At the end of the week the mortgage regulation changes announced in January will go into effect. For those of you who haven’t yet heard about the changes, here they are in a nutshell:
1. A 30-year maximum amortization on insured mortgages over 80% LTV (loan-to-value), down from the current maximum of 35 years
2. An 85% LTV limit on insured refinances down from the current maximum of 90%
3. Elimination of government insurance on secured lines of credit (aka., HELOCs)
If you read my original blog post on the topic you’ll know I was a little heated with the changes when they were first announced. My opinion hasn’t changed but I’m a little less hot under the collar about it. Like everything else in life, it is what it is and stewing about it is not going to change anything.
It turns out that the overall sentiment over the changes was quite mixed. One side of the fence where I am, thinking they’re a little harsh and short-sighted. The other side applauding the government’s “proactive steps” in protecting us from ourselves and preventing a real estate market collapse. Whatever your opinion is, that’s fine, everyone’s entitled.
For now, lender underwriting departments are overloaded with applications from people who have listened to their mortgage planners and taken some action while they still have the flexibility to do so. What I don’t look forward to is a few months from now, just like what happened last year when the government took away options...I have a client in front of me who is looking for some financial relief and I have to explain there’s nothing I can do since the government felt it was better that they carry high interest debt instead of being able to access the equity in their homes without having to sell.
I can’t do anything about the changes but what I can do is give a little advice. Be prudent about how you spend your money. Understand what you’re signing when you get a retail store credit card or sign up for “don’t pay a cent” promotion. Seek out trusted advisors for your financial affairs both investment and borrowing, don’t blindly have faith in the person standing across the counter at the bank whose job it is to sell you as many products as possible at the highest rates and costs to you. Lastly, even more important than educating yourselves, educate your children. There is a severe lack of formal education surrounding personal finances in our country and the burden falls on parents to teach their kids. In doing so, don’t assume what works for you will work for them. They live in a different world than you do. “When I was a kid”, teenagers didn’t have credit cards, now they can easily get one with a $5000 limit. Like everything else, teach your kids how to respect and manage their finances and they will be much better off.
Monday, March 14, 2011
Tuesday, February 22, 2011
10 Questions to Ask Your Home Inspector
The purchase of a home is likely the largest financial expenditure you’ll ever make. And getting your home inspected is an essential step in the home-buying process. No one wants to buy a money pit – and once you have signed on the dotted line, there is no turning back. There are enough shows on TV that tell the horrific stories of people who either didn’t get an inspection done by a reputable inspector or they didn’t get one done at all. Don’t let yourself become one of those stories.
The best way to ensure you use a professional home inspector is to seek referrals from your mortgage professional, real estate agent or friends. Since you want to be able to trust your home inspector’s judgement, you have to ensure they’re not part-time home inspectors just trying to make some extra cash on the side, or they aren’t only home inspecting so they can also offer to complete any work for you that you need done on the home. To ensure the job’s done right, after all, the home inspection must not be biased.
The purpose of a home inspection is for the inspector to be able to tell you everything you need to know about the home you’re going to purchase so that you can make an informed decision.
Following are 10 key questions you can ask your home inspector before they’re hired to ensure the inspection will be completed professionally and thoroughly:
1. Can I see your licence/professional credentials and proof of insurance?
2. How many years’ experience do you have as a home inspector? (Make sure they’re talking specifically about home inspection and not just how much experience they have in a single trade.)
3. How many inspections have you personally completed?
4. What qualifications and training do you have? Are you a member of a professional organization? What’s your background – construction, engineering, plumbing, etc?
5. Can I see some references? (Make sure you also check the references.)
6. What kind of report do you provide? Do you take pictures of the house and add them to your report?
7. What kind of tools do you use during your inspection?
8. Can you give me an idea of what kind of repairs the house may need? (Be wary if they offer to fix the issues themselves or can recommend someone else to complete the job cheap.)
9. When do you do the inspection? (Let’s hope they don’t have a day job, and can only do them at night when it’s too dark to see the roof. It’s best to stay away from part-time inspectors.)
10. How long do your inspections usually take?
A quality home inspection is not just a condition in a purchase agreement, it’s your last line of defence to ensure you’re getting what you’re paying for and your potential new home isn’t shiny on the outside and crumbling on the inside. Do yourself a favour and take your inspection very seriously. You’ll thank yourself for it in the long-run.
The best way to ensure you use a professional home inspector is to seek referrals from your mortgage professional, real estate agent or friends. Since you want to be able to trust your home inspector’s judgement, you have to ensure they’re not part-time home inspectors just trying to make some extra cash on the side, or they aren’t only home inspecting so they can also offer to complete any work for you that you need done on the home. To ensure the job’s done right, after all, the home inspection must not be biased.
The purpose of a home inspection is for the inspector to be able to tell you everything you need to know about the home you’re going to purchase so that you can make an informed decision.
