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Are you ready to purchase a home?
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Budgeting For a Home.
Getting a mortgage for self-employed/commission workers
Can you qualify for, and afford, a mortgage?
Saving For a Down Payment
Shopping for a Home
Should You Rent or Buy?
Understanding Your Credit
Who you need to buy a home?
Applying for a Mortgage Loan
Is your financial house in order?
The hidden costs of buying a home
Budgeting For a Home.
Why Budget ?
Provided by Genworth Financial Canada
Most people enjoy buying things, but don't like to keep tabs on their spending. Is it worth the trouble to develop a formal budget? The answer is yes, for the following reasons:
Prepare for large expenses. Many people pay for car insurance every six months. If you prepare for that expense by saving part of the money each month, you won't need to panic when the insurance bill comes.
See when items cost too much. When you pay attention to all of your expenses, you may be surprised to find how much you're paying for items that aren't that important to you.
Take control of your financial future. Having a solid budget allows you to control your finances, rather than letting them control you. Budgeting forces you to look at your financial situation the way it really is. Then you can make the best decisions for your future.
Why Budget to Buy a Home?
Budgeting is an important part of preparing yourself for the purchase of a home. Here's why:
Save for a down payment and up-front costs. If you stick to a budget, you can save the money needed for your down payment, and up-front costs-such as closing costs and emergency reserves-much sooner. Also, you'll be sure to save enough to cover the many expenses facing a new home owner, including moving, utility hook-ups, tools, maintenance supplies, window coverings, etc.
Strengthen your mortgage application. By establishing a regular savings pattern in a savings account, you make your loan application stronger and increase the chances of having your mortgage loan approved.
Why Budget Once You Own a Home ?
Budgeting is an important part of successful home ownership after you've moved in. Here's why:
You pay when it breaks. You won't have a landlord to call when problems arise. If your hot water heater fails, you need emergency funds set aside to repair or replace it. Replacing a hot water heater can cost $500. A new roof could be more than $2,000. A new furnace could cost $3,000 or more. A new heat pump or central air conditioning unit could cost more than $1,200. Clearly, you must start saving now to be ready for these expenses in the years to come.
New types of bills. You may be paying for utilities such as heat and electricity for the first time. If you don't plan to have enough money to pay these bills when they are due, your service could be cut off.
Don't run out and buy that new bedroom furniture. Budgeting helps you avoid the temptation to make major purchases on credit. If you know exactly how much you have to work with each month, you'll be less likely to load yourself up with heavy debt payments that are tough to keep up with. If you must buy something on credit, shop around for the best loan terms. It's usually better to save for major purchases like bedroom suites and entertainment systems instead of charging them. You'll pay less, or you may decide that you'd rather use the savings for something else.
Watch your mail. As a new homeowner, you may receive several offers for new credit cards. This may seem like a great opportunity to buy new things for the house or other items, but be careful. Keep in mind the financial responsibility of purchasing a home, and review your new homeowner's budget. With credit cards, it's easy to accumulate a large balance quickly. Most credit cards charge interest for any outstanding balance at the end of the billing period, and that can be expensive, too. If you need a credit card for emergencies, there are cards that require full payment at the end of each billing cycle. This eliminates the cost of interest payments, prevents you from buying something you can't really afford, and assures good credit standing without a credit balance.
Building a budget, step by step. Maybe you'd like to develop your own budget or improve the one you use now-but you don't know where to begin. Here's a step-by-step approach for building a budget.
First Build Your Current Monthly Budget
1. During the next month, write down all your expenses every day. Include all expenses, no matter how small. Carry a small notebook with you, so you can easily record daily expenses. It's important to write down what you actually spend on each item, even if you plan to spend less in the future.
2. Also identify all your large periodic expenses, like car insurance premiums. Figure how much you have to put aside each month to pay bills like this when they're due. (Example: Mary has a car insurance premium of $300 due every six months. She sets aside $50 each month, so after six months she has the $300 she needs to pay the bill.)
3. Establish a monthly savings goal to be built into your budget. If you don't budget for savings, it probably won't happen.
4. Add your monthly total of savings and expenses.
5. Calculate the amount of after-tax (net) income you have in an average month. Include “take home” wages, tips, bonuses, investment earnings, alimony, child support, and benefits from pensions. Write down the total.
