When it comes to the Canadian housing market, there are lots of options for where to live! From renting an apartment to owning a single-family home, it all comes down to where you see yourself living and what you can afford! The beauty is, there is no right or wrong answer when it comes to renting versus buying but let’s break down the pros and cons of both and hopefully help you to decide which is best for you!

Why do people rent?

One of the most common answers to this question is affordability. Most people rent because they believe it is cheaper than owning a home. This can be true in some cases, but there are also times when monthly rent costs are higher than monthly mortgage payments. Of course, there are also cases where rent is far more affordable than buying, especially when you factor in the cost of a down payment and maintenance on a home you own, rather than one you rent. Affordability is fairly dependent on an individual’s situation, but it is not the only decision factor for choosing to rent.

Another reason individuals may choose to rent is that they simply aren’t sure where they want to live, or maybe they cannot find a place that fits their needs. If you are new to an area, you may want to rent in the meantime so you can get to know the neighbourhoods and determine which area is the right fit for you. In some cases, you simply may be unable to find a home that is affordable to buy in the area you want or within a reasonable commute from your work.

For individuals who travel a lot for work or like to be free-floating, renting can be the perfect option but if you simply believe buying a home to be out of the question, it is time to take a hard look at your options because it may not be so far fetched!

Pros and cons of renting:

To help you decide if renting is right for you, we have put together a little list of pros versus cons to help you see if it is the right fit.

Why do people buy?

According to the most recent data, Canada boasts an overall homeownership rate of 67.8%. Even for those Canadians aged 35 and under, more than 40% of households own their own homes. This is quite an impressive statistic! So, let’s look at why people choose to buy.

One of the main reasons that people choose to buy a home is to have the stability and peace of mind of owning the place you live. This means you are not at risk of being put in a situation where the landlord wants to move their parents into the basement suite and you have to leave or having to deal with increased costs if you go to renew a lease agreement.

For others, the benefit to buying comes in building up equity and ensuring that nest egg for your future. When you choose to rent, you are paying into someone else’s mortgage and into their future but when you work towards buying your own home, suddenly all that money you invested is going to your future instead. This is an extremely important aspect to consider in today’s age when many are having trouble with the idea of saving for retirement.

Now I get it, you may be thinking “if I can’t afford to retire, how can I afford to buy a house” but if you can afford to pay the high cost of rent in today’s market, then home ownership isn’t as far out of reach as you think. This is especially true if you buy a two-story home and rent out the basement, giving you ample living space upstairs but also additional income to pay your mortgage.

Pros and cons of buying:

To further show the benefits and costs to buying, we have broken down some pros and cons to help you to determine if this is the right path for you.

To rent or buy, that is the question!

Did you know? 4 in 10 households spend more than 30 per cent of their pre-tax income on rent, which is above the commonly accepted affordability threshold.

The latest National Bank report revealed that monthly mortgage costs for median-priced condos was higher than the average monthly rent for a similar unit in Toronto, Montreal, Vancouver, Victoria and Hamilton. At the same time, monthly mortgage payments were lower than rents in Calgary, Edmonton, Quebec City, Winnipeg and Ottawa. While this data does not include suburbs, it shows a staggering difference between mortgage payments and rent payments.

If someone can rent for $900 a month or pay a mortgage of $1200 a month, it may seem like a no brainer but it is important to remember that paying rent does not build equity! However, if you are unsure of where you want to live or cannot find a suitable and affordable home with a close enough commute to work, renting may be your only option. This is where checking listings and discussing with a real estate agent may open doors and where a mortgage broker can come in handy to help you determine if purchasing a home is viable in your near future.

Yes, you can buy!

The reality is that in the long run, homeowners often fare financially better than renters because homeownership enables forced savings that accumulate over the years, growing into a sizeable nest egg.

If you are unhappy renting or really prefer the idea of owning your own home, you CAN. It is time to stop assuming you cannot make the leap from renting to buying – all you need is the right information and the right preparation!

To determine if you are able to purchase a home, a good place to start is the My Mortgage Toolbox app from Dominion Lending Centers. This app is perfect for seeing what you can afford. Using the app to calculate minimum down payments and monthly mortgage costs can help you to get a good picture of the financial landscape and your options. Looking at your budget and evaluating your current rent costs and other monthly expenses can also help you to determine your affordability bracket.

Some other things to consider before buying include:

• Your credit score – do you have good financial standing to be approved for a mortgage?
• Your savings – do you have any money put away for a downpayment? If not, do you have wiggle room in your budget to start saving?
• Your time – do you have the resources to maintain a home from the yard to any necessary repairs?

If buying a home to live in is out of the question due to the availability in your area or cost of homes close to work, another option is to consider an investment opportunity. Maybe you cannot afford to buy in the area you want so you rent in order to keep your commute short and be in a neighbourhood you love. However, you can still reap the equity benefits by investing in a vacation or rental property which would give you the necessary nest egg and help you feel more secure about your future financial situation. You could keep the investment property as long as you want! If you end up finding the perfect home in your area down the line, you could always sell your investment property and take the earnings for a down payment on the right home – or keep it as an extra security blanket!

