How to maximize your mortgage

By: Michael Anthony Lloyd: Guest Post for Canadian Budget Binder

Many people get into their first home and are so busy fixing it up, moving in and just getting used to their new home they quickly forget about their mortgage, other than that big chunk of cash that goes out of their account every month.

They are losing money by ignoring it!

Many banks don’t explain much in the way of “best practices” with mortgage repayment.  One of the simplest is paying your mortgage on either a Weekly or biweekly basis to speed up the repayment process, but beware, some banks offer non-accelerated weekly or biweekly which do nothing to pay back your mortgage faster!

Follow this simple system when setting up your payments:

• If you are paid every 2 weeks, pay your mortgage with biweekly accelerated
•  If you are paid any other way, pay your mortgage weekly accelerated.

The reasoning is simple, say your mortgage is $1000 per month, paying biweekly accelerated puts more onto your mortgage in a year ($500 x 26 = $13,000 vs. $1000 x 12 = $12,000), same with weekly accelerated ($250 x 52 = $13,000).

So apart from your mortgage payment, what else can you do to pay your mortgage down faster?  Obviously making extra “prepayments” will help, but you may be surprised how much of an impact they can have.

First you will have to check with your lender to confirm how prepayments are allowed.  Some only allow the prepayment on the anniversary date of the mortgage each year, some allow them to be taken pretty much at any time, as long as you don’t go over the “free” prepayment allowable with your lender (once again, check with your lender, most are 10 – 15% of your original mortgage balance, some more, some less).

If your lender is easy-going, make a regular extra payment every month or quarter, based on what your budget allows.  If you find after a month or quarter you have an extra $100 or more (this is the general minimum prepayment allowed), advise your lender and make this as an extra payment.  It makes a difference, take a look at this comparison:

On this $300,000 mortgage amortized over 30 years, simply paying your payment on biweekly accelerated drops it down to 26.3 years…paying an additional $100 per month (or $300 per quarter) drops it to 23.5 years. 

• Obviously prepaying more will knock the mortgage down even faster.

So what else can you do to get rid of your mortgage sooner? 

Most lenders will not contact you when it makes sense to break the term of your mortgage and move into a lower rate.  Just because you took out your mortgage a year or so ago, doesn’t mean you have to stick with it regardless.

Depending on your lender, how they charge penalties, and the current mortgage rate environment, it may make sense for you to pay the penalty (and even include it into the mortgage) and move to today’s historically low rates.  I’m obviously biased, but a good Mortgage Broker can easily run the numbers for you and let you know if it makes sense to make a break.

With today’s small fluctuations in fixed rates, you may be surprised how much the penalty can drop when rates go up, making it more economical to make a change. Once you make that decision, really take advantage of the lower rate on your new mortgage by keeping your payments at the same level (or higher if you can afford to) to maximize the rate savings.

I think we would all agree that it is not about “if” mortgage rates will go up, but “when”.  With this in mind, we wanted to help our clients and others pay their mortgage down faster and came up with what we call “Money in Your Mortgage” or the “Inflation Hedge Strategy” it’s a software program we have written that is built to make the most of the low rate environment we are all living in and ensure you don’t suffer payment shock in the future.

What’s payment shock? 

It’s what a number of our American friends suffered when their teaser rate mortgages in the US came due and their payments skyrocketed, causing a number of the foreclosures we are all too used to seeing there.  This program is pretty simple and is explained in detail on the link, but in a nut shell, whenever the rate at your lender goes up, we email you to remind you to increase your payment accordingly, so that at the end of your term, you are paying the same amount you would be then, you won’t have any shock, and you will have made extra payments on your mortgage, paying it down faster and maximizing your low rate…we call this mortgage Optimization.

This is a free service, and you are under no obligation…we just feel strongly we as Canadians need to do everything we can to help each other not suffer through what the US has.

Tell me what you think…link

Michael Anthony Lloyd is a Mortgage Expert with DLC Canadian Mortgage Experts and has been helping Canadians with their mortgages as a Mortgage Broker since 1999.  Helping Canadians reach their “Mortgage Freedom Day” sooner is his goal.  He writes a Blog called The Daily Dig as well as leading the DLC CME team of 75 brokers.

All Photos: Copyright 2012 Michael Anthony Lloyd

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Top 3 First Time Home Buyer Mistakes

Everyone who has bought a home has been through it, the scary, nervous time of learning a new language, relying on strangers you don’t know and making massive decisions you are sure will ruin your life.  All this while getting opinions from everyone you have every known whether you want them or not!

Despite all this there is an upside…you also get to have you own home!

In the hope of helping those who have not gone through this “rite of passage” to home ownership, I want to share with you some of the most common mistakes people make and how to avoid those yourself.

#1.  Most people don’t work out what their budget is.

You are on reading this here on Canadian Budget Binder, so I am sure you have done one by now, but you would be shocked how many people are not even aware of what they can afford, let alone what their plan is, other than wanting a home.  A detailed budget and plan of potential costs is a must to start this journey.  Staying with it is a key to living happily ever after!

#2.  Little or no understanding of the home buying process.

You don’t have to become an expert in home buying, but having a basic understanding of the overall process and the steps that are involved is a smart move to avoid last second decisions which can cost you money.  There is lots of information online (stay on Canadian websites, US ones will just confuse you as their process is completely different), here are a few sites to look at:

• CMHC: Government owned corporation that insures those buyers with less than 20% down payment…good information here, though written by bureaucrats (a little dry!).
• Genworth: A Private Insurer, similar type of site.
• Househappy: Shameless plug for my new site, we have shot a number of videos and written ebooks to help people with the process.
• Various lender sites etc.

#3.  Not putting a team of experts together first.

This is probably one of the biggest decisions of your life, make sure the people you are going to listen to for input on that decision are people who have the knowledge, experience and are worthy of your trust.  The majority of people drive by a property and call the Realtor who has the listing, without ever researching them, then rely on that person to refer them to a mortgage specialist and a lawyer or notary.

While this may work out ok, I highly recommend you meet with a mortgage specialist first…find someone who your friends or family recommend and who is going to look after you for the long-term, not just for this mortgage.  I am an Independent Mortgage Broker and obviously am biased, but feel strongly you are more likely to get objective advice from a Mortgage Broker than you are from a Bank Rep or Mortgage Specialist simply because Brokers have more options.

Get your budget out and review it with your Mortgage person, and make sure you are comfortable with the amount you are pre-approved for…just because the lender offers you more, doesn’t mean you should take it.  In fact, make sure whatever Realtor you end up with, never shows you homes above your budget, this is a big part of why people end up house poor…they see a home they really shouldn’t and stretch to buy it.

Once you have your numbers set and your mortgage plan in place, the next step is to get a Realtor on working for you.  This is very important, as you want to have someone negotiating on your behalf…so often people will end up paying more because they rely on the realtor who is listing the property they want.  Get someone on your side…once again talk to your family, friends or mortgage person to find a competent, experienced Realtor who listens to your needs.

Lastly, you will need a Lawyer or Notary who is working on your behalf as well and who can help you with those tough decisions.  Always have your contract reviewed by the Lawyer so they can point out problems with dates, subjects etc.

These are three areas that will make a great start for a successful first time home buying journey.  There are a number of other areas that are also important, we will get to those in our next post.

Thanks for reading, I am offering a $50 iTunes card to one lucky reader  for participating in Canadian Budget Binders Facebook Contest related to this post. Head on over to Facebook for the details. Contest Closes  11pm EST Wed April 25,2012.

Congratulations to ….. drum roll….. Shawna Klassen! She is our $50 ITunes Winner!!!!

Mike

Michael Anthony Lloyd is a Mortgage Expert with DLC Canadian Mortgage Experts and has been helping Canadians with their mortgages as a Mortgage Broker since 1999.  Helping Canadians reach their “Mortgage Freedom Day” sooner is his goal.  He writes a Blog called The Daily Dig as well as leading the DLC CME team of 75 brokers.

You can find Canadian Budget Binder on Twitter HERE or Facebook HERE ..Come Join In The Daily Conversation!

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All Photos Courtesy of: Michael Anthony Lloyd

Are you thinking about breaking a mortgage early? Most people assume that when they sign up for a 5 year fixed rate that they have to stay in that mortgage for the next 5 years…that isn’t true in most cases.  While there are a few lenders out there who have “closed” mortgages that are not breakable without a bona fide sale of the property, the vast majority are breakable.

So how does that work?  If you decided that the rate you were paying was too high or you wanted to add funds in a refinance or various other situations that made you want to break the mortgage you were in, how can it be done?  If your current mortgage rate is less than lender’s rate on the equivalent remaining term, you simply pay a 3 month interest penalty…for example:

• Current mortgage of $150,000 @ 3.25% with 3 years remaining
• Lender’s 3 year rate is currently 3.45%
• 3 Months interest = $1,219 approximately ($150,000 x 3.25% /12 x3)

What if the opposite is true, the current rate you have on your mortgage is higher than the current available from the lender?  Now we enter the world of IRD, or Interest Rate Differential, this is where things get a little crazy.  Technically, what is supposed to happen is you compare your rate and remaining term against the lender’s current rate for that term and work out the difference the lender will lose by you breaking their contract, like this:

• Current mortgage of $150,000 @ 3.25% with 3 years remaining
• Lender’s 3 year rate is currently 2.75%
• IRD Penalty is $2,250 (Rate difference = .50% x 3(yrs)= .015% x 150,000)

This seems simple enough, except what rate does the lender use for their rate?  You see, in the past, we all received the posted rate, so it was a simple calculation.  Now, since we brokers have pushed the lenders for bigger discounts, some lenders now use the discounted rate, but which one?  For most of the lenders we deal with that are non-banks, they only have one rate posted, so it makes it a little easier to figure out their rate for the calculations.

Some lenders will take the discount you received on the 5 year rate in the first place, i.e. 1.50% off of posted, then apply that to the 3 year posted rate.  This can cause a massive IRD penalty and is unrealistic, as they would never discount their 3 year that much (lender’s tend to discount their rates more the longer you lock in).  Each lender seems to have their own way of calculating it.  The Federal Government has actually made rumblings about making the rules in this area more straight forward over the past few years, but nothing has come of it.

There is more to this penalty calculation thing as well…speaking to your Bank about the penalty can lead to more confusion.  It seems branches have a few different ways to calculate the penalty and many of my clients have had experiences of a quote with higher penalties unless they asked for it in writing.  If you do ask for it in writing, make sure to obtain the date the penalty quote is good until (some lenders give it to you only for the day, others, 2 weeks or a month).