6. Next, write down all the expenses you've tracked for the last month or two. Be sure to include monthly savings for any big periodic expenses you may have, such as car insurance and car repairs.
7. Compare your savings and expenses with your net income. Look for items to cut back on, so you can increase your monthly savings. (Many people find they can cut down on what they spend on dining out, clothing and entertainment.) The more you can save each month, the faster you can build the funds needed for the down payment and closing costs-and realize your dream of home ownership.
Then Build Your Homeowner's Budget
Once you've created a current budget and found ways to increase savings, you can plan ahead to be able to afford living in your home. Your Homeowner's Budget is very similar to your Current Monthly Budget, with a few added items. Here's a step-by-step approach:
1. Transfer your budget information line-by-line from your Current Monthly Budget over to your Homeowner's Budget.
2. Get an estimate of your mortgage payment (principal, interest, taxes and insurance) from your loan officer or real estate professional. If you don't have a home picked out, ask a loan officer to estimate a payment based on a home you can afford. If you'll be paying your property taxes separately from your mortgage payment, be sure to set aside enough each month so you'll have the money to pay the bills when they're due.
3. Ask if your electric and gas companies have an "average payment" plan. Based on the history of electric or gas use in the home, the company can estimate an annual cost and bill it in even monthly amounts. Average payment plans help you stay on your budget by letting you plan your expenses in advance.
4. Set aside an amount each month to cover future maintenance expenses. Some experts suggest an annual amount equal to 1% of your home's purchase price. Example: Home price is $160,000. 1% of $160,000 is $1600 as an annual maintenance amount. Divide by 12 to get a monthly budget amount of $133.
5. Continue to plan for savings each month. An emergency fund, over and above your maintenance fund, is extra peace of mind.
Additional information is available from Genworth Financial Canada (formerly GE Mortgage Insurance Canada) at http://www.genworth.ca.
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Getting a mortgage for self-employed/commission workers
Getting a mortgage for self-employed/commission workers
Provided by Genworth Financial Canada
Getting a mortgage to buy a home for self-employed workers and those who work strictly on commission poses particular challenges.
In a survey of self-employment, Statistics Canada reports that nearly one worker out of six in Canada in 2000 was self-employed and most of these became, and remained, self-employed by choice.
Self-employed borrowers and commission sales people normally do not have the same income stability that regular salaried workers in Canada have. This segment of the Canadian labor force can apply for a regular mortgage to finance or refinance a home but the process is onerous and typically may result in higher interest rates.
Genworth Financial Canada has developed a specialized mortgage insurance program, available through financial lenders and mortgage brokers, to help self-employed and wholly commissioned workers receive a high, loan-to-value mortgage at regular interest rates, quickly and easily, to either purchase or refinance a home.
Who qualifies
Self-employed persons must prove they have been in self-employment for at least three years by supplying at least two forms of written, third party documentation such as a business credit report, business licence, Goods and Services Tax returns or articles of incorporation.
Self-employed applicants do not need to disclose the nature of their business but must show a strong credit rating with no mortgage, installment or revolving credit delinquencies and no reported defaults on residential mortgages in the past seven years.
Commission sales applicants are defined as someone who receives 100 per cent of their income from commissions.
Commissioned applicants must supply one form of written third party documentation through letters of employment, T4 or income tax returns (T1 General) showing at least two years of commission sales income as defined above.
What qualifies
The program will fund up to 90 per cent of the purchase price or 85 per cent of an existing property for refinance purposes, to a maximum loan amount of approximately $450,000.
Eligible properties include existing and new construction properties with a maximum of two units where at least one unit is occupied as the principal residence.
To qualify, all applicants must occupy the property. Spousal guarantees are also acceptable provided they occupy the property.
The Genworth Program is available through banks and other lending institutions. If you feel you qualify, check your local lending institution or contact Genworth Financial Canada (formerly GE Mortgage Insurance Canada) at: http://www.genworth.ca.
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Can you qualify for, and afford, a mortgage?
Can you qualify for, and afford, a mortgage?
Provided by Genworth Financial Canada
Do you know whether you qualify for a mortgage and, if you do, do you know how much you can afford? Before you can even begin to think about buying a home, you should answer both of these crucial questions.