Following are 10 key questions you can ask your home inspector before they’re hired to ensure the inspection will be completed professionally and thoroughly:
1. Can I see your licence/professional credentials and proof of insurance?
2. How many years’ experience do you have as a home inspector? (Make sure they’re talking specifically about home inspection and not just how much experience they have in a single trade.)
3. How many inspections have you personally completed?
4. What qualifications and training do you have? Are you a member of a professional organization? What’s your background – construction, engineering, plumbing, etc?
5. Can I see some references? (Make sure you also check the references.)
6. What kind of report do you provide? Do you take pictures of the house and add them to your report?
7. What kind of tools do you use during your inspection?
8. Can you give me an idea of what kind of repairs the house may need? (Be wary if they offer to fix the issues themselves or can recommend someone else to complete the job cheap.)
9. When do you do the inspection? (Let’s hope they don’t have a day job, and can only do them at night when it’s too dark to see the roof. It’s best to stay away from part-time inspectors.)
10. How long do your inspections usually take?
A quality home inspection is not just a condition in a purchase agreement, it’s your last line of defence to ensure you’re getting what you’re paying for and your potential new home isn’t shiny on the outside and crumbling on the inside. Do yourself a favour and take your inspection very seriously. You’ll thank yourself for it in the long-run.
Tuesday, February 8, 2011
Buying the Best Home for You
A few weeks ago I was having a conversation with my mother and she was asking me some questions about my work. The topic of mortgage size came up, and never one to shy away from giving her opinion, she let me know her two cents. Sometimes these types of conversations can be relatively frustrating but if I’m in the right kind of patient mood they can be kind of entertaining since in a lot of ways my mother still thinks it’s 1972. Usually I can get her to reconsider her opinion or at least fake like she is.
In a nutshell, her thinking is that people today are crazy for taking such big mortgages with large loan-to-values and long amortizations. “What’s the matter with buying a starter home and after a few years buying something bigger? That’s what we did.” So I explained to her how sometimes it doesn’t make sense to begin with a starter home since making a move into a larger home is going to trigger costs like realtor fees, land transfer taxes, legal fees and potentially fees to break their mortgage. In the end, the homeowner could be right where they started if not further behind with regards to equity than when they started. With all that in mind, a lot of buyers would prefer to jump at the bigger house to begin with rather than spin their wheels with a starter home. This was one of the conversations that didn’t end with my mother agreeing with me but at least she faked like she did...I think.
The reality is that some people don’t think they are getting into a starter home until they live in the house for a few years and their needs change or they realize in hindsight that they didn’t really think through what all their needs and wants might be. Let’s face it; buying a house can be an emotional and exciting experience so sometimes logic doesn’t show its face. For those people who think they’re buying their long-term home whether as a first-time homebuyer, here are some things to consider in order to ensure it’s a long-term home.
Before you begin searching for a home, it’s always helpful to think about your needs both now and in the future. And if you have any questions about the home-buying process or different types of real estate, you can always ask your mortgage professional or real estate agent for input.
Following are some things to consider when you’re deciding which type of home to buy:
• Location. Do you want to live in a city, town or in the countryside? How long will your work commute be? Where will your children attend school and how will they get there? Are you close to amenities?
• Size requirements. Do you need several bedrooms, more than one bathroom, space for a home office, a two-car garage?
• Special features. Do you want air conditioning, storage or hobby space, a fireplace, a swimming pool? Do you have family members with special needs? Do you want special features to save energy, enhance indoor air quality and reduce environmental impact?
• Lifestyles and stages. Do you plan to have children? Do you have teenagers who will be moving away soon? Are you close to retirement? Will you need a home that can accommodate different stages of life?
New Versus Resale Homes
When thinking about your ideal home, the first thing you should consider is whether you want a previously owned home (often called a resale) or a new home. Here are some characteristics that may help you decide:
New Home
• Modern design. A new home has an up-to-date design that takes into account the latest trends, materials and features.
• Personalized choices. You may be able to upgrade or choose certain items such as siding, flooring, cabinets, plumbing and electrical fixtures.
• Up-to-date with the latest codes/standards. The latest building codes, electrical and energy-efficiency standards will be applied.
• Maintenance costs. Maintenance costs will be lower because everything is new and many items are covered by a warranty. You should still set aside money every year for future maintenance costs.
• Builder warranty. This is a warranty that may be provided by the builder of the home. Be sure to check all the conditions of the warranty. A homebuilder’s warranty can be important if a major system such as plumbing or heating breaks down.
• Neighbourhood amenities. Schools, shopping malls and other services may not be complete for years.
• Extra costs. You may have to pay extra if you want to add a fireplace, plant trees and sod or pave your driveway. Make sure you know exactly what’s included in the price of your home.
Resale Home
• You can see what you are buying. Easy access to services. Probably established in a neighbourhood with schools, shopping malls and other services.
• Landscaping is usually complete and fencing already installed. Previously owned homes may have extras like fireplaces, finished basements or swimming pools.
