16 Aug

5 GREAT Reasons To Provide a 20% Down Payment when Buying a Home

Canada

Posted by: Kelly Hudson

Home & Cdn CashThere are many challenges that come into play when you’re in the market to buy a home.

Buyers say the number one obstacle to homeownership is saving enough for a down payment, the amount that the buyer provides toward the purchase of their home.

Exactly how much do you need to put down? Assuming you can finance the debt with your current income you can get a mortgage for as little as 5% down PLUS pay for Mortgage Default insurance if you put less than 20% down.

A smart rule of thumb is always try to put a least 20% down.

Although that may be a challenge in Greater Vancouver where the current Vancouver MLS stats indicate an average house price of $1,227,420

  1. Easier to service your debt Putting 20% down reduces the size of your monthly mortgage payment, making you more likely to qualify for and afford, your mortgage. Lenders want to make sure you can service your debt with your current income using 2 rules:
    • Rule #1 – GROSS DEBT SERVICE (GDS) Your monthly housing costs are generally not supposed to exceed 35-39% of your gross monthly income.  Housing costs include – your monthly mortgage payment, property taxes and can include heating.  If you are buying a condo/townhouse with strata property then the GDS will also include ½ of your strata fees.

      Principle + Interest + Taxes (+ 50-100% Strata Fees if applicable)

      Gross Income

      Rule #2 – TOTAL DEBT SERVICE (TDS) Your entire monthly debt payments should not exceed 40-44% of your gross monthly income This includes your housing costs PLUS all other monthly payments (first mortgage, property taxes, maintenance fees, additional financing, car payments, charge accounts, etc.).

      (Principle + Interest + Taxes) + Other Payments 

      Gross Income

  2. A Smaller Monthly Mortgage Payment! You pay LESS!! I’m all about making smaller mortgage payments and having money for the fun stuff in life. More money down means, you borrow less money, which means you will have a smaller mortgage, which means you have smaller, more affordable mortgage payments.
  3. No private mortgage default insurance Putting 20% down allows you to avoid paying for mortgage default insurance.
    • In Canada, mortgage insurance is required federally on high-ratio mortgages (a down payment of less than 20%). This insurance, which protects the bank/lender in case the borrower defaults, gives lenders the flexibility to offer homebuyers with low down payments the same low interest rates they would offer to homebuyers with more equity.
    • Mortgage insurance premiums are based on the amount of the mortgage. The higher the loan-to-value ratio, the higher the premium cost. In other words, the lower your down payment, the more expensive the insurance. This premium may be paid in cash in a lump sum upon closing, it is usually added to the mortgage amount and paid over the length of the mortgage.
    • Canadian Mortgage & Housing Corp. (CMHC) and Genworth Canada provide mortgage default insurance. Click on CMHC or Genworth for the sliding scale, the bigger your down payment the less insurance you pay. Once you hit a 20% down payment, mortgage default insurance is no longer mandatory.
  4. Pay Less Interest over the Life of the Loan You pay less interest with 20% down payment, since you’re putting more money on the house compared to if you put 5% or 10% down.
  5. Instant Equity Building A significant down payment builds instant equity in your home. A 20% down payment immediately puts equity into a home when you purchase it. That down payment gives you some cushion, in case the market takes a downward turn.

Let’s discuss which mortgage down payment works for you NOT the bank!

Kelly Hudson
Mortgage Expert
DLC – Canadian Mortgage Experts
Mobile 604-312-5009
Kelly@KellyHudsonMortgages.com
www.KellyHudsonMortgages.com

6 Aug

Want to Buy Rural Property? 6 Things to know before you buy!

First Time Home Buyer

Posted by: Kelly Hudson

Living in the country has extreme appeal for some people.  Space, peace and quiet, big home, big yard, place to raise your family… the list goes on.  If you are considering buying a rural home, there are a number of things to consider, not the least being how different it is to get a mortgage.