Qualifying for a mortgage
Most lenders look at five factors when determining whether you qualify for a mortgage loan:
• your income
• debts
• employment history
• credit history
• value of the property you want to buy
One of the first questions a lender will consider is how much of your total income you’ll be spending on housing. This helps the lender decide whether you can comfortably afford a house.
A lender will then look at your debts, which generally include house payments as well as payments on all loans, charge cards, child support etc. that you make each month.
A history of steady employment, usually within the same job for several years, helps you to qualify. But a short history in your current job shouldn’t prevent you from getting a loan, as long as there have been no gaps in income over the last two years.
Good credit is very important in qualifying for a loan and the lender will want to know that the house is worth the price you plan to pay.
How much can you afford?
The size of your down payment affects the amount of your monthly mortgage payments. A smaller down payment will mean your monthly mortgage payments will be higher, but it may allow you to buy sooner rather than later.
A down payment of 20 per cent or more will qualify you for a conventional mortgage. If it is less than 20 per cent, the mortgage must be insured with a mortgage insurance company, such as Genworth Financial Canada.
Homes can be purchased with little or no down payment.
Mortgage payments for principal, interest and taxes generally should not exceed 30 per cent of your gross monthly income. Simply multiply your gross monthly income by 0.30 to determine your maximum monthly payments. If your gross monthly income is $4,000, the most you can afford is $4,000 x 0.30 = $1,200.00.
Don’t forget closing costs such as land transfer tax, legal fees, building inspection, home insurance and realtor fees, which can amount to 1.5 per cent of the purchase price.
When budgeting, also consider other monthly-related expenses such as condominium fees, heat, hydro, water, property tax, insurance and household maintenance.
And one last tip – get a pre-approved mortgage. This free service from lenders comes with no obligations, helps to confirm your financial boundaries, and frees you to focus on finding the home you want.
Additional information is available from Genworth Financial Canada at http://www.genworth.ca.
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Saving For a Down Payment
Saving For a Down Payment
Provided by Genworth Financial Canada
If you are considering Home Ownership but have questions about the down payment, this article will clarify some of the commonly asked questions.
How Much Money do You Need to Make a Down Payment?
You can buy a house for as little as 5% down, but remember that the larger the down payment, the easier the other expenses will be to manage. We encourage you to calculate what you can afford to work out what's best for you. Once you're ready to put an offer on a property you'll need part of your down payment as a deposit, so remember to keep some funds easily available and accessible.
Will the Size of Your Down Payment Affect the Type of Mortgage You Get?
If you make a down payment of 25% or more, of the lending value, you may qualify for a conventional mortgage. If you are making a down payment of less than 25%, the mortgage must be insured. The insurance protects the lender against borrower default. Your lender will arrange for mortgage default insurance.
How Will You Save Enough Money for a Down Payment?
Saving enough money to buy a home can seem overwhelming, but you may be able to get your down payment faster with a savings or investment plan.
1. Personal Bank Accounts
Open a bank account and set aside money specifically for your new home. Make a habit of paying into this account on a regular basis, just as you pay your monthly bills. Remember that you will need cash (or a certified cheque) for the down payment and the closing costs associated with buying a home.
2. Investments
As the money in your bank account grows, or if you already have money set aside, you may want to invest.
3. Using RRSPs towards your Down Payment
Registered Retirement Savings Plans are a good way to secure your financial future while enjoying tax benefits today. You may also be able to use your RRSP savings towards the purchase of a home. The current Home Buyers’ Plan permits the first-time homebuyer to withdraw up to $20,000 from their RRSP to buy or build a home. The amount withdrawn is treated as a loan and must be repaid within a 15-year period, commencing in the third year after the withdrawal.
Additional information is available from Genworth Financial Canada (formerly GE Mortgage Insurance Canada) at http://www.genworth.ca.
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Shopping for a Home
Shopping for a Home
Provided by Genworth Financial Canada
The homebuying process can be more productive and successful by taking care of certain details before you begin to shop. You are ready to go house hunting if you have:
• Set aside money for your down payment and additional costs
• Determined the price of home you can afford
• Investigated your mortgage options
• Get pre-approved for a mortgage
With all of these things in order next you will want to draw up a wish list, choose a real estate agent retain a lawyer and go house hunting.
Draw up a Wish List
Think about where you would like to live (what area or neighbourhood) and what kind of house you would like to live in (which features are absolutely essential, which you can live without and which are entirely out of the question).