• No HST. You don’t have to pay the HST unless the house has been substantially renovated, and then the taxes are applied as if it were a new house.
• Possible redecorating and renovations. You may need to redecorate, renovate or do major repairs such as replacing the roof, windows and doors.
Deciding Which Type of Home to Buy
There are many types of homes to choose from and each has its advantages and disadvantages. Think about your needs before making a decision, and don’t forget to look beyond the interior walls. The environment surrounding your home can be as important as the environment within.
Following are some different types of homes from which to choose:
Single-Family Detached – A home containing one dwelling unit that stands alone and sits on its own lot, thereby offering a greater degree of privacy.
Semi-Detached – A single-family home that is joined to another one by a common wall. It can offer many of the advantages of a single-family detached home and is usually less expensive to buy and maintain.
Row House or Townhouse – Many similar single-family homes, side-by-side, separated by common walls. They can be freehold, condominiums or rental units. They offer less privacy than a single-family detached home but still provide a separate outdoor space. These homes can cost less to buy and maintain – but they can also be large, luxury units.
Link or Carriage Home – Houses joined by garages or carports, which provide access to the front and back yards. Builders sometimes join basement walls so that link houses appear to be single-family homes on small lots. These houses can be less expensive than single-family detached homes.
Condominiums or Stratas – A condo or strata is a form of ownership, not a type of construction. They can be high-rise residential buildings, townhouse complexes, individual houses and low-rise residential buildings.
There’s no guarantee you’re going to be making the right decision when buying a home but taking all the possibilities into consideration will make it more likely. So, although you’re excited about moving into your dream home, take your time and weigh your options to increase your odds of making the right decision.
In a nutshell, her thinking is that people today are crazy for taking such big mortgages with large loan-to-values and long amortizations. “What’s the matter with buying a starter home and after a few years buying something bigger? That’s what we did.” So I explained to her how sometimes it doesn’t make sense to begin with a starter home since making a move into a larger home is going to trigger costs like realtor fees, land transfer taxes, legal fees and potentially fees to break their mortgage. In the end, the homeowner could be right where they started if not further behind with regards to equity than when they started. With all that in mind, a lot of buyers would prefer to jump at the bigger house to begin with rather than spin their wheels with a starter home. This was one of the conversations that didn’t end with my mother agreeing with me but at least she faked like she did...I think.
The reality is that some people don’t think they are getting into a starter home until they live in the house for a few years and their needs change or they realize in hindsight that they didn’t really think through what all their needs and wants might be. Let’s face it; buying a house can be an emotional and exciting experience so sometimes logic doesn’t show its face. For those people who think they’re buying their long-term home whether as a first-time homebuyer, here are some things to consider in order to ensure it’s a long-term home.
Before you begin searching for a home, it’s always helpful to think about your needs both now and in the future. And if you have any questions about the home-buying process or different types of real estate, you can always ask your mortgage professional or real estate agent for input.
Following are some things to consider when you’re deciding which type of home to buy:
• Location. Do you want to live in a city, town or in the countryside? How long will your work commute be? Where will your children attend school and how will they get there? Are you close to amenities?
• Size requirements. Do you need several bedrooms, more than one bathroom, space for a home office, a two-car garage?
• Special features. Do you want air conditioning, storage or hobby space, a fireplace, a swimming pool? Do you have family members with special needs? Do you want special features to save energy, enhance indoor air quality and reduce environmental impact?
• Lifestyles and stages. Do you plan to have children? Do you have teenagers who will be moving away soon? Are you close to retirement? Will you need a home that can accommodate different stages of life?
New Versus Resale Homes
When thinking about your ideal home, the first thing you should consider is whether you want a previously owned home (often called a resale) or a new home. Here are some characteristics that may help you decide:
New Home
• Modern design. A new home has an up-to-date design that takes into account the latest trends, materials and features.
• Personalized choices. You may be able to upgrade or choose certain items such as siding, flooring, cabinets, plumbing and electrical fixtures.
• Up-to-date with the latest codes/standards. The latest building codes, electrical and energy-efficiency standards will be applied.
• Maintenance costs. Maintenance costs will be lower because everything is new and many items are covered by a warranty. You should still set aside money every year for future maintenance costs.
• Builder warranty. This is a warranty that may be provided by the builder of the home. Be sure to check all the conditions of the warranty. A homebuilder’s warranty can be important if a major system such as plumbing or heating breaks down.
• Neighbourhood amenities. Schools, shopping malls and other services may not be complete for years.
• Extra costs. You may have to pay extra if you want to add a fireplace, plant trees and sod or pave your driveway. Make sure you know exactly what’s included in the price of your home.
Resale Home
• You can see what you are buying. Easy access to services. Probably established in a neighbourhood with schools, shopping malls and other services.
• Landscaping is usually complete and fencing already installed. Previously owned homes may have extras like fireplaces, finished basements or swimming pools.
