Tag Archives: home buyers

How Long Does It Take to Improve Your Credit Score Enough to Buy a Home?

How long does it take to improve your credit score? If you’re hoping to buy a home, having a good credit score is key, since it helps you qualify for a mortgage. So if your credit score is low, knowing how long it takes to raise it to home-buying range can help you plan.

While raising a credit score can’t happen overnight, it is possible to raise your credit score within one to two months. However, it could take longer, depending on what’s dragging down your score—and how you handle it. Here’s what you need to know.

How long does it take to raise a credit score?

First off, what’s considered a good score versus a poor one? Here are some general parameters:

  • Perfect credit score: 850
  • Excellent score: 760-849
  • Good credit score: 700 to 759
  • Fair score: 650 to 699
  • Low score: 650 and below

While it varies by area and type of loan, generally lenders will look for a score of 660 or higher to grant a mortgage (here’s more on the minimum credit score you need for a home loan).

If you’re looking to boost your credit score fast, here are some actions you can take.

Correct errors on your credit report

Correcting errors on your credit report is a relatively quick way to improve your credit score. If it’s a simple identity error—like a credit card that’s not yours showing up—you can get that corrected within one to two months.

If it’s an error on one of your accounts, though, it could take longer, because you need to involve your creditor as well as the credit bureau. The entire process typically takes 30 to 90 days. If there’s a lot of back-and-forth between you, the credit bureau, and your creditor, it could take longer.

The first step to correcting errors is to get a copy of your credit reports from TransUnion, Equifax, and Experian (the three major credit bureaus), which you can do at no cost once a year at annualcreditreport.com. Next, review them for errors. If it’s an error on one of your accounts, you must refute that error with the bureau by providing documentation arguing otherwise. For example, if you paid a credit card on time and the card issuer is reporting a late payment, find a bank statement showing that you paid on time.

Credit bureaus typically have 30 days to investigate the error. If they agree that it’s an error, they will remove the item. The credit bureau may also ask for additional information or ask you to discuss the information with the creditor involved. If that’s the case, stay on top of communications with your creditor so you can get things resolved as quickly as possible.

Deal with delinquent accounts

Bringing delinquent accounts current and settling accounts that are in collections can also boost your score fairly quickly. Once the creditor or collection agency reports your account update, you should see a positive bump in your score. Keep in mind, though, that your late payment history will remain on your credit report for seven years.

If you have bad accounts that have been on your report for six years or more, you may not want to worry about settling them or bringing them up to date. This can re-age the account, and if you fall behind again, it will stay on your credit report for another seven years.

“Make sure you don’t re-age these accounts, because they’re going to drop off soon,” says Nathan Danus, CDMP and Director of Housing and Community Development at DebtHelper in West Palm Beach, FL. Negative information typically “falls off” your credit report after seven years, so if you’re close, it’s best to just wait it out.

Lower your credit utilization

Credit utilization refers to how much you owe compared with the amount of credit you have available. For example, if you have a $10,000 credit limit across all your credit cards and you have balances totaling $9,000, you’ve utilized 90% of your credit. This drags down your credit score.

“What these consumers often need to do is pay down the balances on their existing credit accounts, which can be a challenge if they’ve allowed the balances to creep up over time,” says Martin H. Lynch, compliance manager and director of education at Cambridge Credit Counseling of Agawam, MA. “The ratio of what’s owed to the amount of credit available represents 30% of the consumer’s score, so rapid improvement is possible if there’s a large amount of money available to pay down balances.”

Linda L. Jacob, a financial counselor at Consumer Credit of Des Moines, IA, recommends paying down balances to below one-third of your credit line. Any payments you make will be reflected on your credit report as soon as your creditors report your payment to the credit bureaus. Credit scores are updated on an ongoing basis, and creditors typically report once per month, so if you make a payment that lowers your credit utilization, that should be reflected on your credit score within two months.