Take a look at real estate ads for the area you're interested in to see what's on the market and the prices. Also drive around a few neighbourhoods and see what's for sale or visit Open Houses. This can help crystallize what you want or don't want in a home.
Choose a Real Estate Agent
Your friends, relatives or co-workers may be able to recommend a real estate agent. If not, call around and talk to a few agents. Ask if their real estate licence is in good standing, find out if they have access to the Multiple Listing Service (MLS) and see how the agents respond to your questions. Also, notice what questions they ask you - are they interested in knowing exactly what you are looking for, do they try to assess your financial situation, are they knowledgeable about neighbourhoods that interest you?
Also, have a discussion about fees. Typically, a real estate agent's commission is about 6% of the purchase price of a home. In some parts of Canada, there are now buyer/agency agreements that set out how the agent will be paid. Again, make sure you have the discussion about fees at the start of your relationship with your real estate agent.
The best real estate agent will be a combination of personal advisor, consultant and negotiator. He or she will show you homes that match your criteria, guide you through the home buying process, negotiate the best possible price for your home and deliver your closing paperwork.
Retain a Lawyer
Retain a lawyer who specializes in real estate (or notary in Quebec). Depending on the volatility of the real estate market, you could find yourself in a bidding war for the home you want and you will want to have your lawyer look over any offer to purchase before you submit it.
House Hunting
Knowing exactly what you want in a home will save you a lot of time when house hunting. Think about your immediate needs, your future plans and your lifestyle. When you look at homes, you will be concentrating on the house, but don't forget to look at the property as a whole - the lot, the neighbourhood, the surroundings - and how close the home is to facilities and services that are important to you.
Buying a home can be an emotional decision, but the home you purchase should strike a balance between your wish list and the practical realities of the property, its location and the housing market.
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Should You Rent or Buy?
Should You Rent or Buy?
Provided by Genworth Financial Canada
Before you get too far in the homebuying process, make sure you really want to own a home. Begin by reviewing the general advantages and disadvantages of home ownership. Then think about your own personal pros and cons.
Advantages
Millions of people enjoy the rewards of home ownership. Here are the advantages of buying a home. Think about the ones that are most important to you.
1. A sound investment. When you carefully choose a home you can afford, the payoff can be great. Each month when you make your mortgage payment, you're building equity in a place of your own. Equity is the portion of the property that you actually own through your payments, versus the portion that you still owe the mortgage lender. The longer you stay in your home and the more mortgage payment you make, the more equity you'll have. And unlike most things you buy, a home can actually appreciate, or increase in value, as time passes, building more equity (but remember, there's no guarantee that your home's value will grow; sometimes home values go down).
2. A first step. As you build up equity in your current home, it's usually easier to afford another home in the future.
3. Satisfaction and security. As a home owner, you can decorate and improve your home any way you like. Owning a home can also give you a new sense of pride in your surroundings. You and your family may feel stronger ties to your community.
Disadvantages
It's easy to get caught up in the excitement of buying a home, and to forget that home ownership may have drawbacks. Here are some disadvantages of owning a home. Think about which ones may apply to you.
1. Bigger costs. If you're now renting, you can expect to pay more per month for your mortgage, plus the added costs of home repairs and maintenance.
2. Tying up cash. Your home might increase in value as time goes by, but don't count on getting a big return quickly. During the first few years of ownership, you're likely to lose more money than you gain if you should need to sell your home, because your home may not appreciate enough to cover the commissions that goes to the real estate agent.
3. Tougher moves. After you've bought a home, you may not have as much flexibility in choosing a new location or job.
4. No guarantees. There's no guarantee that your home will increase in value, particularly during the first few years.
Home ownership isn't for everyone, so you should think carefully about the advantages and disadvantages before signing an agreement to buy.
Additional information is available from Genworth Financial Canada (formerly GE Mortgage Insurance Canada) at http://www.genworth.ca.
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Understanding Your Credit
Understanding Your Credit
Provided by Genworth Financial Canada
Incurring debt is part of life for most people. Understanding how best to handle credit will help you maintain control of your overall financial situation.
Strong credit leads to quick credit approval at the best possible terms. Your credit history must clearly show your willingness and ability to pay your debts.
Your Credit Report
• During the application process, lenders look at your credit record and credit score to check how you’ve managed your debts.