When lenders are considering your mortgage file it’s always about managing risk.  Higher risk, higher rates.  The risk that you’ll pay them back as agreed and they don’t have to seize the asset and sell it to recoup their investment.

  • Mortgage lenders don’t really want to own your property, because foreclosing on your property means it will take time and effort to get the homeowner off the property, list it for sale, then actually get it sold where they can finally get (some of) their money back.
  • With rural properties, depending on remoteness of location and condition of the property it could take months to sell when compared to the quicker sale for a home in an city where there is much more demand.

Mortgage lenders don’t like waiting years to get their money back on a non-performing loan, so they have implemented special rules related to rural properties to reduce their risk.

A rural property, for most lenders and their home appraiser, includes only one house, the garage and 10 acres in the valuation, any additional buildings will not be considered. This policy applies to both conventional and insured mortgages.

Here are 6 things to think about before plunking down your hard-earned cash on a country home.

Hire a real estate agent knowledgeable about rural properties and local zoning laws.  The names of the zones and the related details are determined by each local government so there may be variation between communities throughout each province.

Many lenders will not mortgage properties that are zoned agricultural.

  • Why? Lenders are all about risk.
    • If you buy a rural property and you default on your mortgage, the process of foreclosing on an agricultural property is very different and difficult for lenders. Taking a farm away from a farmer means taking their livelihood away, so the government has implemented many obstacles to prevent this.
  • Provided you are not planning to grow crops or raise animals for sale, financing a home in the country can be similar to financing an urban home.

Water & Septic In order to live in a house, you need to be able to drink the water and flush the toilet.  In the country you need to take care of these yourself.  When buying, if you are not on municipal water, your water will probably come from a well.

  • Many lenders will ask for a potability and flow test for the well because a house without water is very hard to sell.
  • Chances are your sewerage may be in a septic tank.  You need have the septic system inspected by a qualified septic inspector. At a minimum, ask the homeowner to agree to a warranty clause in the agreement that the system has been in good operating condition and it will remain that way until closing.
  • Both the well equipment and septic system can be very expensive to repair or replace. Thus, when you buy in a rural location, be sure you include these with your conditions.

Land – most lenders will mortgage a house, one outbuilding and up to 10 acres of land, anything above this amount will not be considered in the mortgage.

Appraisal – Your lender will want to see an appraisal to ensure the value of your land. The appraised value may come in lower than expected, because rural properties do not turn over as quickly as city properties.

  • Be prepared for the inspection to cost more than it cost you in the city, since the appraiser needs to travel farther to see the property.
  • If you LOVE the place and have to have it, be ready to have to come up with the difference between the selling price and the appraised value of the property.

Wood Energy Technology Transfer (WETT) – If there’s a wood stove or wood-burning fireplace, you make want to make your offer conditional on receiving a satisfactory WETT inspection report, which confirms the safeness and correct installation of the wood-burning unit.

Buy (or Check Into) Title Insurance Many buyers don’t realize that farmland, particularly larger, more remote tracts of land, may have been used as a dump-site for toxic chemicals.

  • Buying title insurance, or checking the title for the specific property, will let you know if the property has been listed as a toxic dump-site, or a hazardous waste site.
  • Your insurance company may insist on a copy of title insurance before they agree to issue a policy.

House/Content/Fire insurance – Lenders want to ensure you have insurance in place to protect their investment. If you can’t get insurance – it has the potential to be a serious problem, since your mortgage company may not advance the closing funds.

  • Living in the country is nice, however you are also far from fire hydrants and fire stations, you will pay more for home insurance.

If you are considering buying a home in a rural area, you need to have a frank discussion with your realtor, mortgage broker and lawyer before submitting your offer.

Mortgages are complicated… you need to engage an expert!!!   Give me a call and let’s discuss a mortgage that works for you (not the bank)!

Kelly Hudson
Mortgage Broker
DLC – Canadian Mortgage Experts
Mobile: 604-312-5009
Kelly@KellyHudsonMortgages.com
www.KellyHudsonMortgages.com