In many cases, it may make sense to break your mortgage, pay the penalty and then move to a lower rate that will save you back the penalty and many times more.  However, you will be entering the murky world of Bank/Lender retention where they will try to do what it takes to keep you as a client.  Be wary of blend and extends, unwritten penalty quotes, penalty waives etc. The goal should always be to maximize your mortgage and find the shortest route to your Mortgage Freedom Day! If you can, get some objective advice when reviewing your options if you are thinking about breaking your mortgage, all the better.

Guest Post Bio: Michael Anthony Lloyd is a Mortgage Expert with DLC Canadian Mortgage Experts and has helped Canadians with their mortgages as a Mortgage Broker since 1999.  Helping Canadians reach their “Mortgage Freedom Day” sooner is his goal.  He writes a Blog called The Daily Dig as well as leading the DLC CME team of 75 brokers.

Are you on my Blog Roll? Check HERE… if not and you want me to check out your blog and add you to my ever-growing blog roll simply click here and fill out the form. Introduce yourself and lets LINK UP!

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Contributor: Nurse Frugal at Ladies Go First

Paying off the Mortgage early, that’s what we’re doing and here’s why. I vividly remember the day when I came home from work and my husband was sitting behind the computer with a perplexed look on his face.  He looked up at me and asked “I don’t know, do you think we should pay off the house loan too?”

Here Is Some Background…………

A few weeks earlier we had just started listening to Dave Ramsey, a radio host and author that believes that becoming debt free is the key to financial freedom and building wealth.  We had just emptied out our savings accounts to pay off the two brand new cars we had just financed. My heart sank in my chest, was my husband taking crazy pills before I came home?  Did he realize that paying off the mortgage would mean that we would have to work lots of overtime for years and years to ultimately pay off the $233,346.60 owed on our mortgage?!?!  He proceeded to do a mortgage calculation that revealed that if we didn’t pay off the house early we would pay $118,123.78 in interest throughout the life of our mortgage, which is essentially throwing that money away.

$118,123.78!!!!!!!  That can buy me another house somewhere, or 6 cars, or millions of chocolate bars, or lots of mission trips….the list can go on and on. It took me a few days to totally get on board with my husband.  We suddenly became team-mates and partners on our journey to attack this massive burden of a debt.  We began by agreeing to hold each other accountable for our finances: we got on a budget (something I have dreaded my entire life) it has such a terrible connotation.  We decided to live from last months income and jointly decide how our money would be spent the following month by doing a “zero-based budget.”  This means that we decide on paper how every single dollar will be spent the following month.

It took a while to get used to this new frugal way of life; the first two months I wanted to throw my husband out the window when I couldn’t “buy” the things I “needed” (vacations, new clothes, dining out….all things that one can live without.)  I would throw these little whiney pants tantrums because I felt “entitled” to have certain things. But then I started to see progress.  We felt traction as our mortgage debt diminished. The funny thing is that when we first started in February of 2011, we anticipated having the house paid off in April of 2016 because of my “whiney pants” needs and wants.  It’s now a year and a half after we first started, and we are half way done!!

Once you see that traction, you get more motivation and it’s like a freight train you can’t stop.  My husband and I started working more and living off of 40% of our income, putting everything else towards the mortgage, and we have never been happier.  I respect my husband more than ever with the direction he is taking our family. I feel like a partner in our finances because I am treated as an equal member of our “budget committee.”  I like to refer to myself as Vice President.

This experience has been the most enriching in my life: we have freed our souls away from meaningless “stuff” that we can easily live without, and our marriage, teamwork and communication has gotten stronger.  It has taught us the value of hard work. I imagine all the opportunities this will open up for us: the possibility of us retiring early, the possibility of only having to work a day or two when we have children, the possibility of doing more charitable work…this is the “stuff” that truly matters in life. We are hoping to pay off our house in August or September of 2013, and when that day comes we hope to serve as inspiration to other working people that anyone can become financially free.

Would you pay down your mortgage faster or invest the money? Share your comments!

Thanks to Nurse Frugal (Vice President) for sharing their journey to debt freedom with us at Canadian Budget Binder. If you want to guest post for Canadian Budget Binder click HERE.

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Buying a home is not a “buy now deal with it later” process rather one that should be researched properly before you get yourself into hot water. There is so much to learn and the buyer and seller that are best prepared are the ones that come out on top.

Any time you are ready to make potentially one of the biggest investments of your life such as a mortgage loan take a moment to invest in yourself and your wallet.  Buying a home is a confusing, ever-changing process, with a lot of steps along the way.  All of those steps can end up costing you in cash and stress, so know where you are headed before you start the house hunt.

Whether buying your first home, refinancing, or selling and buying, the following tips could help to save you money on your next mortgage transaction.

1.  Speak to your Home Insurance person ahead of time; Lawyers/Notaries are required by the lender to prove you have Fire Insurance, most Insurance Agencies will charge an “Insurance Binder Fee” to supply the lawyer that information.  Call ahead and make sure they don’t charge you…or go to a different agency.
2. When shopping for the right Lawyer or Notary, ask for the “all in” price.  Many make it confusing by saying what their fee is without all the disbursements, tax etc.  If you are buying, ask for a quote on the total price of transferring the property into your name and putting your mortgage into place.  If you are buying and selling, make sure to specify that you have a current mortgage etc.  Being clear up front will save you down the road from surprises.
3. Review your current life insurance/disability package with your Human Resources Department at work as well as your Insurance Broker (if you have one) to ensure you have proper coverage.  As soon as you have removed subjects on a purchase you are liable for completing the contract, regardless if something happens to you or your spouse.  Having sufficient coverage is one area we see consistently that people ignore.
4. Rely on experts, not your buddy.  We see this all the time with our clients they have a friend who is a carpenter who does their inspection for them, they have an Uncle who is a lawyer do their conveyancing, they have their Aunt act as their Realtor.  Too often the Carpenter doesn’t know what he is really looking for, the Uncle doesn’t normally do that type of work, and the Aunt who is a Realtor works part-time on 1 or 2 deals a year.  Would you trust a Doctor who is part-time to operate on you?  Why trust your biggest financial transaction to people who aren’t experts in their field?
5. Do a budget before you move and stick to it!  Too many people move in and then decide they need to buy all sorts of things to make their home perfect.  Take your time!  It’s better to have a list of things you would like to do, and slowly tick it off than to have the whole list complete and not be able to pay your mortgage payments!
6. If you buy a new Condo, Town-home or Home, make sure to have your Lawyer review the agreement before you sign.  Far too many people sign agreements that are all in the developers favour.  If they don’t get your home finished on time what happens?  For most, they just have to wait until it is finished, which could cost you for storage, living expenses etc.  Don’t be afraid to add in clauses that protect you!
7. Have your Realtor, Lawyer and Mortgage Broker review all the closing costs you will be subject to up front, so you know what you are dealing with and can budget for it.
8. Always try to buy with future sales ability in mind.  Many people buy a place because it is significantly cheaper than something else on the market…usually they had a grow op in them, or something strange that makes them less desirable than another property.  The same will apply when you decide to sell it!
9. Try not spend the maximum you are qualified for in your pre-approval.  It’s easy to fall into that trap, but remember, you want to still have a life even after you move in.

These are of course, just a few money saving tips; there are many areas that you can needlessly lose money when dealing in Real Estate.  Having the right Experts on your side will help with most when saving money on your next mortgage transaction.  Good luck!

Guest Post By: Michael Anthony Lloyd is a Mortgage Expert with DLC Canadian Mortgage Experts and has been helping Canadians with their mortgages as a Mortgage Broker since 1999.  Helping Canadians reach their “Mortgage Freedom Day” sooner is his goal.  He writes a Blog called The Daily Dig as well as leading the DLC CME team of 75 brokers.

Photo Supplied by: Michael Anthony Lloyd

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Most people have a vague idea what MPAC (Municipal Property Assessment Corporation) is and what the purpose of the property assessment is. You get a letter in the mail that says your house is worth less than what you paid for it and you scratch your head wondering what the bloody hell they are going on about. That used to be us but we have since done our research and here is what we learned. When we purchased our first home in 2009 we received a letter in the mail with a notice of property value form we needed to fill out. This form was to be sent back to MPAC and they would reply back with an assessment value of our home. We were then replied back to and there were minimal changes to our property value since Jan 1, 2008. We received an assessment in 2009 even though it wasn’t the tax year simply because of the change of home ownership. (I think they secretly want to see if the previous owner told the truth as not everyone speaks up for fear their taxes will go up)

If you think when you purchase your home for let’s say $320,000 that it is the value of your home and property that is far from the truth. The good part is the lower the assessment potentially the lower your property taxes although seeing the property value number can be disheartening for some. I say potentially but in reality anything could happen. Plus, just because your property value went up it doesn’t necessarily mean your property taxes will go up. The municipal tax rate is applied to individual property value to calculate yours and my property taxes along with other factors.

If you finished your basement or upgraded or made any major renovations to  your home in any way they will ask you for this information.  The good thing is if your property taxes do go up they will be phased in over the span of four years with the introduction of the new phase-in program. This phase-in will help property owners  for tax stability and so that they are predictable.  If your property taxes have decreased that will be applied immediately.

This is my understanding from speaking with a representative of how our home’s property value will be phased in over the 4 year period. Currently we pay around $3200 a year for our property taxes. We pay our taxes in 4 installments throughout the year although you can have the bank pay the installment by taking extra money off you when you pay your mortgage payment. Some banks do this for no charge and others may charge you a hidden fee for this convenience so it’s worth it to ask your mortgage company or bank.

Example on a home for the four-year phase in:

Property Value January 1,2008- $240,000

Property Value January 1, 2012- $280,000

Change in Value 2012- $40,000

• 2013-Value $250,000
• 2014-Value $260,000
• 2015-Value $270,000
• 2016-Value $280,000

Where does all your tax dollars go? 

Well each city may be different how they spend your tax dollars but for the most part it goes to pay for municipal services such as police, fire-fighters, public transit, road maintenance ( ie: snow removal,repairs), Community parks, pools, libraries and local centres. Lastly they will pay for the rubbish to be collected at your home.

Who are the people at MPAC?

They are a not for profit public sector corporation whose role is to accurately value the properties of home-owners, government and  business stakeholders, tenants, municipalities in Ontario. They are responsible to assessing using a uniform evaluation legislation brought out by the Ontario Government called CVA (Current Value Assessment which is the most probable sale price for your property. They do this in compliance with the Assessment Act and other regulations.

When will I receive my Assessment?

In Ontario we go through a 4 year assessment cycle with the next being held in the Fall of 2012 effective for 2013-2016 based on a valuation date from January 1, 2012.

How will MPAC assess my Property?

When MPAC looks at your property to assess it they look at many major key factors as listed below which account for up to 85% although they have hundreds of factors they look at.