If you’re regularly using your credit card but you want to keep your utilization low so you can apply for a mortgage, you may want to pay down your credit-card balance on a weekly or biweekly basis. This ensures that your balance is as low as possible whenever your creditor reports your payment history to the credit bureaus.

You can also decrease your card utilization by getting more credit, but this approach can backfire. Consumers sometimes assume that by getting more credit, their credit score will improve. If you have a $3,000 balance on a card with a $4,000 credit limit and you’re approved for a new credit card with a $1,000 limit, you now have $5,000 in total credit lines. Instead of using 75% of your available credit, you’re now using 60%. That’s better, right?

Not necessarily. “Just applying for credit lowers your credit score, and that effect lasts for months,” warns Mike Sullivan, personal finance consultant at Take Charge America in Phoenix, AZ. “For the first few months after you apply for credit, your credit score may actually go down.”

You can try getting around this by asking a credit limit increase on a card you already have. Be sure to ask whether they do a “soft” credit pull rather than a “hard” credit pull, though, since hard credit inquiries are the ones that impact your credit. A creditor may be willing to give you a credit line increase with a “soft” pull, which will not hurt your credit score.

Soft inquiries are for background purposes only. For example, a credit card company may do a soft pull to see if you’re eligible for certain credit card offers, or an employer may do a soft pull before offering you a job. Soft pulls can be done without your permission and do not impact your credit score. Hard pulls require your permission, and are done when lenders or credit card companies are assessing whether to grant you a loan or line of credit.

How to raise your credit score for the long haul

Once you’ve corrected errors, settled your delinquent accounts, and brought your credit utilization under control, the only other things that will improve your score are time and developing good payment habits. For example, if you tend to forget to make payments, you can set up automatic payments so you don’t forget.

And here’s some good news for people with bad credit: Generally, people with the lowest scores will see the biggest gains the fastest.

“It’s a lot like dieting,” says Sullivan.

For instance, if your score is 550, “you could probably get it up 30 points in a matter of a couple months, if you’re really dedicated and really careful,” he explains.

On the other hand: “If your credit score is already a 750 and you’re trying to get it to 780, that can take double or more the time.”

Still, it’s worth doing whatever you can to get the best interest rate possible.

For more smart financial news and advice, head over to MarketWatch.

Source: Realtor.com –   | Nov 28, 2018 Melinda Sineriz is a writer living in Bakersfield, CA. She writes about personal finance and real estate for several websites and businesses.
The realtor.com® editorial team highlights a curated selection of product recommendations for your consideration; clicking a link to the retailer that sells the product may earn us a commission.
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Mortgage stress test vs. high interest rates: which has impacted the Canadian housing market more?

Photo: James Bombales

When the Bank of Canada decides to hike interest rates, the impact of the move tends to peak six quarters after the fact. But, according to one economist, the effect of the current rising-rates environment is already making itself felt, at least when it comes to the Canadian housing market.

“Even though the first rate hike of this cycle, let alone the subsequent moves, was administered less than six quarters ago, there’s already pain being felt,” writes CIBC economist Royce Mendes, in his latest note.

The BoC hiked the overnight rate to 1.75 percent in October, and is widely expected to do so again in the new year. And while there’s been some debate among industry experts about whether higher interest rates or the stricter mortgage rules introduced in January are to blame for a slowdown in Canadian housing activity, Mendes says it’s the former that is dealing the biggest blow.

“It’s difficult to identify how much of the recent slowdown in housing activity has been due to tighter mortgage rules versus higher interest rates,” he writes. “But, based on prior estimates of the effects of the rule changes alone, the slowdown in lending has been more precipitous.”

That’s because, while the market has largely adjusted to the effects of stricter mortgage rules over the course of the year, it’s only now starting to contend with the impact that higher interest rates will have on would-be homebuyers.
“It’s hardly a stretch then to say that the housing market is already feeling some pressure from rate hikes, particularly since many mortgages are now rolling over at higher rates for the first time in a quarter-century,” writes Mendes.