• It's a smart idea to review your own credit report and score before applying for a loan.
• For a small fee, a credit bureau will provide an instantaneous, complete online credit report and credit score that details your current debts and payment history. They also detail what your score level means, how you compare to others, and provide tips to improve your score.
• You also may receive your credit report (without the credit score) by mail for free by contacting the credit bureau.
• When you receive your credit report, ensure that all the information and amounts are correct. Look carefully for any past-due or written-off amounts. Uncertainty and ambiguity on your credit report can be dangerous to your financial health.
Correcting Credit Problems
• If you have never had a loan or credit card, you can still show a good record of timely payments of your utility bills, property taxes or rent.
• You can establish minor credit relationships, such as short term installment loans or a credit card, and maintain a record of prompt payments.
• If you have a credit problem because of an unusual situation, write a letter of explanation. Your lender may overlook a credit problem if you can give a good reason for not having made your payment.
• If you're constantly struggling to pay your bills, seek professional help. Remember: creditors don't want to lose money. Let them know if you are having trouble with your payments. Most creditors will work out alternative payment arrangements to help you maintain a good credit rating.
Credit Tips
• Plan major purchases carefully and do not accumulate excessive amounts of debt.
• Pay down existing debts and ensure bills are paid on time, especially minimum payments on credit cards. If necessary, postpone major purchases until you can save the money required.
• Avoid large purchases before buying a house, since the added debt will affect your mortgage qualifications.
• Use credit responsibly. Establishing a track record of on-time payments will improve your credit rating.
• Avoid skipping bills to make other payments since missed payments appear on your credit report and create longer-term problems.
• Avoid defaulting on payments. Delinquent payments, collection items, and court judgments stay on your credit file for six years, even if you subsequently pay them.
• Save money regularly for financial emergencies. You also can arrange for credit lines to cover short term cash flow payments, but resist utilizing them on a long term basis.
For additional information or to access a link to a credit bureau, visit the Genworth Financial Canada (formerly GE Mortgage Insurance Canada) website at http://www.genworth.ca.
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Who you need to buy a home?
Who you need to buy a home
Provided by Genworth Financial Canada
Buying a home is a somewhat complicated transaction that involves a number of professionals who all perform different functions during the purchase process.
The real estate agent/broker – The real estate agent or broker will locate houses in your price range and in the areas where you want to live. The agent/broker will present your “offer to purchase” to the seller until an agreement is reached, usually for a commission. There are a number of real estate agents and brokers to choose from, so it’s advisable to shop around to find one you’re comfortable with. Talk to friends and family to get a referral. Commissions can range from three to six per cent of the purchase price. Agents set commissions based on market conditions.
Mortgage Broker – Some purchasers retain the services of a mortgage broker to assist them with arranging their mortgage financing. The mortgage broker should determine the best type of financing that suits your particular financial situation. You may wish to ensure your broker is a member of the Canadian Institute of Mortgage Brokers and Lenders (CIMBL) and has obtained their Accredited Mortgage Professional (AMP) designation.
Lenders – Banks, credit unions and mortgage companies all lend money to homebuyers. Find out how much you can afford before starting to look. Lenders look at your income, debts, employment and credit histories and the value of the property you want to buy before giving you a mortgage. It pays to know how much you can afford before looking, so consider getting pre-approved. You don’t want to find your dream home and then discover you can’t buy it because it is too expensive.
Lawyer – Your lawyer (notary in Quebec) reviews the agreement of purchase and sale, ensures all closing documents, including title search and title insurance, have been completed properly, obtains signatures and records documents with the appropriate provincial land transfer office. Your lawyer will usually also act for the lender and collect the money needed to close your purchase and give it to the appropriate parties, as well as ensure that on closing you have a valid and marketable title subject only to the encumbrances you have agreed to. If you don’t have or know of a lawyer, your best referral source is family or friends, or through the law society in your area. It’s best to get your lawyer involved early in the process to review the purchase and sale agreement prior to signing.
Property Surveyor – A property survey is undertaken to verify the property’s boundaries, measurements and structures and identify any easements, rights of way or encroachments on your, or adjacent properties. Title insurance is often an alternative to a property survey.
Home Inspector – A qualified inspector examines the plumbing, electrical work, appliances, furnace, air conditioners, roof and structural stability of your new home. This allows you to address any issues with the vendor prior to closing, as well as anticipate any repairs you may need in the future.