Regardless of whether you choose to continue renting or make the leap to owning your own home, the most important factor is your financial security. What works for your friend or your parents may not work for you – and that is okay! However, educating yourself and looking into all the options will ensure that, at the end of the day, you are in the best situation for yourself.

Contact me any time.  I’d enjoy discussing these options with you!

Your Mortgage Professional

John

Your Credit Rating: The Four C’s.

Buying your first home is an incredible step in life, but it is not without its hurdles! One of which is demonstrating that you are creditworthy, which all comes down to your credit rating. This is how lenders and credit agencies determine the interest rate you pay, or whether you will qualify for a mortgage at all.

As mortgage rules continue to change, the credit rating is becoming even more important as a higher credit rating could mean a lower interest rate and save you thousands of dollars over the life of your mortgage.

If you’ve never given much thought to your credit rating before, don’t worry! It is not too late and we are going to take through everything you need to know. The most important of which is that, in order to qualify for a home, you must have a credit rating of at least 680 for one borrower.

There are several attributes that factor into your credit score, and these are commonly referred to as the “Four C’s” and consist of: Character, Capacity, Capital and Collateral. Let’s take a closer look at each:

character

The character component of your credit score is essentially based on YOU and your personal habits, which comes down to whether or not it is in your nature to pay debts on time. Some of the components that make up this portion of your credit score viability, include:

• Whether you habitually pay your bills on time
• Whether you have any delinquent accounts
• How you use your available credit:
  • Quick Tip – Using all or most of your available credit is not advised. It is better to increase your credit limit versus utilizing more than 70% of what is available each month. For instance, if you have a limit of $1000 on your credit card, you should never go over $700.
  • If you need to increase your score faster, a good place to start is using less than 30% of your credit limit.
  • If you need to use more, pay off your credit cards early so you do not go above 30% of your credit limit.
• Your total outstanding debt

capacity

The second component relating to your credit rating is your capacity. This refers to your ability to pay back the loan and factors in your cash flow versus your debt outstanding, as well as your employment history.

• How long have you been with your current employer?
• If you are self-employed, for how long?

Don’t be confused as capacity is not what YOU think you can afford; it is what the LENDER thinks you can afford depending on the debt service ratio. This ratio is used by lenders to take your total monthly debt payments divided by your gross monthly income to determine whether or not you are able to pay back the loan.

capital

Capital is the amount of money that a borrower puts towards a potential loan. In the case of mortgages, the starting capital is your down payment. A larger contribution often results in better rates and, in some cases, better mortgage terms. For instance, a mortgage with a down payment of 20% does not require default insurance, which is an added cost.

When considering this component, it is a good idea to look at how much you have saved and where your down payment funds will be coming from. Is it a savings account? RRSPs? Or maybe it is a gift from an immediate family member.

collateral

Collateral is something that is pledged against a loan for security of repayment. In the case of auto loans, the loan is typically secured by the vehicle itself as the vehicle would be repossessed and re-sold in the event that the loan is defaulted on. In the case of mortgages, lenders typically consider the value of the property you are purchasing and other assets. They want to see a positive net worth; a negative net worth may result in being denied for a mortgage.

Overall, loans with collateral backing are typically more secure and generally result in lower interest rates and better terms.

There is no better time than now to recognize the importance of your credit score and check if you are on track with the Four C’s and your debt habits. A misstep in any one of these areas could be detrimental to your efforts of getting a mortgage.

1. TOO MANY CREDIT CARDS WILL HURT MY CREDIT SCORE

Actually, cancelling healthy active cards or accounts hurts more as all of the payment history is lost along with the type of credit granted. The average Canadian has 10 credit sources, having more does not hurt as long as you pay on-time. Along with paying on-time you should observe the rule of maintaining a balance at no more than 75% of the limit, but less is best. Applying for new credit every week will lower your score more.

2. USING CREDIT TO BUILD A CREDIT SCORE

Remember to keep your balances low and manageable. The credit bureau only receives reports regarding your balances and payments. Making your payments on-time builds your credit history strength and score.

3. MY UTILITIES AND INTERNET ARE PAID ON-TIME EVERY MONTH

These providers only check your credit to determine creditworthiness. They don’t report your payment history to the bureau. On the flipside, they only report when you DON’T pay. The other organizations that only report upon default are municipalities and ICBC. Pay your traffic tickets and bylaw infractions.

4. CHECKING MY SCORE WILL DECREASE IT

There are two types of inquiries, soft and hard. A soft inquiry occurs when you pull your own credit report. Credit card companies also pull soft inquiries when marketing pre-approval offers. A hard inquiry happens when submitting a loan or credit card application. A hard inquiry is one that is triggered by the applicant. Soft inquires do not affect the credit score. A consumer can pull their own credit score as many times as they wish without repercussions. Hard inquires affect the score slightly. These inquires are included in the calculation done for credit scoring. Recording the number of inquires a consumer has on the credit report allows potential lenders to see how often a consumer has applied for new credit. This can be a precursor to someone facing credit difficulty.

