HOW TO AVOID BECOMING MORTGAGE POOR

I am often asked what one should do when they are going to be buying a home. I often deal with first time home buyers and so I thought it was time to create a step-by-step process to assist those who ask in how to get into a house without becoming chained to your home because of your mortgage.

Step One – Determine how much you can pay for your house each month. The simplest way to do this is to establish a budget and know where your pennies are going every month. Once you have determined where you are spending your money every month, you will be able to determine the amount you can pay towards your home every month. Then deduct the amount of expenses (not including any current rent payments or utilities payments) from your income and you then have the maximum amount you can spend for your home each month. If you then take 75% of that amount you know what the total amount of monthly payment you can make for both the mortgage and property taxes. For example, should you determine that the amount left over after deducting expenses (no rent or utilities) is $2800 per month, then you know that you can afford to have a monthly mortgage and property tax payment totaling $2100 (75% of $2800). If you are going to be purchasing a condo, then you need to include the condo fees along with the property taxes and mortgage payments into the $2100 per month amount. Determine what you are going to have to pay in property tax for the average house and, if applicable, the condo fees. Reduce the amount left over by property and condo fees and you now have the total monthly mortgage payment you should have in order to be able to enjoy the house versus be bound to it.

Step Two – Manage your credit application properly. To do this, you go and secure your credit bureau file and beacon score from a credit agency, like Equifax. Along with your credit report, take copies of your last two tax returns and notices of assessment and go to your local bank(s) and find out what they are prepared to give you in a mortgage amount. Make sure, however, that they do not do a formal search of your credit at this time. You would say, “Presuming that when you do a formal credit search, you do not find anything different than these papers (the tax returns, notices and credit report), what amount of a mortgage would you offer and at what rate?“ I would recommend shopping for the rates associated with the term you are intending to go with for your mortgage with at least two banks to start. Once you have the amount of mortgage you can qualify for, ask how much of a mortgage you could get for the monthly amount you determined to be the money available in your calculations in step one. With that number, you now know what amount of a mortgage you can carry.

Step Three – Add up the money you have set aside for the down payment on a home and take 80% of that number. Then add that to the amount of mortgage you calculated in step two and you now know the price you can afford at your absolute maximum to pay for a home.

Step Four – Go online to MLS.ca and search out houses that are in the price range of the mortgage and down payment amount you calculated. If the houses you are looking at are below what you want in a home, then keep saving before you buy. If the houses you are looking at are ones that you are happy with, then you can secure the services of a real estate agent.

Step Five – When you begin to work with a real estate agent, tell them that you absolute maximum in price is 80% of what you have just figured it would cost you. The reason for this is that the focus of the real estate agent is to get you into as much of a house for your dollar so they will almost always try to move you up a little. If you use 80% then even after moving you up a bit, you will still have the money to buy at that level.

Step Six – Make sure that you determine your absolute limit and do not go a single penny over it no matter how much you fall in love with a property as there is always another one out there.

Step Seven – If you get into a bidding war, make sure that you never get rid of the inspection clause. The number of times I have heard someone who bought a house without an inspection being done only to have to spend a whole lot of money on fixing things within a few months is more than my fingers and toes, so do not fall into that trap.

Step Eight – in all the years I have been working with people for their insurance needs, I have never seen an instance where mortgage insurance through a lender has been better than a personally owned plan, so make sure to speak with your advisor or give me a call.

Step Nine – as wonderful as it is to have the house fully furnished and all set the day you move in, doing things patiently will be to your benefit.

So now you can be in a new home and not mortgage poor 