Transition. Simple enough, right?

The last couple items I blogged about had to do with Credit and how to fix and or maintain your score. I want to delve into the next phase of what to do when looking for a new home and the Transition between renting and purchasing.

Transitioning from renter to homeowner is one of the biggest decisions you’ll make throughout your lifetime. That’s why it’s essential to surround yourself with a team of experts – including both a mortgage and real estate professional – to walk you through the steps to home ownership, answer all of your questions and concerns, help you decide what kind of home you can afford and get you pre-approved for a mortgage.

With interest rates still hovering around “emergency” levels – low rates never before seen by your parents and even your grandparents. Don't believe me, just ask what their Interest Rate was back in 1982 when they purchased the family home– now is an ideal time for first-time homebuyers to embark upon homeownership.

Down payment

The main reason many renters feel they can’t afford to purchase a home has to do with saving for a down payment. But there are many solutions available today that can help first-time buyers with their down payments.

Many lenders will allow for a gifted or borrowed down payment. And of those lenders that will not provide this alternative, many offer cash-back options that can be used as a down payment. 

Better yet, there are programs available from some financial institutions where they will offer a “free down payment” or a “flex down”. Of course, you will end up paying about 1% more in your interest rate, but the program will help you get in the homeownership door and start accumulating equity earlier. You must, however, stay with the original lender for the full initial five-year term or else you’ll have to pay the down payment back.

Last year, a $5,000 increase was made to the RRSP Home Buyers’ Plan, meaning first-time homebuyers can now withdraw up to $25,000 from their RRSPs for a down payment – tax- and interest-free.

And if you’re part of a couple making a home purchase together, you can each withdraw up to $25,000 from your RRSPs.

Educating and coaching

There’s an endless amount of information available to prospective homeowners – through the Internet, friends, family members and anyone willing to voice their opinion on a given subject. What you really need, therefore, is education and coaching as opposed to being bombarded with more information.

Speaking to myself or any other professional in order to obtain a pre-approval prior to setting out home shopping can help set your mind at ease, because many first-time buyers are overwhelmed by the financing and buying processes, and often don’t know what it truly costs to purchase a home. Real examples can go a long way in showing you what it costs to buy a home in your area versus what you’re currently paying in rent.

For instance, if a renter is currently paying $800 per month, with that same payment (including taxes) they could afford to buy a $120,000 home. And assuming real estate values increase 2% per year over the next five years, the new homeowner would have accumulated $27,000 in equity in their home. If they continue renting, however, this $27,000 has generated equity in someone else’s home.

Any Mortgage professional worth his weight in gold is not going to set you up with financing without a plan in place to pay off your home as soon as possible. Make sure your Budget is in a rock solid place as well as 3 months worth of expenses to cover you in case of emergency. These are but a few strategies available to today's consumer. Contact your Broker today to get started and see where you stand. Most professionals will do this consulting free of charge. My question to you is...."What are you waiting for with nothing to lose?"

Until next time....

Kevyn

Interpreting your Credit score in Canada

I thought I would do some research and make some observations on what the score actuallyis in Canada. This will expand on my brief blog the other day for those that want to know more about it.

The system of credit reports and scores in Canada is very similar to that in the United States. Reporting agencies active in Canada are Equifax and TransUnion. Trans Union entered the Canadian market with the purchase of Northern Credit Bureaus in 2008, which closed its Canadian operations April 18, 2009.

There are, however, some key differences. One such difference is that, unlike the United States, where a consumer is allowed only one free copy of their credit report a year, in Canada, the consumer may order a free copy of their credit report any number of times in a year, as long as the request is made in writing, and as long as the consumer asks for a printed copy to be delivered by mail.

This request by the consumer is noted in the credit report, but it has no effect on their credit score. This is important as you need to understand that every other inquiry into your Credit whether it be a Chartered Bank or a company like GMAC or WFFG will affect your score.

 According to Equifax's ScorePower Report, FICO scores range between 300 and 900. To explain this better, lets take a coin toss for example. If you were to toss a coin there is a 50-50 chance for heads or for tails. If your credit score spits out a 500 score, you would be a 50-50 chance on making your payments on time. This is a scary thing for a potential mortgage lender and this is why credit is important in the whole picture of Lending. The average score is about 620 - 650 with an excellent score being anywhere above 700.

The Government of Canada offers a free publication called Understanding Your Credit Report and Credit Score. It will give you a sample credit report and credit score documents, with explanations of the notations and codes that are used. It also contains general information on how to build or improve credit history, and how to check for signs that identity theft has occurred. The publication is available online if you follow this link http://www.fcac-acfc.gc.ca/eng/publications/CreditReportScore/UCreditReport-eng.asp

The specifics of how each FICO system crunches its data are kept secret, but enough has leaked out that we know certain factors weigh heavily in computing your credit score. Many of these factors you have direct control over, so it is possible to influence your score positively. It is also quite possible to raise your score 100 points in a calendar year if you are diligent and have a plan.