• No HST. You don’t have to pay the HST unless the house has been substantially renovated, and then the taxes are applied as if it were a new house.
• Possible redecorating and renovations. You may need to redecorate, renovate or do major repairs such as replacing the roof, windows and doors.
Deciding Which Type of Home to Buy
There are many types of homes to choose from and each has its advantages and disadvantages. Think about your needs before making a decision, and don’t forget to look beyond the interior walls. The environment surrounding your home can be as important as the environment within.
Following are some different types of homes from which to choose:
Single-Family Detached – A home containing one dwelling unit that stands alone and sits on its own lot, thereby offering a greater degree of privacy.
Semi-Detached – A single-family home that is joined to another one by a common wall. It can offer many of the advantages of a single-family detached home and is usually less expensive to buy and maintain.
Row House or Townhouse – Many similar single-family homes, side-by-side, separated by common walls. They can be freehold, condominiums or rental units. They offer less privacy than a single-family detached home but still provide a separate outdoor space. These homes can cost less to buy and maintain – but they can also be large, luxury units.
Link or Carriage Home – Houses joined by garages or carports, which provide access to the front and back yards. Builders sometimes join basement walls so that link houses appear to be single-family homes on small lots. These houses can be less expensive than single-family detached homes.
Condominiums or Stratas – A condo or strata is a form of ownership, not a type of construction. They can be high-rise residential buildings, townhouse complexes, individual houses and low-rise residential buildings.
There’s no guarantee you’re going to be making the right decision when buying a home but taking all the possibilities into consideration will make it more likely. So, although you’re excited about moving into your dream home, take your time and weigh your options to increase your odds of making the right decision.
Wednesday, January 26, 2011
Here we go again....
Last week the Minister of Finance, Jim Flaherty, announced another round of regulations on the mortgage industry. These are in addition to regulations he announced last year around this time http://abbatangelogroup.blogspot.com/2010_02_01_archive.html. I figured I’d give it a few days for the changes to sink in a bit before I shared my comments. It turns out that even after a few days I still can’t wrap my head around the changes...I’ll probably just use a few less curse words to describe my opinion.
For those of you who haven’t yet heard about the changes, here they are in a nutshell:
1. A 30-year maximum amortization on insured mortgages over 80% LTV (loan-to-value), down from the current maximum of 35 years
2. An 85% LTV limit on insured refinances down from the current maximum of 90%
3. Elimination of government insurance on secured lines of credit (aka., HELOCs)
I could probably go on forever with my opinion on these changes but I’ll do my best not to. Changes one and three I don’t think carry a huge impact. The difference on the monthly payment for a $300,000 mortgage is about $100 when looking at a 30-year amortization compared to a 35-year amortization. If a borrower needs that extra $100 in order to qualify for the mortgage, maybe they shouldn’t be getting the mortgage anyways. The HELOC change remains to be seen what lenders will do with their products, if anything so my opinion on that is fairly neutral.
It’s the change to refinance maximums that I feel has the most negative impact. The changes last April lowered the refinance maximum from 95% LTV to 90% and now it’s being further lowered to 85%. I completely understand the Minister of Finance’s position on this...limit borrower’s ability to lower their equity position in their homes, creating a source of savings, rather than as he put it “an ATM machine”. However, I think what he overlooked is the greatest reason why people need to refinance their homes. He made reference to people removing the equity for their homes in order to buy boats and big-screen TVs. While that might be true in some cases, it definitely isn’t the norm in the cases I see. I’ve never had a client refinance their home in order to spend it on something other than home improvements or paying off other high-interest debt. Sure, that other high-interest debt may have been accumulated by purchasing boats and big-screen TVs but to me the issue isn’t what the client purchased, it was that a financial services company was more than willing to provide them with the credit facility to make the purchase in the first place and then carry the balance at a ridiculous rate. So once again the Minister announces changes to mortgage rules but does nothing about the practices of companies granting credit cards with ridiculous limits and unsecured Lines of Credit to anyone with a pulse. In my opinion, if he was to crack down on those predatory practices, there would be less need for people to refinance their homes. But hold on a second, who is it that the Minister looks to for guidance on these types of matters? Oh right, the CEOs of the big five Banks. I can’t imagine why they (the biggest issuers of credit cards and LOCs) would want to limit the ability of their Visa and Line of Credit customers paying 8-20% on their outstanding balances to refinance their mortgages paying less than 4%, especially when more and more of those mortgages are being refinanced with non-bank lenders (he said with a giant stench of sarcasm).
What this creates, in my opinion, is a market where people can obtain as many revolving credit lines as they want and have now been limited as to their options for relief from their debt. So, you can buy a house and leverage 95% of it but if you own a house and want to refinance it, you can only do so to 85%. Hmmm, so if I’m drowning in high-interest payments and don’t have enough equity in my house to dig myself out of it, I can probably sell my house to get the debt relief because the home I purchase can be leveraged 10% more. In the end, I end up worse off from an equity standpoint than I would have been if I had been able to refinance to 90%. Part of the reasoning behind the Minister’s changes was to further prevent our economy (which has shown NO signs of this happening) from having the same bursting housing bubble that the US had a few years ago. Except, once people start catching on that selling their homes could be the only way to get some debt relief, there will be a greater supply of homes on the market being sold by desperate sellers. That sounds to me like a recipe for falling house prices....do you hear that sound of a bursting bubble?