• Location (Remember… location, location, location.. yep that could cost you)
• Lot Dimensions
• Living Area (you wanted the bigger home, you may pay for it)
• Quality Of Construction
• Age of Property and any major renovations or additions

Like I mentioned above they will ask you details on any major renovations and additions you have done over the 4 year period since the last assessment. You should tell the truth as it’s important to keep statistics uniform across the board.

Some examples of what could potentially affect your property value are below. To be honest I wasn’t shocked but I had no idea about the fireplace which could drive the price of your property value. These are very important examples to know and understand especially when you plan to take on upgrading your home. Since we are doing extensive renovations mainly upgrades and finishing our basement this information will come in handy to us.

• Having a finished basement
• If your home has a pool
• Number of bathrooms in your home
• Type of Air Conditioning and Heating
• Fireplaces in the home

Then you have some features that could drive the price up or down depending on whether your house

• Is your house a corner lot (nope, phew)
• What is the traffic  like on the street (minimal, it’s not a main road for us)
• How close your house is to a golf course, green space, hydro corridor or railway. (not sure about why with the golf course though but that’s a big fat no for us)

What if you don’t agree with your property assessment?

Sounds like an easy way out of paying your taxes but nothing in life is that simple. Yes you still need to pay for your tax bill if you file a property assessment appeal and will be adjusted when they are notified of changes.  They say the number one question to ask when looking at the property assessment value they give you is.”Can I sell my home today for this price”? To fight property taxes may take a miracle but you can dispute property tax value if you feel it is incorrect.

If you want to appeal your property assessment you must send in a request for reconsideration to MPAC. You can obtain the forms from their website or simply send them a letter in the mail.

Before you appeal you should follow these steps detailed on the  MPAC website

• Contact MPAC (1 866 296-MPAC (6722)
• Review similar properties to yours. I thought this was great and I was not aware we could do this. You can request up to 24 additional properties of your choice and up to 6 chosen by MPAC to review for free. That’s great if you really want to know if the value of your home is precise.
• If you still don’t agree you can ask MPAC to review your assessment free of charge but you only have until March 31 of the tax year to do so. You can also send a written request to MPAC at P.O box 9808 , Toronto, Ontario, M1S-5T9.

If you want more information on how your land assessment value will be processed you can visit your local City On-line Website or visit MPAC for more information. Remember when you get your mortgage approval from the bank and you set out to buy a home of all the little costs that could creep up. Many people tend to overlook maintenance on a home and property taxes. When you buy a home you want to renovate or a larger home in a desirable area you could be paying more out-of-pocket.

Being informed about your MPAC Assessment and the value of your home is very important. Overall I think Mrs. CBB and I feel better informed about our MPAC Assessment and what it means to us as Ontario Home-owners.

Have you ever had a problem with your MPAC Assessment? What happened with your appeal? What did you learn?

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What’s the Difference between a Mortgage Lender vs a Mortgage Broker? There are so many terms thrown around in the finance world that it can be hard to figure out what means what. A mortgage lender lends money, while a mortgage broker finds money. Here we’re going to talk about the differences and roles that these two play when you’re trying to finance or refinance your home, and you’ll be able to enter the process with your eyes wide open. You’ll be able to see through the curtain and different tactics so you make the right decision for your financial future instead of theirs. Let’s get started.

What Does a Mortgage Lender Do?

Unlike your local Toronto mortgage broker, a mortgage lender lends you money. This could be a bank, a credit union or a private mortgage lender. You’ll have to fill out a mortgage application with them, then you’ll have to go through a whole process where they tell you they either want to work with your or not. This can be a stressful process, but in the end you’ll either get the financing that you need to buy a home or you won’t. It’s a very binary procedure.

Depending on what kind of mortgage lender you select for your mortgage, you’ll have a different experience. If you have bad credit and use a private mortgage lender you may have a better experience; if you have great credit and go to a conventional mortgage lender you could have a bad experience. It’s all about how you fill out the mortgage application.

What Does a Mortgage Broker Do?

A mortgage broker is your intermediary between you and the mortgage lender. You shouldn’t have to deal with these people directly; they’re better equipped for the situation that you ever could hope to be. You need a skilled negotiator who can help you make the most of your application. They’ll be able to help you look at what’s wrong and what’s right and answer any questions that you may have. There are so many things that can go wrong with your application so it’s imperative that you have someone to help you. If you’ve never filled out a mortgage application on your own before their help can be invaluable. Don’t lose out on a good thing just because you’re not sure what to do.

How Does This Help You?

Depending on what kind of circumstances you have, you’ll need to go about the mortgage process a specific way. If you’re a Canadian with bad credit for example you may want to talk with a mortgage broker to see if there are credit repair procedures that you can do to get a better result. If you’re someone with a great credit score you may want to talk with a private mortgage lender to see if you can get better terms. Just because you have good credit doesn’t mean you’ll want to go with a conventional mortgage lender. It’s all about what your situation is and what you need for your case. Talk with a mortgage broker today and see what is right for you.

Guest Post By: Mike Smith is a mortgage broker and avid blogger for Home Base Mortgages. HBM is a Toronto mortgage broker that provides home mortgages, mortgage refinancing, home equity loans, debt consolidation, private mortgages and second mortgages.

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What are Bad Credit Mortgages?

Before you look at any type of financing you need to make sure it’s right for you, and bad credit mortgages are no exception! Here we’re going to go over the benefits of these kinds of mortgages. Bad credit mortgages are great for people with bad credit, no credit, or just people who need to work on their credit. Just because you have bad credit doesn’t mean you can’t get a mortgage.

What is Bad Credit?

Bad credit can be a highly subjective term, but for most mortgage lenders it will be a FICO score under 600 points. If you have anything less than that you could have trouble getting a mortgage, even from bad credit mortgage lenders. You’ll want to first think about credit repair like debt consolidation; even if you do qualify for a bad credit mortgage you could wind up paying much more in interest where it doesn’t make sense to take the mortgage.

Is a Bad Credit Mortgage Right for You?

You’ll need to talk to a mortgage broker to make sure that this is the right kind of financing for you. There are many ways that a bad credit mortgage can go wrong; you’re going to want to be able to compare the interest rates from each mortgage, the terms, the reputation of the lenders. You’ll be able to make sure that you’re getting the most fair and equitable loan this way, regardless of what you need to mortgage for.

If you’re a first time home buyer and you need money for your down payment, a bad credit mortgage can help! If you’re trying to refinance your current home to purchase a big-ticket item, pay debts of send your children to university, these types of loans can help. You’re just going to need to be careful about how much of your equity you use as collateral.

Are Bad Credit Mortgages Hard to Get?

This really depends on your credit. If it’s teetering on the edge of the abyss, consider credit repair like debt consolidation. You will almost always be able to get this kind of mortgage regardless of your credit, but you’re going to want to improve your credit score as much as possible so you can avoid penalty interest points. These points can rack up thousands of dollars extra over the life of your mortgage. The purpose of a bad credit mortgage should be to get you on the road to somewhere better; if the mortgage offered will only keep you where you are or worse, don’t take it.

Guest Post By: Mike Smith blogs regularly and by profession is a mortgage broker. He works with Home Base Mortgage which is based in Toronto, Ontario, Canada. The company provides private mortgages, home mortgages, debt consolidation, mortgage refinancing, second mortgages and home equity loans.

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Killing your mortgage in 3 easy steps

I was honoured when Mr. CBB invited me to share some mortgage tips on CBB.  It’s evident that he really values his readers so this is a real honour. I’m speaking from experience. Derek and I became mortgage free at 28 (we purchased our first home at 23, and built a new, bigger home when we were 25.)  These are the 3 most important actions we took in killing our mortgage early.  In the interest of full disclosure our current home is worth between $280,000 and $300,000.  It’s a lovely home, but the bank would prefer us in something bigger and more expensive.

Pay your mortgage first and last.

We’ve all heard the concept that you should pay yourself first. If you’ve been living under a rock, avoiding any personal financial advice, this means that you should set aside your savings as soon as you’re paid before you spend a dime.  The story goes that if you never have access to the savings you won’t miss it, and you’ll be forced to live within your means. This works unless you’re a credit addict, then cut up your cards and return to step one. Decide how much extra you want to pay on your mortgage and pay that first, then pay your regular payments throughout the month.

At the end of the month we gave our mortgage an extra little kick in the ribs with whatever was left over as well; often we put Christmas and Birthday cash towards the sucker. We hated that mortgage, and wanted it DEAD.

Don’t borrow what the bank is willing to give you

We took a trip to the bank recently because we were interested in investing in real estate and wanted to know how big of a mortgage we could qualify for. We were shell-shocked by the size of the number. I won’t lie; my first thought was “wow, we’re like a big deal or something.” My second thought was “if we borrowed that much we might as well sign over our organs to the bank because they’ll own us, and we’ll be a slave to that payment.”

Banks are in the business of making money.  It’s best for their profit margin if you to pay the greatest amount of interest possible. Therefore, they are going to offer you the maximum amount that you could afford without going bankrupt. You’ll be scrapping by to make the mortgage, and won’t be able to afford any prepayments.

Now, don’t cry foul at the banks. They have shareholders; they are in the business of making profits. You’re in the driver’s seat for how much you borrow.  Act in your best interest, not the banks. There’s little value is owning a nice house, if you have to work 60 hours a week to afford it.

Freeze your budget, especially with pay increases

When we first got married Derek was working as a 3^rd year steam-fitting apprentice, and I was finishing my last year of school. Derek took home $600/week and we made sure we lived within our means.

Fast forward to today and Derek is a journeyman steam-fitter, and has received a few further promotions as well. I have a full-time job as a teacher (when I’m not on maternity leave) and we still live on $600/week. Our incomes are higher than what they were when we got married, but we had financial goals that were more important than a higher standard of living. Without a doubt our expenditures have changed.  We have three kids now and they eat every day, multiple times a day. What’s with that? Alternatively, we don’t have to pay for my commute to school, we don’t eat out anymore (it’s not that fun with 3 kids) and our $164.00 weekly mortgage payment is gone as well. Dropping those three expenses let us afford 3 kids on $600/week. 

When your pay increases, but your expenses don’t you supercharge your savings. As your mortgage principal decreases the ratio of principal payment to interest improves too. Yikes, that was a little complicated.   Think of paying off your mortgage like a game of snap the whip while skating as a kid. The first dollar, or first kid in line isn’t getting much action, but if it wasn’t for the first dollar doing his thing the last dollar wouldn’t swing nearly as far and do as much damage. Keep upping the payments and pretty soon, you’re killing your mortgage faster than ever before.  Oh SNAP, that feels good. Unless you’re the kid who just hit the boards, then you’ll need some ice. Oh wait, he’s already lying on it. I never really liked that game.