What's important:

• Your payment history
• The amount of debt you owe
• What type of debt it is - car or home loans, credit cards, store charges
• How much new credit you have and your credit limits
• How long your credit history is
• The amount of debt you have in relation to your total credit limits

Of lesser weight:

• Education level
• Home ownership
• Stable address
• Years of employment

Here is a simple pie chart that outlines and puts a numerical value on each portion of your score.

• 750-850   Excellent - you'll get any loan with the very best terms
• 700-749   Very good - you qualify for highly competitive interest rates
• 650-699   Good credit
• 600-650   Fair
• 550-600   Poor

Until next time....

Kevyn

Is the equity in your home your best bet to pay off your rising debt levels?

Have you considered refinancing to pay off debt?

Before you eagerly pursue this option it might be a good idea to seeek some professional guidance beforehand. There are times that this option makes sense, but on the flip side you need to consider all the costs involved in doing so. Sometimes the penalties, legal and appraisal fees far outweigh the benefit of refinancing your home depending on your situation. Even more so now with the recent change in legislature on MArch 18th and the reduction in the amount of equity you can refinance moving from 90% to 85% of the value of your home.

With the high cost of holiday gift-buying and entertaining now behind you, this may be the perfect time to get the New Year off to a fresh start by refinancing your mortgage and freeing up some money to pay off that high-interest credit card debt.

By talking to a mortgage professional, you may find that taking equity out of your home to pay off high-interest debt associated with credit card balances can put more money in your bank account each month.

And since interest rates are at a 40-year low, switching to a lower rate may save you a lot of money – possibly thousands of dollars per year.

There are penalties for paying your mortgage loan out prior to renewal, but these could be offset by the extra money you could acquire through a refinance. There are also options through second mortgages that I will discuss in another article altogether. For this piece, lets keep it simple.

With access to more money, you might be better able to manage your debt. Refinancing your first mortgage and taking some existing equity out could also enable you to make investments, go on vacation, do some renovations or even invest in your children’s education.

Keep in mind, however, that by refinancing you may extend the time it will take to pay off your mortgage. That said, there are many ways to pay down your mortgage sooner to save you thousands of dollars. Most mortgage products, for instance, include prepayment privileges that enable you to pay up to 20% of the principal (the true value of your mortgage minus the interest payments) per calendar year. This will also help reduce your amortization period (the length of your mortgage), which, in turn, saves you money.

If homeowners fail to take the time to thoroughly research their options through a mortgage professional and, instead, simply sign renewal offers received from their bank, credit union or other lender, they could end up paying thousands of dollars more per year in interest. Simply by shopping your mortgage with a qualified professional, you can access the banks as well as other lenders that you may not have considered, but which can often offer interest rate specials or other attractive terms.

In the current credit-crunched lending environment, now more than ever it’s important to take the time to contact someone like myself to find out your options.

By refinancing now and paying off your debt, you might be able to put yourself and your family in a better financial position. It’s very important to not rack up your credit cards after refinancing, however, so set your goals and budgets, and stick to them!

In any mortgage or debt load that you take on, there has to be an exit strategy. If you have no plan then you do not know where you're going. That in itself can be the worst thing you could do. Keep in mind that a well constructed plan, put in place by a professional like myself, combined with a monthly budget that is reasonable, can put you on the fast track to becoming debt free sooner than you ever thought.

If this is something you are considering, get in touch today before your credit becomes so far gone even you're momma won't lend you money!

Until next time....

Kevyn

Understanding your credit report...or not

In my continuing study on credit it made me think of a silly question but very relevant to todays blog...

Does anybody really understand algorithm's ?

Your credit report is made up of one that nobody seems to be able to explain. We know certain things affect your score, but to be able to show you just how much is next to impossible. we tend to affix percentages as the best way to make sense of something that for the most part does not make sense.

Does that make sense?

As credit has become more and more abundant in our society, your credit report, and thus your credit rating, has become more important in your daily life. Your credit rating affects all aspects of your financial activities when it comes to borrowing money. Your credit rating also has the ability to affect the job you get, the apartment you rent, and even the ability to open a bank account.

Your credit report itself is simply a listing of all of your mortgage and consumer debt. Here in Canada, the two main credit reporting agencies are Trans Union and Equifax. Both agencies have a credit history file on anyone who has ever borrowed money. Every time you borrow money, or make a payment on a loan or credit card, the lender then reports the information about the transaction to these two agencies. In addition to credit information, you will also find liens and judgments on your credit report as well as your address and your work history. The accumulation of all of this information is called your credit report.

The information on your credit report varies based on your creditors and what they have reported about you. Potential lenders and others, such as employers, view your credit history as a reflection of your character. Whether we like it or not, our financial habits have a lot to say about the way in which we choose to live our lives.

The credit score, or beacon score, is a number which gives mortgage lenders an idea of your lending risk.

Credit scores range from 300 to 900, the higher your credit score the better. The mortgage products and interest rate that you will qualify for are often determined by your credit score.

One thing that many people do not know is that you have the legal right to obtain a copy of your credit report. Any professional can help you obtain a copy of this report and go through it with you to verify that all of the information is true and correct.

The good news is that your credit report is a working document. This means that you have the ability over time, to repair any damaged credit and increase your credit score.