That could mean that, heading into 2019, housing activity will cool even further, as the effects of the rising interest rate environment make themselves known.

“Given the lags in monetary policy, even as the effects of the mortgage rule changes wane on a year-over-year basis in the months to come, the impacts of rate hikes will actually become more apparent.”

Source: Livabl.com- 

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Do You Know Your Clients?

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Mortgage Professionals – get to know your clients! Millennials are just one of the surveyed groups from our Mortgage Consumer Survey. 

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Countdown to homeownership

Two years is an important time frame when it comes to buying your first home. According to Genworth Canada’s 2018 Financial Fitness & Homeownership Study, nearly one-fifth of aspiring first-time homebuyers expect to buy their home within the next two years. This preparation period provides a healthy amount of time to get your finances in order. Strengthening your financial position should be a priority given the mortgage stress test criteria to qualify and rising interest rates. Set yourself up for homeownership success with the following tips.

Determine how much home you can afford

Affordability is the cornerstone of responsible homeownership. Buying a home you can comfortably afford will ensure satisfaction and security. Mortgage changes introduced by the federal government over the past two years have helped to reduce the likelihood of buyers taking on more debt than they can reasonably afford. Want an estimate of how much home you can afford? Visit Homeownership.ca and use the What Can I Afford Calculator to find out what mortgage amount a bank or other conventional lender would likely qualify you for.

Build a monthly budget

Once you have an estimate of how much of a mortgage you’d be working with, use Homeownership.ca’s Mortgage Payment Calculator to determine your regular mortgage payments. Build a monthly budget around this amount, plus your other expenses. Live on this new-homeowner budget as early as possible so you get into the habit of spending within your means. Put any savings into your down payment savings account.

Save, save and save even more

Save aggressively so you can build that nest egg; in other words, it would be smart to save for your down payment, closing and moving costs in advance. Think about new ways to save more money every day. For example, even if you prefer to buy your latte at your local coffee shop, switching to the free coffee at your office will allow you to save an average of $3 daily, which you can put into your savings account. In two years’ time, that $1,400-plus will make a nice addition to your down payment.

Improve your credit score

Order your credit report from Equifax or TransUnion and check it thoroughly, contacting the credit reporting agencies if there are any errors. Between now and two years from now, work on improving your credit as much as you can.

Key steps you should take include the following:

  • Always make payments on time.
  • Pay down your consumer debt. (Avoid using more than 35 per cent of your available credit from credit cards and lines of credit.)
  • Don’t apply for more credit. (One exception to this rule is if you have no existing credit card. In that case, apply for a no-fee credit card, use it on a few small purchases and pay it off monthly. This will help you build your credit history.)

Stay the course

Job changes, car financing and applying for more credit can all affect your credit report or mortgage application, or both. Limit any major lifestyle changes or purchases to the start of your two-year homeownership countdown. As you move toward the mortgage pre-approval stage and house-hunting stages, avoid lifestyle or financial changes that could have a negative impact on your credit score or raise questions about your employment history.

Start dreaming and researching!

Use your free time to explore neighbourhoods and research the local real estate market. Go for a long walk and visit some open houses. These obligation free walk-throughs can help you refine your new-home wish list, clarifying priorities versus nice-to-have features. Even if you don’t have children right now, consider park and school proximity because your family situation may change one day in the future.

 

Source: Genworth.ca

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5 questions every first-time homebuyer should ask their mortgage advisor

MortgageAdvisor1

Photos: James Bombales

Between considering mortgage terms and insurance to viewing properties with your realtor, buying your first home is a busy and stressful time. And when you’re talking about the biggest financial commitment you’ll probably make in your life, it can be pretty intimidating too. While there are mortgage professionals available to provide advice on your home purchase and help find the best mortgage solution for your specific situation, you’ll still need to go into the meeting with your advisor prepared with questions. So even if you’re totally mystified by the mortgage process, these five questions will help set you on the right track.