One last thought……
Paying off your mortgage early isn’t easy. If it was, everyone would do it. It might not be easy, but it’s definitely worthwhile. Sure it will be tough, meaningful goals usually are.

Beware of negative thoughts; they’ll kill your success.  Never say I can’t afford this prepayment, instead ask yourself “How can I afford this payment?”  Rephrasing this as a question makes a world of difference.

How would your life be different if you were mortgage free today? Your answer may be all the inspiration you need.

Guest Post By: Hi, I’m Mandy at MoneyMasterMom.  I wake up each day and try to share something with my readers to help them spend their cash, time, and energy in line with their values.  I love to laugh, and I dance at the end of movies during the credits.  I share my life with my hubby Derek, who blogs at Free at 33.  He’s so funny and smart, but then I’m biased.

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Buying a new home also means looking for the best new home renovations or upgrades that fit your lifestyle. When selling a home different renovations can either mean money in your pocket or potentially money out the window.

After I’ve shown clients the first few homes in their new home search, we often discuss my “Real Estate Baseball” rule of thumb. What do I mean by this? Three strikes and you are OUT! As soon as potential buyers can tally up three perceived “defects” in your home, they aren’t interested any more (it should be noted that this is by no means scientific).

You can’t make a first impression on potential buyers again, so, you need to make a great one at the beginning!

I often talk with clients about renovations and Do It Yourself (DIY) projects so they can make the right informed decisions. Sometimes renovations can add to a home sale, but other times they just become another stressful event associated with selling your home and wont generate the return that you are looking for.

Here is a list of potential renovations that I often discuss and recommend with clients.

1) Painting

When my clients walk into a freshly painted home, they immediately notice how fresh and clean it looks. Picking neutral tones and doing a neat and tidy job is key. This is an inexpensive way to freshen up a home and it can dramatically improve the look and feel of a space at a low-cost. It is clean, crisp and welcoming. Potential buyers feel at ease straight away and this is how you want people to feel as they consider your home.

2) Kitchen

At least 95% of my clients tell me that the Kitchen is the “heart of the home”. That is why it is such an important room when selling a house. Potential buyers are picturing Thanksgiving and Christmas dinners being prepared with family or hosting dinner parties with friends. You need to make the kitchen as desirable as possible.

Kitchens should be bright and spacious with a smart layout. Replacing old appliances with energy-efficient new appliances adds a lot of appeal. If you are undertaking a renovation and you don’t already have one, make sure to add a dishwasher if possible.

3) Bathroom

It can be very costly and frustrating to change the layout of a bathroom but if you pay close attention to the finishes, it can be a great investment. In my experience a beautiful mirror and hardware upgrade can make the world of difference.

4) Flooring

New flooring or rejuvenated old wood floors are incredibly popular. Upgrading to hardwood in the living areas and ceramic in kitchen and bathrooms can have a dramatic effect on a home’s value.

My clients often comment on how a home could take on a whole new look with improved flooring. The biggest complaint I hear currently is in regards to old carpet covering hardwood floors. Expose the floors! Sometimes they won’t even need re-finishing.

I would consider putting nice carpet in the bedrooms. While almost everyone likes hardwood and ceramic, they don’t necessarily like getting out of bed onto a cold floor in the winter!

5) Light Fixtures

Let there be light!

Not only do upgraded light fixtures look good, they also help to brighten up your home. Potential buyers do not want to be straining their eyes to look at your home. Make sure it is bright, warm and inviting!

6) Curb Appeal

This is the very first impression people will have of your home. Make sure your front lawn is tidy and gardening is minimal. Don’t feel like you have to go overboard but take an afternoon and plant some shrubs and flowers.

This is my take on potential renovation projects you may wish to under take. Below is a grid, provided by the Appraisal Institute of Canada, outlining other home renovations with return on investment (ROI) as well as the ones I have discussed.  It is important to remember that even if you cannot afford to do any home renovations, that doesn’t mean your house won’t sell.

You should also make sure and not price your home out of the market. This can happen when people complete too many expensive renovations only to find that to recoup the costs you would have to price your home higher than any home in the neighbourhood or surrounding area. Speak to an agent in your area; they will be able to give you accurate market information to ensure this doesn’t happen.

Ultimately, If you know what you want to do when it comes to home renovations you should research or consult with a professional about whether it is money wasted or money invested.

DIY Reno’s

Renovations with best return on investment, some help may be required

Notes:
*Assumes mid-grade quality finishes, labour excluded
** Source: Appraisal Institute of Canada RENOVA,

Guest Post by: Stewart Blair is a Sales Representative for Prudential family Realty; brokerage. You can also find Stewart on Facebook and Twitter.

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Photo Credit: Belongs To Stewart Blair

Since the economy took a turn for the worst, I have been inundated with requests for “bank sale” properties. A common misconception seems to exist where people assume that banks are basically giving away properties that are being foreclosed on, much like we see with the fire sale of properties in the U.S.

So, what is a “Bank Sale”? Basically when someone cannot meet their obligation to the bank/lender, the institution that they have financed their home through will begin a process to take the home away from the owner. This can be a fairly lengthy process and in some cases will ultimately end up with the bank or lender selling the home to try and recoup their losses.

While it is always possible to find a good deal in today’s housing market, it isn’t common for it to be a bank owned property. The rules and regulations that govern the Canadian banking system are far more stringent than the U.S equivalents (I use that term loosely, as they barely had any rules or regulations).

Obviously if someone defaults on their home financing (mortgage, line of credit) the bank would like to get that bad debt off of their books. If they recoup that money, they can in turn lend it to someone else! However, in Canada, regardless of how the lender goes about selling the property or what is owed on the property, under the Canadian Securities Act, a lender is mandated to achieve fair market value.

Fair market value is established in conjunction with local realtors. They provide the bank with local market data and recommend a fair list price. Every so often they may reduce the price but this reduction also has to be justified with relevant market data. The bank will keep extensive records of the sale process, just in case they end up in court.

So, for everyone watching American real estate shows and dreaming of the fortune you can make from buying and selling bank owned, I am afraid that it just isn’t realistic. That’s not to say there aren’t some great real estate opportunities for either a long-term investment strategy or to help you find that dream home.

Here are two such strategies that have proven very successful for our clients.

Alternative Option 1 – Power of Attorney instead of Power of Sale

Refocusing your search for Power of Attorney homes may be a great alternative to “bank sale” homes.

With an aging population, more and more seniors are moving on to retirement residences, senior’s communities, one floor condos or apartments. This opens up an entire market place of beautiful old homes in mature neighbourhoods. Do they need some reno’s? Sure they do but the end result can be magnificent and if you can buy at the right price you will end up with a lot of equity in your home.

A perfect example of this would be the Hunt Club area of London. A beautiful mature neighborhood that takes its name from the very exclusive golf course which part of the neighbourhood backs onto. Power of Attorney homes have been known to sell for as little as $300,000 and once renovated can be worth $399,000 or more.

A Realtor in your town will be able to not only find these listings for you but let you know what areas to look in.

Before

After

Alternative Option 2 – Student Property

In London, Ontario, where I work, we are lucky to have two established further education establishments, Western University (formerly UWO) and Fanshawe College. Both of these institutions are growing at rapid rates making the need for housing ever-present.

Here is a case study that we completed for a client. The unit was a condo on the main bus route to UWO (5 min bus ride). We advised our client that paying condo fees in this instance is a good idea, because you are guaranteed that the outside of the property is taken care of, along with some large ticket items like the roof and windows (this varies from condo complex to condo complex).

Purchase Details

Purchase Price – $189,000

Down-payment(20%) -  $37,800

Mortgage Rate (as of May/2012) – 5 Yr Variable @ 2.8%

Land Transfer Tax (1 time payment) -  $1,615

Legal Fees & Disbursements – $ 2,000

Rent Received – 5 Bedrooms @ $425 per room = $2,125 ($1700 if your child lives rent free)

Monthly Costs

Mortgage Payment –   $620

Condo Fees – $177

Utilities – $250

Property Taxes – $180

Insurance – $55

Total Monthly Costs – $1,282

Rental Income – $2,125

Monthly Profit -  $ 843

Year 1

Gross Income – $10,116

Less 5% Vacancy Rate – $505.80

Less 5% Maintenance Reserve – $505.80

Less Legal Fees + Land Transfer Tax – $3,615  (Amounts paid on purchase of property)

Net Income – $5489.40

Year 2

Gross Income – $10,116

Less 5% Vacancy Rate – $430.80

Less 5% Maintenance Reserve – $430.80

Net Income – $9104.40

So while “bank sales” may not be the best option in Canada, you can see that great opportunities still exist in our housing markets. You just need to know where to look.

Guest Post by: Stewart Blair is a Sales Representative for Prudential family Realty; brokerage. You can also find Stewart on Facebook and Twitter.

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Undoubtedly, one of, the most important considerations when deciding to sell your home, is its’ value! Home-owners want to know the market value, assessed value and the appraised value.

Some questions a home-owner may want to know and these are all relevant questions are:

• Has my equity increased?
• Has the neighborhood’s value increased?
• Is my valuation, in line with industry professionals?
• How much is my home worth?

Ultimately the market value of your home is whatever someone is willing to pay you for it. An appraisal value is a value determined by the study of comparable properties and local market conditions. It is, in reality, an educated guess about what the market value may be. The assessed value of homes in Ontario is done by MPAC and is a (CVA) Current Value Assessment which is a common standard used for property assessment jurisdictions in North America. MPAC uses 3-5 years of open-market sales in the area to determine the current assessed value of surrounding properties. Assessed values often come in at a lower evaluation than market value or an appraised value. It is almost as if MPAC is a year or two behind in their evaluations.

Here are the steps I take to appraise the value of a home. Hopefully, this will give you an insight into a process that sometimes seems clouded in inconsistencies.

I will break it down into sections; the first section is the background information. All of this research is now completed online. By completing this study it gives me a solid base, for when I actually visit the property in person.

Note:This background information is gathered from Ontario’s Electronic Land Registration System, known as Geowarehouse and my local realtor resource site, known as Filogix (this is the Realtor version of Realtor.ca). These sites, will not only allow me to look up the comparable properties and sales history, but will also allow me to find more details on the home and neighbourhood.

Background Information

History of the Home: I will check to see who owns the home and the history of sales. I am also looking for more details that will lead me to a value, such as, old pictures, previous descriptions, notes on any upgrades and updates.

