FREE CANADIAN MORTGAGE REPORT: WHAT YOU NEED TO KNOW ABOUT GETTING A MORTGAGE
Many people believe that if they work hard, make a decent income, save money for a down payment and pay their bills on time they should be able to get a mortgage and purchase a home.
This is NOT always the case and some people do all of these things except they can’t save enough for a down payment, OR they find out that even though they pay their bills on time, their credit isn’t good enough to get a mortgage!
Here are some tips on how to prepare yourself to qualify for a mortgage AND I’ll explain some alternatives available if you need a mortgage NOW and don’t qualify with a regular bank.
THE MYTHS ABOUT DOWN PAYMENTS:
First, saving for a down payment can sometimes be a challenge, especially when you have rent, kids, and car payments. A lot of people find that there is more month than money and end up with nothing left to save at the end of the month.
PAY yourself first– many successful people live by this; they put 10% of everything they earn straight into a savings plan before they do anything else with their money. Most find that they don’t even miss it! You automatically adjust your lifestyle just a little bit to account for it.
USE your RRSP as your down payment; the government will allow you to use up to $25,000 EACH from your RRSP for a down payment on a home IF you’re either a first time buyer, or you haven’t owned a home for the previous 4 years. Called the Homebuyer’s Plan, it requires only that you put the funds back in your RRSP over a 15 year period to avoid paying tax on it.
CASH BACK programs from some mortgage companies allow THEM to actually LOAN you the down payment, or a significant portion of it; there are lenders who will advance you between 3% and 5.5% of the purchase price which you can use as your down payment! This requires that you have above average credit (680 or better, and we’ll talk about improve your score later) and of course, you must have been working in the same industry for at least 2 years (not the same JOB, but the same industry).
GIFTS from immediate family members; if you have average or better than average credit (650+) and an immediate family member (sibling or parent) is willing to ‘gift’ you all, or part of the down payment, you could qualify for a mortgage.
Borrowed; if you have average or better than average credit, you can borrow all or part of the down payment from a line of credit, loan, or other sources.
Of course, these options can be used in combination as well. So, if you have some money in RRSP’s but it’s not enough, you could be gifted the rest, or use a cash back program from the lender to add to it or other combinations.
DON’T BE CONFUSED BY YOUR CREDIT RATING:
This is another important area that some people find surprising.
Credit ratings and how they are calculated is a very mystifying process. I have had clients who ALWAYS made their payments ON TIME, and still had BELOW AVERAGE CREDIT!
How can this be? Well, while paying on time is an obvious benefit to building good credit there are several other things you NEED TO KNOW about credit:
- Lenders want to see at least TWO trade lines on a credit bureau, that is, two credit cards (with limits of at least $1000 each); OR one credit card and one line of credit or personal loan/car loan
- Visiting several banks or having your credit checked several times over a couple of months will BRING DOWN YOUR CREDIT SCORE! I’ve seen clients who started with EXCELLENT credit and went shopping for a mortgage or a vehicle and had their credit checked several times, only to find they now have average or below average credit JUST BECAUSE OF THAT!( This is one of the many benefits of using a mortgage broker, as we check your credit ONCE, and can show it to EVERY lender without them checking it again)
Bob was one of these unfortunate clients. He came to me with a credit rating of 664 (a bit above average) and I pre-approved him for a mortgage to purchase the home that he and his wife Marlena wanted. While they were house shopping, he also went looking for a new car. Months later, they found the home they loved and came back to me for final approval. Lo and behold, when I checked Bob’s credit again, it had dropped to 624! One car dealer had tried 36 different lenders over 2 months to finance his car loan, EACH of them pulled his credit and caused it to drop 40 points! I had to tell Bob and Marlena that they could no longer qualify for the home they loved….
- KEEP your balance below 90%! This is another key way to keep your credit from going down; If you have a credit card or line of credit with a credit limit of say $10,000, and your balance is OVER $9000 for more than a month, your credit score will start to go DOWN! Keep your balances under 90% at all times. If you can’t manage that right away, one way to do this without coming up with more money is to borrow or get a cash advance from one of the lines of credit or credit cards, and put that down as a payment on the once that’s already over 90%! Keeping it below 50% is even better.
- USE YOUR CREDIT FREQUENTLY: People often make the mistake of thinking that a credit card used for emergency only is a good thing. ONE card for this is a good idea but using your credit accounts regularly is an important part of building healthy credit. Lenders will be able to better evaluate your creditworthiness if there is more data about your payment and spending behaviour on your credit report. Using a credit card to make a few purchases each month may help improve your credit score.
- There are too many consumer finance company accounts on your credit report. Having too much available credit can sometimes harm your credit score. Lenders may feel that you have the ability to spend more than you could potentially pay back. You might want to consider closing a few accounts or asking to have your credit limits reduced. Avoid closing too many accounts – especially the oldest accounts on your credit profile – because it could harm your credit score.
These are just a few simple tricks to help you improve your credit and find a down payment so that you can purchase the home of your dreams. As a mortgage professional with Dominion Lending Centres, I have counselled many clients on how to qualify for a mortgage, or refinance their existing mortgage. Best of all, my service is free! Lenders pay me to bring them your business, and it’s my job not only to find you the best rate and terms to suit you and have the banks compete for your business; it’s also my job to keep up to date on trends and news in the mortgage industry and KEEP YOU INFORMED about what’s best for YOU.
I have learned many ways to use various resources and over 100 banks, credit unions, trust companies, and alternative lenders to help you get a mortgage.
Please, don’t hesitate to contact me for assistance, advice, or just to ask a simple question about mortgages, and I’ll be more than happy to help. I work for my clients, NOT THE BANKS!
Barry Chisholm, Mortgage Expert
DOMINION LENDING CENTRES CASA MORTGAGE INC.
Independently owned and operated.