Appraiser – The appraiser determines the home’s market value based on its condition and the selling prices of similar homes in the area. You should ensure you have obtained an appraisal for your own protection.
Default Mortgage Insurer – Mortgage insurers protect lenders from a borrower defaulting on a mortgage at any time during the mortgage amortization period. By law, banks are required to purchase default mortgage insurance on all mortgages where the down payment is less than 25 per cent of the property value. Mortgage insurance also lets people buy a home with a little as five per cent down and still get the same interest rates as for conventional mortgages. Genworth Financial Canada is the only private-sector supplier of mortgage insurance in Canada.
Additional information is available from Genworth Financial Canada (formerly GE Mortgage Insurance Canada) at http://www.genworth.ca.
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Applying for a Mortgage Loan
Applying for a Mortgage Loan
Provided by Genworth Financial Canada
Does applying for a mortgage seem too complicated? Knowing how your application will be evaluated will better equip you to evaluate your financial strengths and weaknesses. Having all your documentation ready will make the approval process much quicker and easier.
Lenders look at six key factors when evaluating an application – your identity, your income, debts, employment history, credit history, and the value of the property.
Your Identity
In order to protect against mortgage fraud, the lender or their lawyer will require picture identification to ensure you are the individual you represent yourself to be. In addition, you may be asked questions regarding your credit history to verify information on record at the credit bureaus.
Your Income
The lender will measure your income level against the amount of the mortgage payments, property taxes and condo feeds, to decide whether you can comfortably afford a home. Your lender will compare your current housing expenses to the expense you'll have if you buy a home. The smaller the increase, the stronger your application looks. Usually a guideline of 30% of your pre-tax income is used to determine your maximum payment level.
Your Debts
The lender will look at your debts, including your anticipated house payment, as well as all loans, credit cards, child support and any other payments that you make each month. The ratio of the payments on these debts to your gross monthly income results in a total debt service ratio. The generally accepted total ‘debt service ratio’ for all housing and other obligations is 40% of your pre-tax income.
Your Employment History
Mortgage lenders are more likely to lend money readily to people who have a history of steady employment. You will need to provide a letter or pay stub from your employer and the lender may further verify your employment by contacting your employer. If you're self-employed or have been at your job less than two years, they may ask for other documentation, such as business financial statements or federal income tax returns.
Your Credit History
Good credit is very important in qualifying for a loan. A mortgage lender will look at your credit record to see how well you've paid your loans and other debts in the past. If you've never had a loan or a credit card, you can still demonstrate a good record by showing timely payment of utility bills and rent. It's a smart idea to review your own credit report and score before applying for a loan. For a small fee, a credit bureau will provide an instantaneous, complete online credit report and credit score that details your current debts and payment history. They also detail what your score level means, how you compare to others, and provide tips to improve your score. You also may receive your credit report (without the credit score) by mail for free by contacting the credit bureau.
The Property's Value
When purchasing a property, you should be comfortable the price you are paying is reasonable and will be acceptable to the lender. You can usually confirm the value is reasonable by obtaining an appraisal from an accredited appraisal professional or from the realtor who is representing you in the purchase. Some purchasers may also obtain a property inspection to confirm the property’s condition and identify any items that may require repairs.
Lenders also tend to evaluate your application against the following guidelines:
• A housing expense ratio no greater than 32% (the lower the ratio, the better)
• A debt-to-income ratio for all debts no greater than 40% (the lower the ratio, the better)
• The home buyer has steady income - ideally, the same job for two years or longer
• The home buyer has good credit (bills have been paid on time)
• The house is worth the price the buyer is paying
Additional information is available from Genworth Financial Canada (formerly GE Mortgage Insurance Canada) at http://www.genworth.ca.
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Is your financial house in order?
Is your financial house in order?
Provided by Genworth Financial Canada
Every investment has a certain risk factor, and buying a home is no different. Economic downturn, illness, job loss or a death in the family can all lead to financial difficulties and the risk of mortgage default.
How can you minimize the risk?
Buy what you can afford
Make sure you buy a home that you can afford. Home buyers need to be realistic about their housing budgets. The size of the mortgage you obtain, the interest rate and the amortization period will directly impact your monthly mortgage payments. As a general rule, your mortgage payments and property taxes should not exceed 25 per cent to 30 per cent of your pre-tax income. When budgeting, plan for other home-related costs such as utilities, insurance, maintenance, and taxes. Mortgage planning tools are available online to help Canadians manage their loans.