Too many inquiries could mean that a consumer is deeply in debt and is looking for loans or new credit cards to bail themselves out. Another reason for recording inquires is identity theft. Hard inquires not made by you could possibly be an identity thief opening accounts in your name. Inquires are required to remain on the credit report for at least a year. Hard inquires remain on the report for two years. Soft inquires only appear on the report that you request from the credit bureaus and will not be visible to potential creditors. Hard inquires appear on all credit reports. All inquires disappear from the report after two years. Only individuals with a specific business purpose can check your score. Creditors, lenders, employers and landlords are some examples of approved business people. The inquiry only appears on the credit report that was checked.

5. THERE IS NOTHING I CAN DO ONCE A PAYMENT IS LATE

Creditors are always willing to work with you if there is a late payment. If notified in a timely manner a late payment can be easily removed, just don’t make a habit of it. Some is better than none.

If a buyer can’t obtain a mortgage due to poor credit, employment history, lack of down payment or income — most lenders will consider lending if there is someone to act as co-signor or guarantor for a mortgage. The two options provide different requirements.

Co-signer or guarantor for a mortgage, which is best? People often use the terms guarantor and co-signer interchangeably, but they have very different responsibilities and rights. A co-signor is basically a co-owner – he/she is registered on the title and is equally responsible for payments (although it’s often a given that the co-signor will not make the payments). A guarantor, on the other hand, personally guarantees payments will be made if the original applicant defaults, but he has no claim to the property because he/she is not on title.

Lenders require a co-signor or guarantor for a mortgage for different reasons. A co-signor is used when you need to support income. If the original applicant’s qualifying ratio doesn’t meet the lender’s standards, a co-signor is required to bridge the income gap. A co-signor, because their name is also on the title, must sign all of the mortgage documents and can expect to remain on title until the applicant qualifies for the mortgage on his or her own. Or, in the case of two spouses, the co-signor might remain on title indefinitely. Keep in mind that removing someone from the title involves legal fees.

A guarantor is usually called upon if the applicant qualifies by income, but has a slight credit blemish or has yet to establish credit. It’s also an option for couples where one spouse is an entrepreneur and they don’t want to risk losing the house should the business go bankrupt — they simply keep that person’s name off the mortgage.

Guidance for guarantors
A guarantor has to be stronger financially than a co-signor because they promise to carry the entire debt should the homeowner default. As a result, guarantors are carefully scrutinized, undergo a credit check and must also disclose assets, liabilities and income.

Therefore, it’s important for guarantors to know all of the circumstances of the person they’re acting for and be confident the applicant will make the payments. Before signing, all guarantors should seek advice from a lawyer who is independent of the real estate transaction.

It’s also smart to secure creditor insurance in case things go wrong. The applicant and guarantor should discuss collateral or come up with a repayment plan up front should the guarantor be called on to cover the debt.

To learn more, listen to my radio interview on CKPM– click the link below:

What happens when you co-sign or become guarantor on a mortgage?

When a guarantor wants out
Some lenders offer early release policies that free the guarantor from obligation (usually after 12 months) if the borrower is up-to-date with payments and has established good credit. Sometimes a guarantor can remain under obligation for several years.

Before agreeing to act on behalf of an applicant, guarantors need to evaluate the time commitment they’re willing to make. If, for example, they want to buy their own home in a few years or take on any major debt, such as a car or boat, they may not qualify because of their guarantor status.

Regardless of whether you wish to be a co-signor or guarantor, for a mortgage you should always consult your mortgage professional at Dominion Lending Centres and a lawyer before acting.

Credit card questions, having credit cards vs cutting up your credit cards.  My thought of the day....lol 
Actually I'm sorry to go against the grain, but having credit cards isn't the issue, having them to their max is the issue.  

Credit score, rated by Equifax and Transunion, rate you on exposure but mainly ability to repay.  If you have a $5000 limit and you owe $4999, VERY BAD.  

But if you owe $400, fantastic. This builds your credit score and shows banks when your trying to obtain a loan or mortgage that you've been exposed to higher limits without abusing the credit.  

Cutting up credit cards is not the answer, but using them for $100-$200 purchases every few months keeps credit rating strong.  

Having no credit is the worst thing you can do, especially using pre-paid which doesn't help your credit rating.  

Use them but put them away in a safe spot or safety deposit box if you have temptations. 

FREE TIPS From your friendly neighbourhood Mortgage Broker.

Have you ever wanted to buy a home but the kitchen and bathrooms aren’t up to your standards or they haven’t been updated since 1970, call and ask us about the Purchase plus improvement program and how it works and how will it benefit you and your Family’s new home.