1. How do I know if I’m ready to buy a home?

“Knowing if you’re ready to buy a home could mean a lot of things and ultimately depends on the person’s own situation,” Wan Li, Mortgage Specialist at TD Group Financial Services, tells Livabl. “Potential homebuyers need to consider how much they’ve saved up for a downpayment, whether they have stable, continuous income and if they anticipate any large purchases or major life events in the future.”

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2. What factors determine my eligibility for a mortgage loan?

Unless you’re rolling in cash, most homebuyers will need to apply for a loan from a bank or mortgage broker. However, whether or not you’ll be approved for a loan and the amount you’re eligible for depend on many factors.

“Even if you have a large down payment and have cash available, a bank will not lend you money without a job and stable income.” says Li. “It’s also better if you’ve worked for the same company for over half a year or at least have passed your probation period.”

Your credit rating is another important factor that can mean the difference between getting approved or denied for your loan. Credit scores range from 300 to 900 and are affected by late payments and debt level. The higher your score, the better chance of being considered for a mortgage.

“Ideally, you’ll want to have a credit score of at least 600 to be approved by a bank,” explains Li. “Any less and you’ll likely need to go to a private B-lender which aren’t as strict, but have higher interest rates and charge administration fees.”

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3. How much do I need for my down payment?

Depending on where you live and the total cost of the home, the minimum down payment you need can vary from 5 per cent to 20 per cent. However, if you have less than 20 per cent, you’re going to have to pay for mortgage insurance which protects your lender in the event that you can’t pay your loan.

“In Canada, those who put less than 20 per cent down will have to pay for the Canada Mortgage and Housing Corporation (CMHC) mortgage loan insurance,” says Li. “It’s typically calculated as a percentage of your mortgage and is added to your regular mortgage payments.”

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4. What does pre-approval mean and should I get pre-approved?

Before you head out and start viewing properties for sale, it’s highly recommended that you first get pre-approved. A mortgage pre-approval will help you determine your maximum budget for your new home and can also give you an edge on the competition should you find yourself in a bidding war. Plus, once you do find your perfect home, you’ll be able to move on it quickly since you know you’re already pre-approved on your finances.

“Getting pre-approved involves filling out a mortgage application and providing documents on your financial history to your bank or lender,” says Li. “The bank will then look at your current income and credit history to determine if you qualify for a mortgage loan. The assessment will usually include a specific term, interest rate and mortgage amount depending on your situation.”

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5. What’s the difference between the term and the amortization?

The mortgage term and amortization period are two common phrases in the homebuying process that often cause confusion for first-time homebuyers. The mortgage term refers to the period of time that you have locked in the agreed upon terms and conditions, including the interest rate and monthly or bi-weekly payments towards your mortgage. Five-year mortgage terms are the most common, however they can range from three to 10 years. By contrast, the amortization period is the total number of years that you choose to pay off your mortgage and can be up to 30 years depending on your down payment.

“If you put less than 20 per cent down, your maximum amortization period is 25 years, but if your down payment is more than 20 per cent, you can have an amortization period of up to 30 years,” says Li. “However, while a longer amortization may result in lower monthly payments, you’re also going to end up paying a lot more in interest.”

Source: Livab.com –  

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Canada’s Top 25 Best Places to Live in 2018

25. Whitby, Ont.

Rank in 2017: 103
Population: 136,657
Estimated Unemployment Rate: 5.7%
Median Household Income: $101,792
Average Household Net Worth: $817,453
Property Tax: 11.1%
Total Days Above 20°C: 100
Crime Rate Per 100,000:* 3,251
Family Doctors Per 100,000:* 81
See more stats about Whitby, Ont. here.


24. New Tecumseth, Ont.

Rank in 2017: 170
Population: 36,745
Estimated Unemployment Rate: 5.7%
Median Household Income: $96,041
Average Household Net Worth: $755,965
Property Tax: 20.5%
Total Days Above 20°C: 122
Crime Rate Per 100,000:* 2,906
Family Doctors Per 100,000:* 95
See more stats about New Tecumseth, Ont. here.


