 2008 I was in financial disorder. Even though I had a great career as a Computer Programmer at Mohawk College in Hamilton, I also owned a duplex where I lived in the bottom unit and rented out the top floor. Some would consider me to be a responsible adult. The truth is I had far too many debts to count. I was drowning. And when I went to one of the major banks for help they all but turned me down flat. I thought to myself “What a stupid system! When I don’t need the money they are offering it to me left right and center, but when I actually NEED money, they won’t help me! Stupid banks!”

The truth is, they were right. When we don’t have control over our finances it is difficult for ANYONE to want to lend you money when you haven’t paid back the money already owed. I needed to take responsibility for myself, and I did. Almost a year later in 2009, I was completely out of debt and the pressure was off. How did I do it? Well a couple of things, first I refinanced my duplex and pulled out some equity to pay off a lot of it, and the rest I actually earned trading options on the NYSE during the crash of 2008. Shorting US bank stocks at that time proved to be very lucrative.

After learning this lesson, do you think I was doomed to repeat it? Sadly, yes!

5 Years later, in the fall of 2015 I was right back in debt again. This time even worse than I was previously. This time I was actually over $100,000 in debt in credit card and unsecured lines credit. That was NOT including the Mortgage. The minimum payments were $1500 per month just to maintain the debts. And to boot, I had just lost my job. I was crushed. I didn’t know what to do. In November of 2015 I started a new position with one of the top major banks a Mortgage Advisor. I knew nothing about Mortgages, and I didn’t consider myself to be a very good sales person, but at this point, I had nothing to lose.

The position was 100% commission based, but they gave the newbie’s a 6 month draw, just enough to make Mortgage payments while my wife was taking care of the other bills. In that same year, once I had my new job secured, I went to a insolvency Lawyer to discuss my options. We decided to do a credit proposal. They negotiated my debts with the banks, and we agreed a upon a set price and after the dust settled, I went from $100,000 in debt down to $26,500 and my payments were now just $500 per month.

The pressure was off, again! But now my credit was shot. It went from a decent score in the 700’s to a mere 500. I was crushed. (banks consider any score over 700 to be in good standing). As the next 4 years progressed, I learned everything I could about Mortgages and the products, and learned a lot about sales, and after seeing 100’s of clients and reviewing their credit, I began to realize that credit, good or bad, is never static. Your credit score is always changing.

The truth is, your credit score is only ever a snap shot of what your current financial situation looks like.

As I began to advise others on what to do, I started to follow my own advice. We satisfied the credit proposal in just 3 years, and we also bought a cottage that we use and then rent out when we don’t.

Did I learn my lesson this time? You betcha!

And now I started a new position as a Mortgage Consultant, and I have helped hundreds of Canadians learn about financial literacy and how to buy not just homes, but rental properties,  and it all starts with building strong credit. Here are few things you can do right now, that will get you on the path to building a stronger credit:

1. Learn to budget – I know that many first time home buyers don’t do this until AFTER they buy a home, but I truly believe that creating and understanding a financial budget will keep yourself accountable. This will give you a good starting point for understanding where you’re at financially. Keep it simple, it doesn’t have to look like a fortune 500 company financial papers, just a very simple check list. Keep track of what money comes in, and what money goes out for bills. Keep a close eye on things like entertainment and groceries. You may budget $50 per week for entertainment, but that goes out the window when you are out with friends for wings and beer.

2. Create an account with Credit Karma or any other credit checking web sites – these are 100% free and you can check your credit score as you progress. There are also great articles on how to build credit and other things you can learn. Checking your own credit does NOT hurt your credit score.

3. Research and learn how to pay off debts – by starting a budget you can take control of your spending habits. Only pay with cash for things that you need, but if you want to exercise good discipline try this: Pay for groceries with your credit card (preferably a credit card that with cash back or reward points), and then pay the groceries off IMMEDIATELY. As in the exact same day. This will do two things; first, it builds your credit score while paying for things you need any way. And two, you don’t pay any interest on while building rewards and extra cash that you can use to pay for free groceries later.

4. If you need to build credit right away, you can get yourself a secured credit card. Home Trust and Capital One are usually good about getting you started. If you are a student in College or just out of high school, Major Banks are willing to give you a credit card to get you started as well.
Your credit isn’t scary and there’s nothing to fear. It’s just an understanding of your own spending habits, and building a strong credit will give you opportunities to do even bigger things, like buy a house, start your own business or get a loan with a great rate without any issues. Having a strong credit puts the power back into your own hands.

If you’d like more information about credit or the mortgage approval process in its entirety,  visit my e-book page and get yours today!