History of the Neighbourhood: I will generally have a look for homes that have sold in the last year. These homes should obviously be located within the same neighbourhood or geographic area. This will give me a general “ballpark idea” of the value of homes in any given neighbourhood  Keeping the comparison search relevant is a must. For instance, a 5 bedroom, 2 storey home won’t help me evaluate a 2 bedroom ranch. I am also looking for expired and cancelled listings. These listings will let me know if homes are being overpriced in the area.

Current Neighbourhood Activity: Checking the currently active listings in a neighbourhood is like scouting your opponents. These are the homes that you are going to be competing against if you decide to sell. If there is an open house, make sure you check it out. You need to have this current information to make an accurate evaluation of a property. Along with the information I gather when researching the “History of the Neighborhood”, I am trying to compile all relevant information to justify my pricing and to make sure that I am inline with market conditions.

This completes the background stage; the next stage is to actually visit the property and those around it.

Home Visits

Visiting the Property: When I go to visit a property, I am not only trying to establish the value, I am looking for anything noticeable that may need to be changed. I am thinking about useful tips for the home owners in preparation for listing. I am considering the current condition of the house and how that may change the valuation. I will ask about updates/renovations, upgrades and things that may be excluded (chandeliers etc.).

Visiting Competing Properties: I will try and visit any available open houses for comparable properties, or I will request an appointment to go and visit other homes listed in the neighbourhood. When I am doing this for research purposes, I always let the agent know what I am doing. This way their client knows as well.

Talking with Potential Sellers

The final stage is the conversation with the potential sellers. At this meeting, which usually happens after touring their home, I come prepared with print outs of everything I have researched.

This should include:

• Comparable homes currently available
• Comparable recently sold homes (normally within the last year, perhaps longer if only a few homes have sold in the area)
• Comparable expired and cancelled home listings
• Similar homes currently available (may have some of the same characteristics, but also some big differences e.g. finished basements, swimming pools, extensions, etc.)
• Similar Homes Recently Sold(normally within the last year, perhaps longer if only a few homes have sold in the area)

We will look at all this information. I will let them know my observations from visiting other homes. I will give my HONEST impression of their home and the neighbourhood. Based on all of this information I will give them my idea of a listing price. I will normally try and give a range of pricing (for example $274,900 to $279,900). After I have given my evaluation, I should then be able to justify it to the home sellers.

A few other points worth noting in regards to listing your home…..

Price Fixing IS NOT ALLOWED! There is no common place commission %. A number of Realtors may charge the same amount, but that is always negotiable.

We work for you. Do not let yourself be bullied into listing at a lower price. We often list homes a little higher than we recommend. We do this with the full understanding of all parties involved that this isn’t what we suggested. We still try and sell the home to the best of our abilities, and after we have given it a shot, we may look at bringing the price in line with what we recommended. I hope you understand a bit more about the value of your home.

Guest Post:  Stewart Blair is a Sales Representative for Prudential family Realty; brokerage. You can also find Stewart on Facebook and Twitter.

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“WHY HAS MY HOUSE NOT SOLD”?  In all honesty, this is a question that a Realtor never wants to hear. It is, quite possibly, the first sign that things are not going as smoothly as you would have hoped for. I can tell you, from personal experience, when I list a home for sale I do so with a clear marketing strategy in place. I know where and when I’m going to advertise, hold open houses and I know at what stage we may have to adjust things. Invariable things may not always go to plan, but by discussing and agreeing your entire strategy at the beginning of the process you are establishing an understanding with your clients.

Any home may take longer than “average” to sell or in many instances; any given home owner may change the entire plan with a moments notice. You have to be willing to adapt your strategy or expectations. Here is my list of what I consider, to be the six most common (in no particular order, yet all equally important) reasons that your home won’t sell.

Price:

Pricing a home can be tricky but it is one of the most common reasons that a home has not sold. Some indicators that your home is over priced include:

1. You are the most expensive listing in the neighbourhood
2. Very few showings, very little open house traffic
3. Lots of showings with no offers
4. You picked the Realtor who told you what you wanted to hear i.e the highest price…..
5. Feedback from other Realtor’s mentions pricing

You need to try and rely on the professionals. Just because you think your home is worth a million dollars doesn’t make it true, sorry!

Agent, Exposure & Marketing:

This can be a sensitive topic. Almost everybody is related to, works with or is friends with the wife/husband of a Realtor. This makes it very easy to go with the comfortable option of hiring (yes you are hiring them, they work for you) the person you know. It is an understandable choice, but is it the best one?

I urge you to try and put sentiment aside and hire the best person for the job. That person should be able to present you with a clear and concise plan. They will show you where they will spend their advertising dollars, not make vague suggestions about where your home MAY be advertised. The Realtor that is going to sell your home will be honest, professional and efficient. If things aren’t working they will tell you why and provide you with the evidence.

Now that does not mean you shouldn’t hire someone who hasn’t been in the business for 20 years, it means hire the person you are comfortable with and who has (in your opinion) a feasible and realistic plan to sell your home.

Aside from establishing a price and discussing the supporting documentation to justify that dollar value here are:

Ten Other Questions You Should Consider Before Hiring A Realtor:

• Do you work as a Realtor full time or part time?
• How long have you been a Realtor?
• Can you supply references?
• Can you provide me with a marketing plan? How will my property stand out from the crowd?
• Do you use Internet marketing? Can I see samples?
• What are the current local market conditions including average list times, buying trends, local job market and other community specific factors that would affect the salability of my home?
• How will you help me preparing my home for showing in order to make the best first impression on buyers?
• If I’m not pleased with your services can I cancel the listing without any problems or cost?
• If I am also buying a home, will you charge me less to sell?
• What will you offer a co-operating Realtor as compensation and will you charge me less if no other Realtor is involved?
• Have you ever been sued or charged with an ethics violation?

Location:

We have all heard it said a hundred times “Location, Location, Location”. The reality of your situation may be that your home is in a less than desirable area (in some peoples’ opinion). This does not mean that your home won’t sell; it does however mean that you are going to have to have some patience. Try and highlight as many selling points as possible and make sure you are as competitive as possible with your pricing.

Personal Motivation:

Do you really want to move? Do you find yourself turning down appointments to view the property? Are you not really interested in finding a new place? Maybe deep down you actually don’t want to move? Make sure your entire family is on the same page and make sure you are motivated to sell the property.

Condition of the Home:

In a previous post I wrote about the return you can receive from some DIY projects around the house. If you are getting ready to sell, try and get your home evaluated at least a month before you hit the open market. This will allow you to gather some feedback about some possible upkeep and maintenance issues. The condition of the home is critical. You can only make a first impression once. Make it a good one!

You are trying to do it yourself:

Hire a professional. You can negotiate commission; you get professional marketing, market analysis and advice. Perhaps the biggest advantage……. Realtor’s have the time.

Theses are just some of my thoughts, what do I base it on? I based it on my observations on common problems that I have run into during my time in the business. I also spoke to some of the other Realtor’s in my office just to get an idea of what they have experienced. I hope this helps if you are thinking of selling or you are in the process of selling your house and want it sold!

Guest Post By: Stewart Blair is a Sales Representative for Royal LePage TriLand Realty. You can also find Stewart on Facebook and Twitter.

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I’ve noticed a trend lately. The usual client that darkens my door is changing. There is a marked increase in Single person – home purchase applicants. And this trend is being led by the ladies. And I’m not the only one noticing this. Single ladies hooking up with homes is coming to a neighbourhood near you.

Mr. CBB asked me to share the experiences of the unique requirements of how the Single person approaches purchasing a home. He was very emphatic in ensuring this covers single women, men, and single parents. As there are potential additional risks and vulnerabilities with a single income and/or dependents – I submit this information to you with great respect and full gravity.

With this said – I am very excited at what is transpiring here! Making the move from renting to home ownership carries a direct historical correlation to wealth accumulation and an increased net worth. And one thing all of my single clients are in agreement on is having an opportunity to increase their financial position. So with this in mind – here are some simple steps to increase your shot at owning your home.

It All Starts With A Budget – And A Plan

There are always two aspects of every plan – what do I want and what do I have to work with? As a Single person (and potentially with kids) sometimes what we want and what we have seem farther apart than the opposite Poles. This should never stop you from creating your home ownership plan. Even the greatest journey begins with taking the first step. So what do we need to consider.

a. Mortgage Costs – this is the largest item to budget for and will consist of the principle and interest components making up your periodic mortgage payment.

b. Property Taxes – another cost to be budgeted for and one that will never go down – only up. A rough rule of thumb is to take the price of the property you are budgeting for and multiply by 1.25% to get an idea of how much this will cost.

c. Utilities – if you are currently renting you may or may not already be responsible for your own utilities. If you are not – just add a minimum of another $100/month as this is the industry standard in qualifying as part of GDS or the gross debt service towards the mortgage.

d. Maintenance/Appliances – the transition to home ownership brings some additional costs as well from the lawnmower to paying for a new dryer when the drum burns out. Making a budgetary entry for this is a prudent way to ensure this never creeps up on you when something breaks down unexpectedly. Some may choose a leasehold property where some to all maintenance is covered by a condo corp. or a co-operative. This cost varies again from property to property so verify and add room in the budget.

Pulling Your Credit – The Tricks and Tips

The next step to moving closer to your goal of homeownership is to pull your credit rating. Single people are empowered and ask a lot of questions as a demographic. It came as no surprise to me then when I was peppered with a barrage from my latest client “Cassidy”.

In our initial conversation, we covered off the basics and got right into this critical step. I showed her that for $24 + tax you can pull your own Equifax Credit Report complete with beacon score. With this in hand – she learned that the five areas that affect her credit were (a)paying her accounts on time, (b) account balances to high credit limits, (c) credit history, (d) account types, and (e) new credit. With this information Cassidy now knew that she had to use the system to her advantage in order to position herself in a positive light with the banks.

What is less apparent to my Single home buyer (and Cassidy was not immune here) is the new Federal Mortgage rules implemented and how they affect all Canadians but especially those who are looking to enter the housing market as a single income earner. Here is what you need to know.

i) Credit Score needs to be 680 or higher – this enables the maximum debt service ratio of 39% of your gross annual income to be able to go towards your housing costs effectively giving you more room on the purchase price.

ii) Amortizations are maximum 25 years – some single income earners need an extended amortization to ensure the mortgage is affordable. To remedy this, it is prudent to just reduce your purchase price although in some metropolitan markets this may price you out of the market.

iii) Self Employed – if you are a self-employed single then you will need to take special care with your credit as if your credit score is below 680 – you will be forced to utilize your taxable income and this is where you will suffer as the advantages of the write-offs you enjoy will not help you in the home purchase process.

iv) Credit Accounts – your credit account needs a minimum three trade lines with a solid two-year history without blemish for access to the best mortgage products available today. Look at a high credit limit of a minimum $2,500 on the first with minimums of $1,000 on the other two accounts to be safe and do not use them above 30% of their available high balance each month before paying them off to zero.