23. Newmarket, Ont.

Rank in 2017: 56
Population: 90,908
Estimated Unemployment Rate: 5.7%
Median Household Income: $95,636
Average Household Net Worth: $947,429
Property Tax: 16.1%
Total Days Above 20°C: 107
Crime Rate Per 100,000:* 2,749
Family Doctors Per 100,000:* 95
See more stats about Newmarket, Ont. here.


22. Bonnyville No. 87, Alta.

Rank in 2017: 228
Population: 14,658
Estimated Unemployment Rate: 3.9%
Median Household Income: $103,652
Average Household Net Worth: $789,157
Property Tax: 94.0%
Total Days Above 20°C: 86
Crime Rate Per 100,000:* 4,899
Family Doctors Per 100,000:* 93
See more stats about Bonnyville No. 87, Alta. here.


21. The Nation, Ont.

Rank in 2017: 123
Population: 13,275
Estimated Unemployment Rate: 5.1%
Median Household Income: $88,088
Average Household Net Worth: $478,620
Property Tax: 54.9%
Total Days Above 20°C: 113
Crime Rate Per 100,000:* 2,186
Family Doctors Per 100,000:* 142
See more stats about The Nation, Ont. here.


20. Whistler, B.C.

Rank in 2017: 84
Population: 13,193
Estimated Unemployment Rate: 4.3%
Median Household Income: $86,423
Average Household Net Worth: $1,460,422
Property Tax: 98.6%
Total Days Above 20°C: 83
Crime Rate Per 100,000:* 14,137
Family Doctors Per 100,000:* 159
See more stats about Whistler, B.C. here.


19. St. Albert, Alta.

Rank in 2017: 7
Population: 70,874
Estimated Unemployment Rate: 6.8%
Median Household Income: $123,948
Average Household Net Worth: $900,192
Property Tax: 66.3%
Total Days Above 20°C: 84
Crime Rate Per 100,000:* 5,313
Family Doctors Per 100,000:* 129
See more stats about St. Albert, Alta. here.


18. King, Ont.

Rank in 2017: 68
Population: 26,697
Estimated Unemployment Rate: 5.7%
Median Household Income: $110,816
Average Household Net Worth: $2,655,435
Property Tax: 18.1%
Total Days Above 20°C: 114
Crime Rate Per 100,000:* 2,749
Family Doctors Per 100,000:* 95
See more stats about King, Ont. here.


17. Lévis, Que.

Rank in 2017: 9
Population: 147,403
Estimated Unemployment Rate: 3.4%
Median Household Income: $79,323
Average Household Net Worth: $387,146
Property Tax: 65.1%
Total Days Above 20°C: 94
Crime Rate Per 100,000:* 2,784
Family Doctors Per 100,000:* 106
See more stats about Lévis, Que. here.


16. Toronto, Ont.

Rank in 2017: 129
Population: 2,933,262
Estimated Unemployment Rate: 5.7%
Median Household Income: $55,945
Average Household Net Worth: $906,663
Property Tax: 66.0%
Total Days Above 20°C: 117
Crime Rate Per 100,000:* 3,847
Family Doctors Per 100,000:* 75
See more stats about Toronto, Ont. here.


15. Fort St. John, B.C.

Rank in 2017: 160
Population: 21,251
Estimated Unemployment Rate: 5.7%
Median Household Income: $106,327
Average Household Net Worth: $440,481
Property Tax: 99.5%
Total Days Above 20°C: 64
Crime Rate Per 100,000:* 14,000
Family Doctors Per 100,000:* 104
See more stats about Fort St. John, B.C. here.


