Advice for Single Home Buyers

First Time Home Buyers Victor Anasimiv 6 Jun

Advice for Single Homebuyers – by Marc Shendale, Genworth Canada

Of all first-time homebuyers in Canada, more than a third are single.  If you’re single and looking to make the jump into home ownership, the following information will serve as a convenient ‘To Do’ list to get yourself ready.

Study the market

Figure out where you want to live.  City?  Suburbs?  Country?  Get an idea of what places are selling for in your desired neighbourhoods.  A good realtor with knowledge of the area can help with that.  Next, figure out how much you can afford, and this is where my services come in handy. Remember to include estimates for property tax, utilities, insurance and any other expenses you don’t pay as a renter (condo fees, for example).

Assemble your team

A home purchase should involve financial, legal and real estate professionals.  Especially if you’re a first-time home buyer.  Buying privately is always an option, but there a lot of nuances that can get lost in the process.  As a buyer, realtors and mortgage brokers typically don’t cost you anything, so it’s in your best interest to enlist their services.

If you don’t already work with a financial advisor, consider scheduling an appointment. Reviewing your entire financial picture—debts and assets, insurance and investments, as well as budgets—is something that a professional can help you understand and offer strategies to improve, based on your goal of home ownership

Create a game plan

Before you start looking at specific properties, you should probably get a copy of your credit report, available through Equifax (equifax.ca).  A lender will want proof that you can demonstrate good credit management.  If you have a history or late or missed payments, or if you have multiple credit cards with balances very close to or over their limit, this will affect your chances for qualification. If that’s the case, start a plan now to improve your situation. Pay down those balances.  Keep on top of regular payments. A quick caveat…there is no quick fix for a credit report. Beware of companies that offer to “repair” your credit for a fee.

Cut back on expenses as much as possible before making a home purchase. Why? Finalizing the purchase involves closing costs that need to be paid before you’ll get your new keys. Homeownership will also bring new on-going expenses, such as property tax and utilities, so it’s good to have some cash saved up on the sidelines.

A couple months out, test yourself.  Subtract your current housing costs from the anticipated new home living costs and put the difference in a high-interest savings account.  If you can continue to get by without accessing the funds put aside, then you are likely in good shape.

Consider help from family

More often these days, first time home buyers are using the bank of mom and dad to come up with a down-payment.  And that’s not a bad thing.  If you have someone willing to gift you all or a portion of your required down-payment, that can make the difference between owning your own home and still renting your tiny studio apartment.  Except in the case of some self-employed borrowers, most lenders will allow the entire down-payment to be gifted, as long as it is from an immediate family member – parent, sibling, grandparent or child.

Protect yourself

While you may be single when you purchase the home, perhaps the stars align and you find that special someone a few years in.  If you start a relationship and allow another person to move into your home, that person may eventually have legal rights in relation to your home. How does that happen? If you live together long enough, you and your partner may become common-law. When do you and your partner go from couple to common-law?  In BC, once you’ve lived together for two years, you’re common-law.  If you have kids together, you’re common-law.

How can first-time homeowners protect themselves? With an honest conversation about expectations and specific responsibilities. The main question is what will happen to the home if you split up? Consider a cohabitation agreement (again, with the help of a lawyer) to cover everything you agree to verbally.

Make sure to also outline the nitty-gritty details of day-to-day finances: how will you split the regular bills and when will they be paid? Which one of you will be responsible for making sure those payments are made on time?

There’s a lot to think about when you’re ready to purchase a home.  Please contact me today and let me help you sort it all out.

Thinking Outside a Smaller Box with the New Mortgage Rules

First Time Home Buyers Victor Anasimiv 9 Mar

Not all mortgages are created equal.  That has always been true, but is even more so after the government changes made to mortgage default insurance guidelines in late 2016.  As we approach the end of the first quarter of 2017, Mortgage Brokers and lenders are still adjusting to the new risk-based mortgage rate pricing that came into play as a result of these changes.

On a high-ratio purchase (less than 20% down-payment), borrowers are required to pay a premium for mortgage default insurance.  Even if more than 20% is used as a down-payment, lenders still often choose to pay for the insurance themselves. Doing so protects a lender’s book of business against credit loss, helps them package more secured mortgages together to sell to investors and reduces the amount of capital they are required to maintain. In the mortgage industry, this practice is called back-end insuring.

The changes announced in October & November of last year have greatly limited the mortgages that lenders are allowed to insure using government-backed insurers. Essentially the government is passing the perceived risk on to lenders by implementing far more stringent guidelines for qualifying for this insurance and limiting mortgages that can be insured to what they consider lower risk “inside the box” mortgages.