In the next post I will cover off other areas to consider as a potential Single homeowner in the property and the mortgage itself.

Guest Post By: Michael Smele:  I am a passionate educator about mortgage and finance. I also am an investor in asset backed and real estate based investments. My wife and three boys live with me on a 30 acre horse farm up in Barrie, Ontario where we enjoy all four seasons. Find me at www.mortgagetruth.ca

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In the last post, part 1 Becoming a Single Homeowner-The Plan I talked about how Single people are looking to become homeowners and the preliminary step in making a plan and the aspects to consider with your credit. Once these are in place – it is time to look at how to come up with your down payment and the type of property you are eligible to purchase.

Down Payment Considerations

This is an area where my Single clients are usually deficient. The demands of a Single person’s budget can be unrelenting and there are always important areas that your dollars are required. This is another reason why planning and budgeting are going to be the cornerstone of your Home Purchase plan. There are essentially four ways to achieve the down payment and they are to get it gifted, save it, borrow it, or qualify for a forgiveable loan.

• Get a gift – well we would all like to have a well endowed benefactor in our corner however the reality is that unless our parents or grandparents are looking to help us make the jump to becoming Homeowners – this one is a pipe dream.
• Save it – the minimum down payment as stipulated by the government for Home Purchases is 5% of the final negotiated price of the property. On a 250K home, this will end up being 12.5K and can be saved either as cash or your personal RSPs. Unless you have this already saved up in RSPs – this can be a long road in saving after tax on a single income. 
• Borrow it – although frowned upon by the new conservative media on prudent mortgage borrowing – if your purchase is made in an economically growing area of Canada then borrowing your down payment can still make sense. This mortgage product is only be offered by Provincially regulated financial institutions and the lender’s requirements are quite strict so ensure your credit and employment status are strong before inquiring.
• Forgiveable loan – the federal and various provincial governments have also instituted programs in select municipalities where down payment loans of up to 10% of the purchase price is made available towards the purchase of a principle residence of lower to middle-income families. This loan is forgiveable after 20 years and if you were to sell prior to this time – the gain or loss is split proportionally with the government making this a fair program. Check with your local municipality to see if they have a program like this available.

Property Options

An area where my Single clientele have been found to be savvy is in weighing their property options. A surprising number have explained to me that having an investment portion of the property – ie. in-law suite or a basement apartment for income was a high priority. Although there are again additional concerns with security – if done right this can be a profitable idea.

• Single family home – this is the obvious choice although it may be a detached home all the way to a 50 storey condo on the Vancouver skyline.
• Investment property – if you are looking to occupy a portion of the home then you are still able to treat a two family dwelling as a single family home for all intents and purposes. The only other consideration is – are you going to need the rental income to qualify for the mortgage and if so how does the lender view this income. Some will consider a percentage of the market rent and others will not at all.
• In Law Suite – another option of increasing popularity is the legal in law suite where you can either bring your family with you to live or derive additional income as well. As a single person – ensure the units are completely separate for security and privacy reasons without violating any local fire codes.
• Fixer Upper home – the final consideration is to find a property that is under the current market value for the area and purchase it with the intention of doing some improvements. The main distinction with the majority of my Single purchasers is that you want to look for a property with cosmetic improvements vs. major damage (ie. structural, major home systems) as lenders are hesitant to provide a mortgage on a property that is not in a somewhat marketable condition

In our next and final part – I will be explaining your mortgage options and how to determine what the best mortgage is for you as a potential Single homeowner.

About The Author: Michael Smele: I am a passionate educator about mortgage and finance. I also am an investor in asset backed and real estate based investments. My wife and three boys live with me on a 30 acre horse farm up in Barrie, Ontario where we enjoy all four seasons. Find me at www.mortgagetruth.ca

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In our previous post Part 2 of this 3 part series- our potential Single Homeowner had their budget, credit, downpayment, and type of property all mapped out. But what about the mortgage itself? Understanding your mortgage options is the final and a critical step in order to increase your shot at owning your own home and not one to consider lightly.

Related: Becoming A Single Homeowner – Part 1 “The Plan”

Mortgage Options 

With over 400 different mortgage products available to the Canadian consumer – it can be overwhelming to navigate this marketplace. I will cover off some of the major differences in the mortgage products here.

1. Fixed vs. variable rate mortgage – when considering the potential savings of a variable rate mortgage we need to consider that this is tied to the Bank of Canada’s prime rate and the fact that this can change from time to time. Outside of this – on both fixed and variable rate mortgages – it is very important to ensure that we get the deepest discount to the interest rates available for the mortgage term on closing. One way to accomplish this is to wait until 30 days before the closing date of the property and then to shop the market for any promotional offers made available which in this marketplace is commonplace.
2. Open vs. closed mortgage – for the majority of mortgage holders – the open mortgage is not a feasible product as lenders build in a premium to the interest rate for the sake of the fact that you can pay it off at anytime without penalty. If you have an inheritance that you will be receiving in the first two years of the mortgage – you may want to do the math to see if this is worthwhile vs. the traditional mortgage penalties of an early payout with a closed mortgage.
3. Line of credit vs. standard mortgage – some Canadians enjoy the freedom of holding their mortgage in a line of credit for the reason they may pay down the balance owing at anytime. Additionally, they may borrow back the amount of principle they have paid off without having to requalify for the new debt. The downside here is that without a serious amount of discipline – many Canadians end up in financial hot water as it becomes too tempting to use the line of credit as a piggy bank for unnecessary expenditures. One important note is part of the new Federal Mortgage rules has put additional restrictions on home equity lines of credit allowing them to only be placed up to 65% of the value of the home
4. Pre-approval vs. pre-qualify – being in a 60 year historical low-interest rate environment, the role of the traditional pre-approval has changed. In years past, the pre-approval was the best way to ensure you qualified for your mortgage and protected you from rising interest rates. Today, the Bank of Canada is towing the line saying interest rates to stay flat for the foreseeable future – pre-qualification has become much more important. The difference here is in the way your business gets shopped around. A pre-approval gets you the best rate at the time of application with a conditional document. What is not so apparent is that most lenders build in a premium to their pre-approvals as they have to set aside these funds from their investable pool. With a pre-qualification – we complete all the necessary due diligence on your mortgage approval – but in addition there is a monitoring of the markets to ensure that we capitalize on any improvements as we move to closing.

Buying a home is an exciting proposition – but it need not be stressful. As a Single person, you will have more questions and will take extra steps to ensure you are going to make the right decision. This is a given. Taking the time to budget properly, understand your credit, gather a downpayment, and determine your mortgage and property options will be the key to increasing your shot at Homeownership.

Editors Remarks:

I just want to thank Michael for dropping in to hang out with us here at Canadian Budget Binder to share his expertise in home ownership. One thing I enjoy doing is getting the professionals around to tell us the right way to do something. Home ownership although not for everyone doesn’t have to be a dream. I wanted Michael to tell you that you too can own a home as a single person like I did when I first started out buying real estate. You can make owning a home a reality but you need to have your plan in place, set goals and work towards them. I bought my first home just turning the age of 21 and only because I really wanted to be a single homeowner and didn’t want to have to pay rent with my money.

This isn’t for everyone but it was right for me. That was my dream and now I’m on my third home which will be fully paid just 4 years after purchase although we saved for a decent  downpayment  on this house. Don’t be in a rush because home ownership may well be the biggest investment you will make in your life so invest in your personal finances, do your homework and make the decisions that are right for you. -Mr.CBB

About the Author- Michael Smele: I am a passionate educator about mortgage and finance. I also am an investor in asset backed and real estate based investments. My wife and three boys live with me on a 30 acre horse farm up in Barrie, Ontario where we enjoy all four seasons.  You can find Michael at Mortgage Truth in Canada.

All Photos purchased and owned by Micheal Smele.

Are you NEW to Canadian Budget Binder?

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We admit we are nosey neighbours when it comes to some open houses in our neighbourhood but for good reason. Yes, we have the “stop the car” moments when the “for sale” sign just happens to show up and we just have to go inside. It’s not often homes in our area go up for sale as we live in an area where people don’t tend to leave.

Most of the homes were built about 15-20 years ago and the area is becoming quite diverse in demographics since we moved in. Back a few years ago most, OK almost all of our neighbours were either a bit older than us or retired seniors. We bought our house from a senior couple who were downsizing their home  and moving into a rented condo. Funny how some people go from owning a home to renting a home later in life.

Needless to say, everybody knows everyone in our small neighbourhood which can be a good thing or a one of those situations where you want to go bury your head in the sand. Over the last year or so as the silent and baby boomer generation start to move out we are seeing younger families move in from the Generation x to the Generation Y also known as the (millennial). The prices of homes in our area have gone up exponentially in the last 5 years since we moved in.

That’s no big surprise though in the Greater Toronto Area (GTA) which is considered the Canadian Mecca for many Canadian citizens, permanent residents and illegal immigrants because this is the area where all the magic happens from manufacturing to finance, fashion to the top Canadian stars and then some.

We are looking at about a $100,000 increase on our home if we were to sell today in just over 4 years of living here but in reality it’s only becomes a number when you actually live in the house.

Open Houses

What are Open Houses?

Open houses are great if you are looking to sell your house quickly as it opens your doors to those who want to buy a house just as fast. An open house is when your Realtor opens the doors to the public for viewing in hopes to make a sale or market an impression on potential buyers.

When we see a “For Sale” sign our nosey neighbour radar goes off and I say that jokingly to have a laugh but it’s more so for our own benefit that we go to an open house. When we are out walking and run into neighbour the chat always seems to centre around the neighbourhood and houses for sale. They are just as nosey as we are, even the men.

What some neighbours secretly talk about to us when a for sale sign goes up in our neighbourhood- Are they getting divorced? Maybe, they got better paying jobs? Are they building? Where are they going? How much are they going to sell it for? You get the picture, although it’s mainly the folks who have been around for many years who talk. We typically don’t give a hoot what the “personal reasons” are about why someone sells, but some do.

I’m betting that almost everyone who lives in a neighbourhood and sees a “For Sale” sign at some point opens the Multiple Listing Service (MLS) or the agents listing site to see how much the house is selling for and what it’s got inside. For some the MLS site is like a daily drug because they are constantly looking and comparing homes in their city.

For us, we often wonder what precious gems our neighbours are hiding (walk-in pantry, swimming pool, gourmet kitchen) inside their homes and what they have done to improve their homes. We are nosey by nature plus we want to make sure our biggest investment, “our home” is on track to potentially making us some money down the road when we sell.