14. Saugeen Shores, Ont.

Rank in 2017: 17
Population: 14,109
Estimated Unemployment Rate: 4.9%
Median Household Income: $105,210
Average Household Net Worth: $777,845
Property Tax: 14.2%
Total Days Above 20°C: 110
Crime Rate Per 100,000:* 5,113
Family Doctors Per 100,000:* 107
See more stats about Saugeen Shores, Ont. here.


13. Mont-Royal, Que.

Rank in 2017: 8
Population: 21,172
Estimated Unemployment Rate: 6.3%
Median Household Income: $145,853
Average Household Net Worth: $2,392,238
Property Tax: 1.4%
Total Days Above 20°C: 117
Crime Rate Per 100,000:* 4,594
Family Doctors Per 100,000:* 124
See more stats about Mont-Royal, Que. here.


12. Red Deer, Alta.

Rank in 2017: 330
Population: 107,564
Estimated Unemployment Rate: 4.9%
Median Household Income: $90,844
Average Household Net Worth: $628,900
Property Tax: 86.7%
Total Days Above 20°C: 83
Crime Rate Per 100,000:* 19,460
Family Doctors Per 100,000:* 99
See more stats about Red Deer, Alta. here.


11. Camrose, Alta.

Rank in 2017: 216
Population: 19,488
Estimated Unemployment Rate: 3.9%
Median Household Income: $61,873
Average Household Net Worth: $519,846
Property Tax: 74.9%
Total Days Above 20°C: 83
Crime Rate Per 100,000:* 9,520
Family Doctors Per 100,000:* 99
See more stats about Camrose, Alta. here.


10. Halton Hills, Ont.

Rank in 2017: 24
Population: 65,782
Estimated Unemployment Rate: 5.7%
Median Household Income: $108,410
Average Household Net Worth: $1,190,923
Property Tax: 24.3%
Total Days Above 20°C: 120
Crime Rate Per 100,000:* 2,133
Family Doctors Per 100,000:* 91
See more stats about Halton Hills, Ont. here.


9. Saint-Lambert, Que.

Rank in 2017: 55
Population: 22,432
Estimated Unemployment Rate: 4.9%
Median Household Income: $83,626
Average Household Net Worth: $881,272
Property Tax: 12.5%
Total Days Above 20°C: 118
Crime Rate Per 100,000:* 3,724
Family Doctors Per 100,000:* 96
See more stats about Saint-Lambert, Que. here.


8. Westmount, Que.

Rank in 2017: 52
Population: 21,083
Estimated Unemployment Rate: 7.5%
Median Household Income: $117,755
Average Household Net Worth: $3,953,205
Property Tax: 8.9%
Total Days Above 20°C: 117
Crime Rate Per 100,000:* 4,594
Family Doctors Per 100,000:* 124
See more stats about Westmount, Que. here.


7. Canmore, Alta.

Rank in 2017: 29
Population: 14,930
Estimated Unemployment Rate: 5.1%
Median Household Income: $75,848
Average Household Net Worth: $1,478,315
Property Tax: 99.0%
Total Days Above 20°C: 64
Crime Rate Per 100,000:* 7,482
Family Doctors Per 100,000:* 138
See more stats about Canmore, Alta. here.


6. Milton, Ont.

Rank in 2017: 151
Population: 120,556
Estimated Unemployment Rate: 5.7%
Median Household Income: $111,875
Average Household Net Worth: $1,129,276
Property Tax: 67.7%
Total Days Above 20°C: 120
Crime Rate Per 100,000:* 2,133
Family Doctors Per 100,000:* 91
See more stats about Milton, Ont. here.


5. Lacombe, Alta.

Rank in 2017: 299
Population: 13,906
Estimated Unemployment Rate: 4.9%
Median Household Income: $97,800
Average Household Net Worth: $754,291
Property Tax: 76.6%
Total Days Above 20°C: 81
Crime Rate Per 100,000:* 7,932
Family Doctors Per 100,000:* 99
See more stats about Lacombe, Alta. here.