I’m not saying that the changes shouldn’t have been made, believe it or not. I’m saying that there are other ways the same desired outcome could have been achieved and it could have been in ways that would be more beneficial to the client. I’m also saying that the Government should be looking long and hard at all the elements that go into what they deem to be the problem and make more broad changes. It may also be a good idea to not have advisors who have a vested interest in one or more elements of the decision.
I know, I know, I said I would keep this short. However, this is short. I could go on about this for pages and pages! Let me know what you think and if you support the changes. I’d love to hear your opinion.
For those of you who haven’t yet heard about the changes, here they are in a nutshell:
1. A 30-year maximum amortization on insured mortgages over 80% LTV (loan-to-value), down from the current maximum of 35 years
2. An 85% LTV limit on insured refinances down from the current maximum of 90%
3. Elimination of government insurance on secured lines of credit (aka., HELOCs)
I could probably go on forever with my opinion on these changes but I’ll do my best not to. Changes one and three I don’t think carry a huge impact. The difference on the monthly payment for a $300,000 mortgage is about $100 when looking at a 30-year amortization compared to a 35-year amortization. If a borrower needs that extra $100 in order to qualify for the mortgage, maybe they shouldn’t be getting the mortgage anyways. The HELOC change remains to be seen what lenders will do with their products, if anything so my opinion on that is fairly neutral.
It’s the change to refinance maximums that I feel has the most negative impact. The changes last April lowered the refinance maximum from 95% LTV to 90% and now it’s being further lowered to 85%. I completely understand the Minister of Finance’s position on this...limit borrower’s ability to lower their equity position in their homes, creating a source of savings, rather than as he put it “an ATM machine”. However, I think what he overlooked is the greatest reason why people need to refinance their homes. He made reference to people removing the equity for their homes in order to buy boats and big-screen TVs. While that might be true in some cases, it definitely isn’t the norm in the cases I see. I’ve never had a client refinance their home in order to spend it on something other than home improvements or paying off other high-interest debt. Sure, that other high-interest debt may have been accumulated by purchasing boats and big-screen TVs but to me the issue isn’t what the client purchased, it was that a financial services company was more than willing to provide them with the credit facility to make the purchase in the first place and then carry the balance at a ridiculous rate. So once again the Minister announces changes to mortgage rules but does nothing about the practices of companies granting credit cards with ridiculous limits and unsecured Lines of Credit to anyone with a pulse. In my opinion, if he was to crack down on those predatory practices, there would be less need for people to refinance their homes. But hold on a second, who is it that the Minister looks to for guidance on these types of matters? Oh right, the CEOs of the big five Banks. I can’t imagine why they (the biggest issuers of credit cards and LOCs) would want to limit the ability of their Visa and Line of Credit customers paying 8-20% on their outstanding balances to refinance their mortgages paying less than 4%, especially when more and more of those mortgages are being refinanced with non-bank lenders (he said with a giant stench of sarcasm).
What this creates, in my opinion, is a market where people can obtain as many revolving credit lines as they want and have now been limited as to their options for relief from their debt. So, you can buy a house and leverage 95% of it but if you own a house and want to refinance it, you can only do so to 85%. Hmmm, so if I’m drowning in high-interest payments and don’t have enough equity in my house to dig myself out of it, I can probably sell my house to get the debt relief because the home I purchase can be leveraged 10% more. In the end, I end up worse off from an equity standpoint than I would have been if I had been able to refinance to 90%. Part of the reasoning behind the Minister’s changes was to further prevent our economy (which has shown NO signs of this happening) from having the same bursting housing bubble that the US had a few years ago. Except, once people start catching on that selling their homes could be the only way to get some debt relief, there will be a greater supply of homes on the market being sold by desperate sellers. That sounds to me like a recipe for falling house prices....do you hear that sound of a bursting bubble?
I’m not saying that the changes shouldn’t have been made, believe it or not. I’m saying that there are other ways the same desired outcome could have been achieved and it could have been in ways that would be more beneficial to the client. I’m also saying that the Government should be looking long and hard at all the elements that go into what they deem to be the problem and make more broad changes. It may also be a good idea to not have advisors who have a vested interest in one or more elements of the decision.
I know, I know, I said I would keep this short. However, this is short. I could go on about this for pages and pages! Let me know what you think and if you support the changes. I’d love to hear your opinion.