I used the phrase ‘perceived risk’ because it should be pointed out that default rates on mortgages in Canada are incredibly low. As of January 2016, only 13,216, or 0.28% of Canadian mortgages, were in arrears.  Less than half of 1%! In any case, the onus has been placed on the lender to absorb more costs if a borrower defaults. In the end, these costs are passed on to borrowers by lenders applying higher rates to less secured mortgages.  The effect this is having an the Canadian public is two-fold.  First, it increases interest rates, merely based on speculation with no supporting data.  And furthermore, it prices smaller lenders out of certain subsections of the mortgage market.  This decreases consumer choices and competition, which can only serve to increase rates further.

These days, if you’re looking for a mortgage, your circumstances may not fit “inside the Box” as this box seems to be shrinking more and more. The following is a list of guidelines that must be satisfied for a mortgage to be considered an insurable mortgage (by no means an exhaustive list and is subject to change):

  • Maximum amortization of 25 years
  • Must qualify by using a stress test. Even though your mortgage contract rate may be 2.69%, you will have to qualify at 4.64%, the Bank of Canada benchmark rate.  This stress test decreases your purchasing power by about 20%
  • Maximum Gross Debt Service Ratio of 39% (shelter expenses as a percentage of gross income)
  • Maximum Total Debt Service Ratio of 44% (all liabilities – shelter plus other debts – as a percentage of gross income)
  • No refinances
  • No single unit rentals
  • Purchase price must be less than $1 Million

As you can imagine, this severely limits the type and number of mortgages that would be considered insurable and eligible for better mortgage interest rates. All mortgages are definitely not created equal in 2017 and it’s more important than ever to have a chat with me, a licensed and thoroughly educated mortgage broker.  As my client, I will help educate you on all the recent changes and come up with a mortgage solution to what could now be an “outside the box” uninsurable mortgage. Whether you’re refinancing, you need an amortization over 25 years, or you want to buy a single-unit rental, we have a mortgage for that!

Contact me today to get started on your mortgage approval! 250-338-3740 or anasimiv@gmail.com

Maximizing RRSPs for Down Payment

First Time Home Buyers Victor Anasimiv 28 Feb

When buying a home, contributing to your RRSP can help you increase your funds available for your purchase. Follow the 7 steps below so you can maximize your available funds to purchase your first home.

Step 1: Check to see if you fit all the Home Buyers’ Plan (HBP) requirements at www.cra-arc.gc.ca/hbp/. If you do continue to the next step.

Step 2: Consult with me, Victor Anasimiv, to review your credit and income and plan ahead so you are mortgage ready. I will help you figure out what you qualify for as well as help you navigate all the first-time home buyer programs such as the new BC Home Owners Mortgage and Equity Program.

Step 3: Contribute to your RRSP to top it up to $25,000 (check your contribution room to confirm the maximum you can contribute) for each buyer. Contribute to the highest income earners RRSP first to maximize your tax refund. If you don’t have the cash to contribute, then it may be beneficial to borrow funds to contribute to your RRSP but talk to your mortgage broker first to ensure your credit is in line to do so.

Step 4: Do your taxes as soon as possible so you can get your tax refund in your bank account.

Step 5: If you didn’t maximize your RRSP to $25,000 put your tax refund into your RRSP (highest income earner first) to help reduce your taxes next year.

Step 6: Now that your funds are in your accounts review your options with me.  Be sure to let your RRSP contributions stay in your account for 90 days for the withdrawal to qualify under the HBP.

Step 7: Begin searching for your first home. Be sure to plan the closing date to be after the minimum 90 days required for the funds to be in your RRSP and allow time for funds to transfer out of your account.

Important 2017 Dates:

March 1 – the 2016 RRSP Contribution Deadline

February 20 – the first day you can file your 2016 income taxes

May 1 – the deadline to file your taxes if you are not self-employed

April 30 – all income taxes must be paid to CRA by all tax payers

June 15 – the deadline to file if you are self-employed

Other important bits of info:

Funds withdrawn from your RRSP before they have been in your account for 90 days are not eligible under the HBP and income tax will be withheld from the withdrawal
You can use your RRSP withdrawal for anything related to the cost of buying or building your first home, as long as you’re in a contract to purchase your first home
You must repay the withdrawal amount over 15 years starting the second year following your withdrawal.  Any amount of required 1/15th not repaid will be added to your income on your tax return.
As your Dominion Lending Centres Mortgage Professional, I can help you plan to buy your first home. It’s never too early to start your mortgage application. Contact me today to get started!