4. Saint-Bruno-de-Montarville, Que.

Rank in 2017: 6
Population: 27,171
Estimated Unemployment Rate: 4.9%
Median Household Income: $96,757
Average Household Net Worth: $864,221
Property Tax: 18.8%
Total Days Above 20°C: 118
Crime Rate Per 100,000:* 3,724
Family Doctors Per 100,000:* 96
See more stats about Saint-Bruno-de-Montarville, Que. here.


3. Russell Township, Ont.

Rank in 2017: 21
Population: 17,155
Estimated Unemployment Rate: 5.1%
Median Household Income: $112,644
Average Household Net Worth: $509,564
Property Tax: 50.1%
Total Days Above 20°C: 78
Crime Rate Per 100,000:* 2,540
Family Doctors Per 100,000:* 142
See more stats about Russell Township, Ont. here.


2. Ottawa, Ont.

Rank in 2017: 1
Population: 999,183
Estimated Unemployment Rate: 5.1%
Median Household Income: $93,975
Average Household Net Worth: $695,242
Property Tax: 39.3%
Total Days Above 20°C: 117
Crime Rate Per 100,000:* 3,782
Family Doctors Per 100,000:* 142
See more stats about Ottawa, Ont. here.


1. Oakville, Ont.

Rank in 2017: 15
Population: 209,039
Estimated Unemployment Rate: 5.7%
Median Household Income: $112,207
Average Household Net Worth: $1,742,036
Property Tax: 21.4%
Total Days Above 20°C: 107
Crime Rate Per 100,000:* 2,133
Family Doctors Per 100,000:* 91
See more stats about Oakville, Ont. here.

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Affordability: What first-time homeowners need to know

Affordability. It’s a word that gets tossed around a lot when people talk about homeownership, but what does it really mean? Affordability is a term that’s both quantifiable (lending institutions use a formula) and a little bit subjective (lifestyle considerations factor in, too). Here’s what you need to know about affordability, and what it means for you.

AFFORDABILITY, AS DETERMINED BY LENDERS

For lending institutions and mortgage insurers, affordability can be summed up by the debt service ratios, as indicated by your gross debt service ratio and total debt service ratio.

Gross debt service (GDS) ratio
  • Homeownership costs (mortgage payments, property taxes, heating and, if applicable, 50% of condo fees), relative to household income
Total debt service (TDS) ratio
  • Homeownership costs (as outlined above) plus debt payments (credit cards, lines of credit, student loans, car loans, etc.), relative to household income

To qualify for mortgage insurance (mandatory for any home purchase with a down payment of less than 20% of the cost of the home), the highest allowable GDS ratio is 39% and the highest allowable TDS ratio is 44%.

TIP: Get a quick snapshot of your current debt service ratios via Genworth Canada’s What Can I Afford? calculator.

AFFORDABILITY, AS DETERMINED BY LIFESTYLE

Although debt service ratios are an indicator of bottom-line affordability, other real-world factors should be considered up front by potential homeowners.

Expenses like groceries, child care, transportation, and mobile phone and Internet services, for instance, are not covered by TDS, but they’re more or less fixed costs for many households. While they don’t affect debt service ratios, they should be included in your own budget calculations, as they eat up a large chunk of income.

Discretionary expenses like clothing, entertainment, memberships and kids’ extracurricular activities should also be factored into affordability considerations. Are there any areas where you could cut back? Or will some expenses disappear, such as when a car is paid off or when a child leaves daycare for full-time school?

SET A BUDGET YOU CAN AFFORD

Between the numbers-driven debt service ratios used by banks, trust companies and mortgage insurers and the discretionary lifestyle expenses that also affect your bottom line, you will find what affordability means for you.

It’s never too early in your homeownership journey to speak with a mortgage professional or financial planner to determine how much mortgage you can comfortably carry. This will help you assess your financial fitness and also help you set realistic goals on an achievable timeline.

Source: Genworth.ca (Homeownership.ca) 

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