Monday, January 10, 2011
Tips to Keep in Mind Between Your Mortgage Approval and Funding Dates
In light of the new market realities and tightening of credit underwriting standards by both lenders and mortgage default insurers as of late, keep in mind that now – more than ever – it’s important to be careful what you do between the time your mortgage is approved and when it funds. Most people assume that when their mortgage has been approved, it’s a done deal even if it’s months prior to their closing and that’s simply not the case.
A few mortgage lenders and insurers have been doing something lately that they have not done in a long time – pulling new credit bureaus prior to funding, especially if there is a long period between the time of your approval and when the mortgage actually funds.
Following are eight tips to keep in mind between your mortgage approval and funding dates:
1. Don’t buy a new car or trade-up to a more expensive lease.
2. Don’t quit your job or change jobs. Even if it’s a better-paying job, you still are likely to be on a probationary period. If in doubt, call your mortgage professional and they can let you know if this may jeopardize your approval.
3. Don’t change industries, decide to become self-employed or accept a contract position even if it’s within the same industry. Delay the start of your new job, self-employment or contract status until after the funding date of your mortgage.
4. Don’t transfer large sums of money between bank accounts. Lenders get especially skittish about this one because it looks like you’re borrowing money. Be ready to document cash transactions or money movements.
5. Don’t forget to pay your bills, even ones that you’re disputing. This can be a real deal-breaker. If the lender pulls your credit bureau prior to closing and sees a collection or a delinquent account, the best you can hope for is that they make you pay off the account before they will fund. You don’t want to have to scramble to pay off a debt at the last minute!
6. Don’t open new credit cards. Again, just wait until after your funding date.
7. Don’t accept a cash gift without properly documenting it – even if this is from proceeds of a wedding. If you have a bunch of cash to deposit before your funding date, give your mortgage professional a call before you deposit it.
8. Don’t buy furniture on the “Do not pay for XX years plan” until after funding. Even though you don’t have to pay now, it will still be reported on your credit bureau, and will become an issue – especially if your approval was tight to begin with.
While you may not risk losing your mortgage approval because you have broken one of these rules, it’s always best to talk to your mortgage professional before doing any of the above just to make sure!
A few mortgage lenders and insurers have been doing something lately that they have not done in a long time – pulling new credit bureaus prior to funding, especially if there is a long period between the time of your approval and when the mortgage actually funds.
Following are eight tips to keep in mind between your mortgage approval and funding dates:
1. Don’t buy a new car or trade-up to a more expensive lease.
2. Don’t quit your job or change jobs. Even if it’s a better-paying job, you still are likely to be on a probationary period. If in doubt, call your mortgage professional and they can let you know if this may jeopardize your approval.
3. Don’t change industries, decide to become self-employed or accept a contract position even if it’s within the same industry. Delay the start of your new job, self-employment or contract status until after the funding date of your mortgage.
4. Don’t transfer large sums of money between bank accounts. Lenders get especially skittish about this one because it looks like you’re borrowing money. Be ready to document cash transactions or money movements.
5. Don’t forget to pay your bills, even ones that you’re disputing. This can be a real deal-breaker. If the lender pulls your credit bureau prior to closing and sees a collection or a delinquent account, the best you can hope for is that they make you pay off the account before they will fund. You don’t want to have to scramble to pay off a debt at the last minute!
6. Don’t open new credit cards. Again, just wait until after your funding date.
7. Don’t accept a cash gift without properly documenting it – even if this is from proceeds of a wedding. If you have a bunch of cash to deposit before your funding date, give your mortgage professional a call before you deposit it.
8. Don’t buy furniture on the “Do not pay for XX years plan” until after funding. Even though you don’t have to pay now, it will still be reported on your credit bureau, and will become an issue – especially if your approval was tight to begin with.
While you may not risk losing your mortgage approval because you have broken one of these rules, it’s always best to talk to your mortgage professional before doing any of the above just to make sure!
Tuesday, December 21, 2010
The Trouble with Debit Cards
If you’re like just about everyone around you and I’m sure you are, over the last 4-6 weeks you’ve been buying things for an endless list of people and trying to get it done as quickly as possible. More importantly, when you’ve found that perfect thing and taken it to the counter to pay for it, you’ve handed over a piece of plastic to cover the cost. We live in a society of instant gratification and the need for convenience. Unlike our parents or grandparents – who saved up for larger purchases – we are often tempted to splurge on bigger-ticket items simply because we have a debit card in hand when we head out “window shopping”.
And aside from overspending thanks to the advent of debit cards, consumers are also more likely to dip into overdraft, which ends up costing more thanks to fees and interest that banks charge whenever you spend more than you have in your account.
Basically, a debit card works like a cheque. The only difference is that every time you use it, you’re immediately taking money out of your account. That’s why when you overdraw it’s like bouncing a cheque – only worse because, unlike cheques, you probably don’t keep a record of every debit card purchase you make.
You may even make a bunch of small purchases before you realize you’ve spent more than you have. So before you pay for that coffee or lunch purchase with your debit card, make sure you have enough money in your account to cover it.