Look for the best mortgage options
Find out who is offering the best mortgage terms and interest. If you understand the various rates and terms available you can determine the option that works best for your needs. Understand the implications of variable versus fixed interest rates.
Build a monthly housing budget
Do you know where your money goes on a monthly basis? Once you are in your home, you should develop a budget to track your expenses, including all home-related items such as utilities, property insurance, taxes and a reserve for maintenance. Make sure to leave some room for unexpected expenses.
Insurance options
Think about protecting your investment. In addition to basic home/fire and title insurance, there are life insurance and mortgage life insurance options available so that the loss of a loved one doesn’t create financial instability. Some organizations also offer mortgage insurance for disability, critical illness or loss of employment. The cost of these options should be included in your debt servicing calculations.
I the event you encounter financial hardship during the life of your mortgage, Genworth Financial Canada (formerly GE Mortgage Insurance Canada) has a proven default management program to help provide temporary financial assistance for qualifying borrowers. To access this program, consumers should contact their lending institution immediately and ask about Genworth’s Default Management program.
Additional information is available from Genworth Financial Canada at http://www.genworth.ca.
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The hidden costs of buying a home
The hidden costs of buying a home
Provided by Genworth Financial Canada
Purchasing a home can be a stressful experience for anyone, but especially for first-time buyers who may not be aware that there are a host of costs associated with buying a home other than the actual purchase price and real estate commissions. It helps to know what those costs are in advance rather than get an unexpected surprise at closing and add to an already stressful experience.
Many of the costs are a factor of the purchase price, the value of the home and/or the amount of financing you are obtaining.
Closing costs. These generally refer to legal fees, property tax and utility adjustment costs and, in some provinces, land transfer taxes.
Legal costs go to cover lawyer (notary in Quebec) fees and legal transactions such as reviewing the terms of the offer, preparing and signing a mortgage, conducting a title search on the property, registering a new title, obtaining relevant documentation and determining appropriate adjustment costs.
You should consider hiring a real estate lawyer to handle your transaction. If you don’t have or know of a lawyer, your best referral source is family or friends, or through the law society in your area.
Land transfer tax. In some provinces this tax is levied when property changes hands. It varies with the purchase price of the property.
Other costs. Costs other than closing costs can include but are not limited to the following:
Property Survey. This is undertaken to verify the location of property’s boundaries, measurements and structures and identify any easements, rights of way or encroachments on your, or adjacent properties. Title insurance is often an alternative to a property survey.
Interest Adjustments. This covers any interest accrued between the closing date of the purchase and the first regular payment date of the mortgage.
Goods and Services and Sales Taxes. GST and sales taxes will depend on the type of property being purchased. Always ask if either or both of these taxes apply before signing an offer to purchase.
Service Charges. These are charges to hook up utilities such as electricity, gas, and telephone service.
Home Inspection. It can be a good idea to have an inspection done before completing the purchase to evaluate the structural and mechanical condition of the property. This could save you lots of money in future repairs.
Appraisal fees. Some purchasers want to ensure they are paying a reasonable market price for the home they are purchasing. You may want to condition your offer subject to a satisfactory appraisal by a member of the Appraisal Institute of Canada.
Mortgage Life Insurance. Special insurance coverage to cover the cost of discharging your mortgage in the event of death or severe illness is available from most lenders.
Moving costs. Although it may sound obvious, purchasers may not consider moving as a cost of buying a home. Moving costs will depend on the distance of the move and the amount of furniture and goods to be transported. Get several movers in to give you an estimate before choosing one.
Appliances. Check to see whether appliances are included in the purchase agreement. If not, you will need to go out and buy them.
Landscaping, Fencing, Decks, etc. If purchasing a newly constructed home, keep in mind that there will likely be a need to landscape and fence the yard in the first year or two.
Annual maintenance. Homes like other possessions require care and maintenance to maintain their value. You need to plan for future painting, and replacement of any needed items like roof shingles, appliances, furnaces, depending on the age of the home you are buying.
Additional information is available from Genworth Financial Canada (formerly GE Mortgage Insurance Canada) at http://www.genworth.ca.
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