Investing in the best home improvements comparable to our neighbours is important so it’s not money wasted on renovations that we could have used elsewhere. The problem is we don’t have a crystal ball when it comes to the housing market so how do you strike a balance. Some people say renovate how you like and spend as much as you want, even if you don’t see the return on investment which is hard for us to do.

We had one of the cities top agents come through our home to give us tips on how to get the most out of our renovations when the time comes that we want to sell. If we are in a house that we know is our final home that would be a different story, but that’s not likely the case at the moment. Nothing screams “buy my home now” then a home that is well maintained, clean and up to date.

As a couple we are far from wanting to keep up with the Joneses but we do like to make sure our home like I mentioned earlier is keeping up with comparable homes in our neighbourhood in line with market value and assessed value . There’s nothing worse than renovating a home and finding out it was a waste of time and money because we over-renovated.

Benefits Of An Open House

• You get to see the property in person
• You can inspect the property up close
• You can meet the listing agent
• You can potentially talk to nosey neighbours
• You can ask questions to the listing agent
• See what you like and don’t like in a home
• Sellers get to hear the positive and negative about their home that potential buyers tell their agent

Are open houses worth it or are they becoming a waste of time? An article I recently read pointed out that the only people through local open houses are local neighbours and the odd potential buyers. Any time we see a house with an “Open House” sign even if it is a brokers open we head on over to take a look, maybe they are right.

A brokers open is where the listing agent holds an open house mainly for other agents in hopes they may have a potential buyer. A friend of ours who is a Realtor says, “hosting an open house is not always an easy task especially when there are many people coming through and you want to make the experience one to remember”.

Realistically, the real estate agent isn’t going to toss out a potential buyer even if they think they are just being a nosey neighbour. We try not to let the agent know we live in the area but if they ask we are honest and tell them exactly why we are there. We roam around the house and I check everything and I mean everything that I can. I’m pretty sure they may think I’m an undercover inspector.

Theft with Open Houses

The down-side to an open house is potential theft when you are not home. Potential thieves would think nothing to go through all your bedroom drawers and personal belongings if no one is watching. I’m sure if you are a homeowner you have been to many open houses in your time. You can safely at some point one or more agents didn’t hold your hand in every room you went in during a walk around the house.

As a homeowner I would be nervous if something was stolen in the house which I’m sure happens every single day. I’d be inclined to install webcams in the house so I can see exactly what is going on. It’s my house after all. Who knows if your ex is wandering through looking for that one item you simply didn’t want to give him or her. I bet I’ve got you thinking now, haven’t I.

As a seller a  good real estate agent will walk you through your house and tell you what you should and should not keep out on display. I’m sure they have heard horror stories or have been involved with them at some point in their career.

If you opt to sell privately through a for sale by owner I would at least expect an Open House Check-list to be part of the marketing package you receive to make sure everything that needs to be done, is completed. 

Have you ever lost something valuable to theft from an open house you had?

Leaving the Open House

Once we have had our walk around the house and talked to agent we get his/her card and we leave the house. Immediately we start comparing notes. We are like a couple of erratic robots dishing out data…(OK, not really that bad, I’m dramatic)

• Did you see the mould?
• Do you think they got permits?
• The floors were installed incorrectly
• I can’t believe they would do that to the basement
• This house is overpriced
• This house will sell fast
• They replaced the vanities and have heated floors
• Everything is outdated in that house
• That kitchen was amazing, did you see the granite?
• I would love to have a house like this
• In our dreams!

Again, here are two people (us) who want to make sure they are renovating their home in a comparable fashion without breaking the bank. This leads me back to is it worth the time and money for the homeowner and the listing agent to hold an open house? An agent can sit at an open house for hours with no potential buyers walking through with money spent on snacks waiting to make a sale.

Time is money as we all know and it’s the same for the homeowner. The homeowner has to make sure the house is cleaned and in tip-top shape and arrange to be somewhere when the open house is happening. Hopefully not out shopping spending money they didn’t intend to spend in the first place. Crikey, that would make it even worse.

Marketing A Home For Sale

If all agents get is nosey neighbours through the house that have no intentions of buying the home only comparing what they do or don’t have in their own home what is the point? With all the technology we have today buyers can now market a home online so potential buyers can get a realistic 360 degree virtual tour and schedule an appointment if they are serious about buying a home.

Heck, some houses you can pull your car up and tune in to a specific radio channel and listen to all the features the home has to offer. We did that when we were looking to buy a home and it was pretty cool although we felt like a couple of street stalkers. I know that when we put our home on the market we won’t care who comes through it as it’s no longer “our home” it becomes a “house” but we will take all the precautions necessary to protect our valuables.

Some agents or homeowners may think it’s a waste of time but is it really? We went to an open house in our area and we knew a couple who lived out-of-town that was looking for a home over 2000 sq ft with a pool that was well maintained. It’s difficult when you live out-of-town because you don’t want to drive in to look at houses one by one so it helps to have friends or family in the city looking for you.

They wanted to buy in our subdivision as it was a sought after area, close to a school but not near all the craziness of our city which can get pretty hectic. We had a look around the house for them (see we’re not always nosey for own good) and when we got home we called our friends to give them the low down on what we thought. I’m sure that open houses only account for a small percentage of sales in the buying and selling game of homes but it does count for something.

Needless to say the house had a “Sold” sign on it a week later after scheduling an appointment because they liked what we told them about it.

Benefits of an Open House For A Real Estate Agent

Word of mouth marketing is one of the fastest ways to get a message across to people, heck even with this blog. As an agent an open house is your shining moment to network and get to know people who do take an interest in being nosey. It’s not every day you get to talk to potential customers face to face and build a relationship in a mere 10 minutes of conversation while handing out business cards.

It is all about business after all and building your client base. If someone wants to buy our house and is genuinely interested and comes to an open house I’m happy. If someone is being nosey, I really can’t control that short of only accepting appointments risking that I lose a sale by not opening my home to the public, so I focus on the things I can control. I’m betting many agents will say at some point in their career they have met potential clients at an open house or made a sale down the road because of an open house.

So, if you think an open house is a waste of time it’s your call but you never know who will come into your home and how it will benefit you as a homeowner. An open house can either make or break a sale, so for potentially one of the biggest investments of your life, is it worth it to you?

Do you go to open houses when you are not looking to buy? 

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Photos Courtesy of : Home for Sale by kjnnt and walking upstairs by Ambro /Freedigitalphotos. net, Outdoor Area by Photostock, INterior design bedroom by nokhoog_buchachon, modern kitchen by Michelle Meiklejohn

Never have so many Canadians today faced such a tough question in “Should I Rent or Buy?” It’s the million dollar question but I’m not going to make it any easier on you because the answer to the question really is – it depends. There are a number of questions we can ask ourselves to determine and narrow down the grey areas here and provide you some clarity for your own situation.

Should I buy a property?

The fact of the matter is that we are just coming off of the greatest housing boom in the history of the world. This is no small statement. Many fortunes have been made over the last decade in the western world by buying property. But what now? First let’s look at the three reasons why you would buy a property:

1. To use as a primary residence – this is the main reason to purchase property for the majority of Canadians. We occupy the home for our own use and derive value from using it as our family’s shelter.
2. To gain capital growth – the last 10 years have been a wonderful time to rise with the tide of increasing property values. This is market driven not something you can control personally per se.
3. To gain income potential – this is where purchasing property to rent it out or to supplement the payment by renting out a portion to another party. With mortgage interest rates at historical lows and up until two years ago having loose mortgage qualification requirements; anyone could qualify to buy a home causing your tenant pool to be quite poor – making this not a popular reason to purchase.

Now what the person who is looking to buy needs to consider is what is changing in today’s property market and how this will affect them. The only reason I would advise a client to buy property today would be if they were looking to hold it for the long-term as their principle residence. The reason here is that your family may be forced to sell at a loss due to a change in the economy.

Capital growth in most regional markets is flat with a high level of uncertainty. This means if you are looking to purchase as a way to play the market appreciation lottery – don’t. Direct investment in income property is only advisable for the full-time investor who has made it their business to know their regional market inside and out and has a strategy in place for the movements of the market.

Should I rent a property?

There are increasingly appealing reasons to rent today. I believe with today’s changing demographics as well as a much more mobile and informed population – it will become even more popular still. Here are the main reasons why someone would rent a property:

1. Lower cost of living – outside of a very few rental markets (Toronto/Vancouver) where landlords can charge premiums because of a shortage of well located quality rentals – it has been shown that the cost of living is lower when you rent vs. buying.
2. Ease of movement – with Canada’s economic focus shifting West – it is easier to take advantage of employment opportunities when renting as real estate is a non liquid asset and takes time to move. By the time your home sells – that job opportunity is gone to the next guy.
3. Opportunities to invest – not owning a property is never an excuse to not invest. Money will be made in real estate in Canada regardless of the overall economy. The money you save from the reduced cost of living can be invested in other asset backed investments that yield healthy returns.

Our Story

I have to interject here a personal story as my family has recently experienced a move like this. We saw the top of the Canadian real estate market coming two years ago and decided to sell our home where we realized a six figure return after expenses. We decided to rent in our new found city of Barrie, Ontario because we did not know where we wanted to settle down as of yet. The more research I did on the change in the property market – the more I was convinced that it was not time to buy.

While we considered our next move – a 2,600 sq. ft. – 30 acre ranch came up for a long-term lease for less than market rent for our area. Now looking back I believe this was one of the best moves we have made as our realized capital gain on the sale of our primary residence is reinvested making great returns as we enjoy a superior quality of life.

The debate over “Should I Buy or Rent” is not going away anytime soon. The considerations are very personal. The consequences of making the choice lightly can be severe. As long as you are purchasing property for the purpose of long-term residency then I believe you will benefit from today’s low mortgage interest rates. If you foresee any changes in your near future (3-5 years) then finding a rental property (and continuing to search for a better one) is the more advantageous option.

Editor’s Note:

Before I moved to Canada I was a single homeowner who was living in the second home that I had bought before the age of 24. I bought my first home at the age of 21 because I didn’t want to pay rent to someone else, but money and me became friends from an early age.

We decided to rent vs buy before we purchased our first home as a married couple for many of the reasons that Mike has pointed out. We became the nosey neighbours  sellers dread but with good intentions.

We went to many open houses in the GTA (Greater Toronto Area) during the short period that we rented an apartment. We did this in order to learn more about the housing market in Canada and what to expect.

During the time that we were renting we saved enough money for a downpayment so we would not have to pay the CHMC fees. There really was no rush for us but we thought we would do it the right way then look back and wished we had made other decisions.