Revert to using cash for daily expenses...cash controls spending, plain and simple. Using cash to pay for everyday purchases such as coffee, transit, lunch and magazines alerts you to the idea that you’re actually spending real money. You just don’t get the same cautionary sense when you haul out plastic, be it a debit or credit card.
There’s a distinct cognitive event that happens when you handle money – it’s called awareness. Over the counter goes the five dollar bill and back comes a loonie, a dime, two nickels and four pennies.
Did you just add up the change above to determine how much money you have left? Did you think about what that purchase could have been? You see, you are much more conscious of this imaginary purchase than if you had paid with plastic.
Now, add in the awareness of the bills left in your wallet and you become attuned to your temporary wealth, or lack thereof. At the end of the day, what encourages or cautions many consumers about spending is knowing where you stand from a financial perspective. That’s why cash can help control spending. Using cash to pay for everyday purchases alerts you to the idea that you’re actually spending real money.
By allotting yourself a weekly cash allowance for entertainment and everyday expenses – such as that daily morning coffee or weekly movie – you are building a budget around what you can spend on these purchases. And once the money in your wallet has been spent, you have to ensure you fight the urge to withdraw more cash or resort back to using your debit card.
Be realistic about what you typically spend on these items in a week. If you routinely eat out for lunch or stop at Tim Hortons for coffee, count that as well. If you think you’re spending too much on these items, you can then decide to find a less expensive alternative, such as brown-bagging your lunch or making your own coffee.
Let’s say, for instance, that you start the week off with $50 in your wallet and you began to spend it on your purchases. You will see $50 turn into $40, $40 turn into $25, $25 turn into $15 and so on. Every time you look into your wallet, you will see what’s left over from your original $50 and be aware of how quickly your money is being spent. This alone can make you think twice before making a purchase.
Using cash instead of the convenience of debit and credit cards might seem like something out of the stone age but take a look at your parents and grandparents. They have likely never had large sums of debt they carried from month to month and have savings they should be proud of instead of embarrassed by.
And aside from overspending thanks to the advent of debit cards, consumers are also more likely to dip into overdraft, which ends up costing more thanks to fees and interest that banks charge whenever you spend more than you have in your account.
Basically, a debit card works like a cheque. The only difference is that every time you use it, you’re immediately taking money out of your account. That’s why when you overdraw it’s like bouncing a cheque – only worse because, unlike cheques, you probably don’t keep a record of every debit card purchase you make.
You may even make a bunch of small purchases before you realize you’ve spent more than you have. So before you pay for that coffee or lunch purchase with your debit card, make sure you have enough money in your account to cover it.
Revert to using cash for daily expenses...cash controls spending, plain and simple. Using cash to pay for everyday purchases such as coffee, transit, lunch and magazines alerts you to the idea that you’re actually spending real money. You just don’t get the same cautionary sense when you haul out plastic, be it a debit or credit card.
There’s a distinct cognitive event that happens when you handle money – it’s called awareness. Over the counter goes the five dollar bill and back comes a loonie, a dime, two nickels and four pennies.
Did you just add up the change above to determine how much money you have left? Did you think about what that purchase could have been? You see, you are much more conscious of this imaginary purchase than if you had paid with plastic.
Now, add in the awareness of the bills left in your wallet and you become attuned to your temporary wealth, or lack thereof. At the end of the day, what encourages or cautions many consumers about spending is knowing where you stand from a financial perspective. That’s why cash can help control spending. Using cash to pay for everyday purchases alerts you to the idea that you’re actually spending real money.
By allotting yourself a weekly cash allowance for entertainment and everyday expenses – such as that daily morning coffee or weekly movie – you are building a budget around what you can spend on these purchases. And once the money in your wallet has been spent, you have to ensure you fight the urge to withdraw more cash or resort back to using your debit card.
Be realistic about what you typically spend on these items in a week. If you routinely eat out for lunch or stop at Tim Hortons for coffee, count that as well. If you think you’re spending too much on these items, you can then decide to find a less expensive alternative, such as brown-bagging your lunch or making your own coffee.
Let’s say, for instance, that you start the week off with $50 in your wallet and you began to spend it on your purchases. You will see $50 turn into $40, $40 turn into $25, $25 turn into $15 and so on. Every time you look into your wallet, you will see what’s left over from your original $50 and be aware of how quickly your money is being spent. This alone can make you think twice before making a purchase.
Using cash instead of the convenience of debit and credit cards might seem like something out of the stone age but take a look at your parents and grandparents. They have likely never had large sums of debt they carried from month to month and have savings they should be proud of instead of embarrassed by.
Wednesday, December 8, 2010
Closing Costs – Often overlooked, always misunderstood
When buying a new home, closing costs are something everyone has to pay. Unfortunately, they often get overlooked and most homebuyers don’t understand what constitutes closing costs...maybe that’s why they get overlooked.