It was one of the best decisions we ever made. It helped us to get a kick-start on paying down our mortgage. In 2013 we will be mortgage free, just 4 years after buying our home. Taking the time to budget our money in order to save, research properties and rates to make informed decisions really did help guide us in the right direction.

Make decisions that fit in your budget but research your options before jumping in. Answering all of life’s million dollar questions takes patience so don’t rush to keep up with your friends and neighbours. Buying a home vs renting is a big step, make the right step that works for you.

Thanks Mike for Sharing your rent or buy story with us today!

Contribution Post By: I am a passionate educator about mortgage and finance. I also am an investor in asset backed and real estate based investments. My wife and three boys live with me on a 30 acre horse farm up in Barrie, Ontario where we enjoy all four seasons. Find me at Mortgage Truth.

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Related articles

• Why Has My House Not Sold (canadianbudgetbinder.com)
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Photo Courtesy of :Stuart Miles/Freedigitalphotos.net

Deciding whether to buy or sell first can be a difficult decision that face home owners. It is a decision that if not executed properly could leave a homeowner with 2 mortgages and lots of stress. Owning two houses sounds like a great real estate investment but not when one is a home and another is a house you are trying to sell.

This is the case with a neighbour of ours who is living the stress yet fails to see the problem, is the price of the house. Typically in the UK we would sell our home first with a reasonable closing date and then look for a new home to purchase.

Research

What to do when buying your first home? That’s easy, research! Talk to professionals and get tips and advice so you aren’t heading down a path where you want to tear your hair out. The same goes when you’re looking for things to do when selling your home, research.

When I sold my home I did my research first, granted I wasn’t buying a second home I was moving to Canada. I had estate agents come around and value my home and I averaged the values out to come up with a middle ground. My home sold in less than a week.

The Best Buying and Selling Option

I find in Canada it will go many ways, sell first with a long closing leaving the window to find a new home which would be optimal to me. There are some advantages to selling first and the most important is that the home has sold. Secondly, you know how much money you can work with when it comes to selecting a new home  or building in your price range.

We had friends who sold their home and moved into a rental unit while their new home was built.  They said all they cared about was making sure the house was sold first so then they could worry about building the new home with peace of mind. Renting was the better option for them and worth every penny.

Condition Of Sale

The other option I’ve heard of is to buy first with a condition on the sale of the new home that you sell your own home in a specified time frame.

As a home seller I likely wouldn’t care for that condition of offer because I don’t want to have to wait for someone else to sell so I can get out of my home and move on. It begins a chain reaction of homeowners all waiting to sell and move which is not only stressful but time-consuming for all involved.

When we bought our home we had no conditions at all which made the process easier however we went from renting to buying which is an even better perk when buying because you don’t have to sell anything just give 30-60 days notice to your landlord.

We didn’t jump in and buy our first home we went to many open houses but we knew there was a certain process to buying that would benefit us. The same goes when we opt to sell, we will follow the best option in order to remove being stuck in the middle of one house and a new home.

Take What You Can Get

There are also those that sell first but with a short closing because it may be the only potential buyer that’s come along so they took the deal. If looking to sell your home fast is on the table don’t make mistakes that are easily avoided. If the market is slow or if you’ve got an overpriced home it may sit on the scene for a long time. Some people will throw in the towel and take what they can get if an offer comes in that is reasonable.

I think homeowners need to be ready and realistic when it comes to numbers. If you believe your home is worth x amount of dollars that doesn’t mean it truly is. It is only worth what someone is willing to pay. If you are asking yourself why your house has not sold after 3-6 months up to a year you know it’s overpriced.

This may leave them with not enough time to look for houses so renting or moving in with friends and family may be a secondary option until a new place is found. If it were me I’d rather be a seller who has sold their home and has to find a new home. When you sell a home you remove a huge burden from the entire process.

Sometimes the circumstances aren’t always optimal but having the money in the bank from a sale seems the smarter way to go. You can buy a home faster than sell a home especially if the market is right.

Not All Homes Are Created Equal

I know some people who throw a wobbler because other houses on their street sold for more but they are not comparable. They believe because if one house sold for $700,000 theirs must be comparable and that’s how much their house should sell for if not higher.

They automatically assume they will sell and get that same kind of money but are devastated when reality kicks in. Not all homes are created equal even if they are on the same street.

Take for instance, size of home, land size, upgrades, landscaping etc. You can’t just slap prices around when it comes to home selling and I’m not even a real estate agent, that’s common sense. Another reason why for sale by owner can be tricky.

You really need to know your homes value in order to sell and understand your MPAC assessment on your home. If you buy a house that doesn’t have a real estate agent who gives the house a proper assessed value you may end up overpaying.

Even if you sell your own home you can get agents around who are willing to give you an estimated value based on professional experience and training. Not all homeowners agree with agents and in some cases want the house listed higher. Another scenario is when homeowners undervalue their home when the do for sale by owner leaving themselves out cash and the buyer celebrating.

Jumping In With Your Eyes Closed

Then you have the buyer who purchases a new home without selling their home with a reasonable closing date. I don’t see the rush with this scenario but for some they don’t want to miss out on their dream home so they jump in head first and hope for the best.

This is the least desirable scenario in my opinion as now you are left to sell your house and you own a second home.

What happens if the market is saturated in houses and your home does not sell?Typically come spring and summer home selling is ramped up with many houses for sale and in some cases less buyers, a buyers market. Your home may not sell for the price you want or in the time frame you desire.

What if you didn’t do your research and you over price your home and no one wants to buy it? I had estate agents around to value my home it was critical to the success of me pricing my home and selling it as fast as I could with a decent profit.

Don’t Count On It

You may count on the amount of money you want to list and sell your house in order to purchase your new home but that’s not a smart thing to do. If you do have agents around don’t just take the agent who will list your home for the highest amount. Not all agents are created equal as well, money is a driving factor.

Learning The Hard Way

You will see below our neighbours are in a sticky position because they were more worried about a pool than the overall picture, their finances.

We live in a fairly mid- high-priced area of our city with homes nearing the million dollar mark. Homes in our area range in age from 10-25 years of age and some of them are new because you know how builders like to squeeze every inch of land possible in subdivisions.

We are not right in town, rather a 15 minute drive to get to the town centre where all the shopping and spending money happens. It’s an established area on one part and up and coming in another because many people want to get away from the business of the city but don’t want to move too far away from it.

For this reason, homes don’t go on the market often and when they do they don’t last too long. There are however instances when that statement gets thrown out of the window.

A particular home in our area sat on the market for one year because they thought their house was more than it actually was. I know they say there is a buyer for every home, but not every buyer is an idiot and will overpay in an area where we are unless their was some sort of bidding war.

It wasn’t until finally this year they lowered the price of the house from $619,000 to $579,000. This house price did not drop all at once. It happened once about 6 months in and then again at the 10 month mark where the price was at $579,000.

The home boasted a huge in-ground pool although nothing was updated and it was on a main road. The biggest set back and another reason why it took so long to sell was that the pool was jammed up at the fence in the back without much property left. You can imagine the pleasure of the neighbours who finally noticed the “SOLD” sign on this property, that and the homeowner.

Neighbours and The Pool

Another home around the corner on a mid-range priced street came for sale right at the same time with a full length in-ground pool. The property was pristine and well cared for.

That house had an asking price of $579,000 with 2000 sq feet, a larger lot than the previous home above and a fully finished basement. It sold in one day with a “For Sale By Owner”  sign.

Here’s where the story gets interesting and “wants” may cost a family more than they bargained for. All this because they were in such a rush to become pool owners before the summer. Amazing what you can learn just by talking to your neighbours. You can also learn not to make the same mistakes as they are. Read on.

The house was purchased by a couple on the same street. The mother is a stay at home mom to 3 kids so the pool was enticing. When speaking to her she said they wanted the pool for the kids as their current home didn’t have room for a pool.

They bought the house on a whim and called their realtor the next day to list their home for sale. They were under the impression that since most homes on their street sell for around $550,000 – $650,000 that their home would be worth just as much as the new home they bought with the pool.

They listed their home for $619,900 which has no bells and whistles a smaller property and is not near as pristine as the larger home with the pool. She told me the idea was to sell their home for around $35,000 more than they purchased the new home with the pool they just bought. There was no real estate agents fees involved with the house with the pool sale so those costs were eliminated.

They were aiming for around a $30,000-$35,000 profit above what they paid for the new home. That money would ideally pay for most of the realtor and other legal fees.

In their heads they thought they could make a smooth transition over to the new home, keeping the same mortgage and all realtor and legal fees paid. I thought at that point that they were trying to be very frugal and silly at the same time. It was simply not realistic. The new home is worth more than their house for sale.

Well, they moved part of their belongings into their new home at the end of April. They get showings on their house since they’ve dropped the asking priced to $599,000 but I reckon it’s worth $569,000.

I’m guessing it will sit on the market until they lower the price. At least they are enjoying the pool. Every time we walk around on the weekend there are plenty of cars parked outside as it’s the summer party depot now. I’d love a pool for the same reason, hot days and cooling off in the pool with friends and family.

That was not the brightest idea doing what they are doing because now they have one house, one home and a pool with two mortgages that she said they can’t afford. They need to sell their house as one income will not cover two mortgages, take care of the family and pay the bills. Maybe she can tell her cleaning lady she can stay home for a while.

She knows they have to lower the price but they keep thinking that there will be a buyer. I hope they come to their senses sooner than later because it’s summer now and there are many homes for sale. They are making a huge money mistake in my opinion. All of this, just for the pool. I’m sure they could have waited until they sorted money matters out first before jumping the gun.

Owning two homes sounds like you’re on your way to becoming a property mogul but carrying two mortgages will suck the money out of your bank account quicker than you know.

You will get little in return when you eventually sell the original home as most of the payments  of two large mortgages will be interest. How much is that pool going cost if the house sits on the market for a year? I’m sure that money could buy quite a few flotation aides for the kids but you might need something more buoyant than a multi-coloured noodle to hold up your finances.

When deciding whether to buy or sell first research all of your options so you don’t get less the optimal results when you make your move. Be smart, be realistic and don’t get caught up in the stress of owning a house, a home and two mortgages if you can work around that.

Have you made any mistakes in real estate  or did you over price you home and had it sit on the market? What would you have done in this couples case?

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Related articles

• Becoming a Single Homeowner – Part 1 “The Plan” (canadianbudgetbinder.com)
• Becoming A Single Homeowner – Part 3 “Mortgage Options” (canadianbudgetbinder.com)
• Bank Sales In Canada Not The Same As Bank Foreclosures In The USA (canadianbudgetbinder.com)
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Photo: njaj at freedigitalphots. net