I think this has to do with lack of education and the fact that nobody really talks about what they are in detail, but rather just refers to them as “closing costs”. I remember when I bought my first house, the realtor didn’t talk about closing costs, the bank rep didn’t talk about closing costs and the lawyer didn’t talk about closing costs until a few days before the purchase was supposed to close and I was told I needed to produce several thousand dollars. What?! Now, of course I’m to blame as well since I didn’t seek out what costs needed to be covered and relied on the professionals I was dealing with to hold my hand through the process. Obviously that didn’t happen. I was naive, but most first-time homebuyers and some experienced homebuyers are too.
Fast forward 12+ years and you can understand why I highlight closing costs to clients at several points through the process. The last thing I want is for a client to be scrambling like I was a few days before closing, trying to cover their closing costs.
In reality, there is more to it than most would think. Here are some of the approximate costs that buyers should be prepared for:
- Legal fees of $1000-$1200 for the purchase with an additional $800-$1000 if they are also selling a home. This includes a title search, mortgage registration and discharge if applicable.
- $300 for a home inspection.
- $250 for an appraisal. In some cases lenders will require an appraisal to verify the market value of the property.
- PST on Insurance premium. If your mortgage is for more than 80% of the purchase price you will have to pay a default insurance premium, which is included in your mortgage. However, the PST on the premium is paid outside of the mortgage.
- Property tax to the vendor. If the vendor has pre-paid their property taxes for a portion of the year where you have ownership, you may be responsible to reimburse them for that portion.
- Land transfer tax. This is the biggie. There is an Ontario Land Transfer Tax and a Toronto Land Transfer Tax. Obviously buyers within Toronto are responsible for both and buyers outside Toronto are only responsible for the Ontario Tax. These taxes are tiered dependent upon the purchase price of the property. Land transfer taxes can add up. For example, the Land Transfer Tax for a $400,000 property within Toronto would be $8200 and $4475 outside of Toronto. A LTT calculator can be found here http://www.torontorealestateboard.com/LTT_splash/ltt_calculator.htm
Some of the above costs like the home inspection and appraisal would be paid for before the rest of the closing costs but I think they are worth noting since they are costs associated with the purchase that should be accounted for ahead of time.
You can see that closing costs can add up quickly. Most lenders use 1.5% of the purchase price as a ballpark estimate. Although this would give you an estimate of what to expect, I highly recommend doing a more accurate calculation. Knowing what your costs will be ahead of time will allow you to plan accordingly to have the money available or incorporate them into your mortgage if you can.
I think this has to do with lack of education and the fact that nobody really talks about what they are in detail, but rather just refers to them as “closing costs”. I remember when I bought my first house, the realtor didn’t talk about closing costs, the bank rep didn’t talk about closing costs and the lawyer didn’t talk about closing costs until a few days before the purchase was supposed to close and I was told I needed to produce several thousand dollars. What?! Now, of course I’m to blame as well since I didn’t seek out what costs needed to be covered and relied on the professionals I was dealing with to hold my hand through the process. Obviously that didn’t happen. I was naive, but most first-time homebuyers and some experienced homebuyers are too.
Fast forward 12+ years and you can understand why I highlight closing costs to clients at several points through the process. The last thing I want is for a client to be scrambling like I was a few days before closing, trying to cover their closing costs.
In reality, there is more to it than most would think. Here are some of the approximate costs that buyers should be prepared for:
- Legal fees of $1000-$1200 for the purchase with an additional $800-$1000 if they are also selling a home. This includes a title search, mortgage registration and discharge if applicable.
- $300 for a home inspection.
- $250 for an appraisal. In some cases lenders will require an appraisal to verify the market value of the property.
- PST on Insurance premium. If your mortgage is for more than 80% of the purchase price you will have to pay a default insurance premium, which is included in your mortgage. However, the PST on the premium is paid outside of the mortgage.
- Property tax to the vendor. If the vendor has pre-paid their property taxes for a portion of the year where you have ownership, you may be responsible to reimburse them for that portion.
- Land transfer tax. This is the biggie. There is an Ontario Land Transfer Tax and a Toronto Land Transfer Tax. Obviously buyers within Toronto are responsible for both and buyers outside Toronto are only responsible for the Ontario Tax. These taxes are tiered dependent upon the purchase price of the property. Land transfer taxes can add up. For example, the Land Transfer Tax for a $400,000 property within Toronto would be $8200 and $4475 outside of Toronto. A LTT calculator can be found here http://www.torontorealestateboard.com/LTT_splash/ltt_calculator.htm
Some of the above costs like the home inspection and appraisal would be paid for before the rest of the closing costs but I think they are worth noting since they are costs associated with the purchase that should be accounted for ahead of time.
You can see that closing costs can add up quickly. Most lenders use 1.5% of the purchase price as a ballpark estimate. Although this would give you an estimate of what to expect, I highly recommend doing a more accurate calculation. Knowing what your costs will be ahead of time will allow you to plan accordingly to have the money available or incorporate them into your mortgage if you can.
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