There are many ways in which to fix up damaged or bruised credit in Canada. In the coming days I will cover a few of the topics and give you an idea of how to go about making your credit truly reflect your ideal of a good score.

As always...until next time.

Kevyn

The trouble with Debit Cards

In continuation of my credit repair and maintenance theme as of late...

We live in a society of instant gratification. Unlike our parents or grandparents – who saved up for larger purchases – we are often tempted to splurge on bigger-ticket items simply because we have a debit card in hand when we head out “window shopping”.

And aside from overspending thanks to the advent of debit cards, consumers are also more likely to dip into overdraft, which ends up costing more thanks to fees and interest that banks charge whenever you spend more than you have in your account.

Basically, a debit card works like a cheque. The only difference is that every time you use it, you’re immediately taking money out of your account. That’s why when you overdraw it’s like bouncing a cheque – only worse because, unlike cheques, you probably don’t keep a record of every debit card purchase you make.

You may even make a bunch of small purchases before you realize you’ve spent more than you have. So before you pay for that coffee or lunch purchase with your debit card, make sure you have enough money in your account to cover it.

Revert to using cash for daily expenses

Cash controls spending, plain and simple. Using cash to pay for everyday purchases such as coffee, transit, lunch and magazines alerts you to the idea that you’re actually spending real money. You just don’t get the same cautionary sense when you haul out plastic, be it a debit or credit card.

There’s a distinct cognitive event that happens when you handle money – it’s called awareness. Over the counter goes the five dollar bill and back comes a loonie, a dime, two nickels and four pennies.

Did you just add up the change above to determine how much money you have left? Did you think about what that purchase could have been? You see, you are much more conscious of this imaginary purchase than if you had paid with plastic.

Now, add in the awareness of the bills left in your wallet and you become attuned to your temporary wealth, or lack thereof. At the end of the day, what encourages or cautions many consumers about spending is knowing where you stand from a financial perspective. That’s why cash can help control spending. Using cash to pay for everyday purchases alerts you to the idea that you’re actually spending real money.

By allotting yourself a weekly cash allowance for entertainment and everyday expenses – such as that daily morning coffee or weekly movie – you are building a budget around what you can spend on these purchases. And once the money in your wallet has been spent, you have to ensure you fight the urge to withdraw more cash or resort back to using your debit card.

Be realistic about what you typically spend on these items in a week. If you routinely eat out for lunch or stop at Tim Hortons for coffee, count that as well. If you think you’re spending too much on these items, you can then decide to find a less expensive alternative, such as brown-bagging your lunch or making your own coffee.

Let’s say, for instance, that you start the week off with $50 in your wallet and you began to spend it on your purchases. You will see $50 turn into $40, $40 turn into $25, $25 turn into $15 and so on. Every time you look into your wallet, you will see what’s left over from your original $50 and be aware of how quickly your money is being spent. This alone can make you think twice before making a purchase.

If you have any questions concerning budgeting there are a ton of websites out there with very sound advice. In turn, there are a few templates on excel that allow you to plan out your monthly budgets in as much or as little detail as you so choose.

If you need help with any of the templates or are looking for a web link, feel free to get in touch and ask.

Until next time....


Kevyn

A simple plan to home ownership

In yesterdays article I spoke about credit and having challenges. In a sort of continuation from yesterdays blog, here is a simple way to make the dream of owning a home one day a reality. The key is not only to start, but to have the right plan in place. This should give you a starting point. 

Transitioning from renter to homeowner is one of the biggest decisions you’ll make throughout your lifetime. It can also be a stressful experience if you don’t plan ahead by building a budget and saving prior to embarking upon homeownership.

Budgeting is a core ingredient that helps alleviate the stress associated with money issues that can sometimes arise if you purchase a home without knowing all of the associated costs – including down payment, closing expenses, ongoing maintenance, taxes and utilities.

The trouble is, many first-time homeowners fail to carefully think about their finances, plan a budget or set savings aside. And in this society of instant gratification, money problems can quickly escalate.

The key is to create a realistic budget based on your goals. Track your spending and make your dollars go further by sticking to your budget once it’s in place. Budgeting offers a step-by-step formula for figuring out how to best save your hard-earned money to invest in homeownership.

Start by listing your household income, then your household expenses, and review your spending habits. All of this can be done on a pad of paper or on a computer spreadsheet.

Keeping receipts for everything that you purchase will enable you to accurately keep track of where your money is going each month so that you can review and make necessary changes to your plan on an ongoing basis.

Examine all areas of your life from entertainment to the type of food you buy, where you buy your food and clothes, and how and where you travel. Also look at your spending personality and make necessary adjustments. Are you a saver, a splurger, a spontaneous shopper or a hoarder? Become smarter with your money and avoid impulse buying.

If you find you’re spending a lot of money in one area, such as entertainment for instance, set aside a reasonable amount each month and prepare to stop spending money in this area once your budget has been exhausted.

Budgeting provides you with the opportunity to re-evaluate your needs and wants. Do you really need the magazine subscriptions, the gym membership and all the other things you may spend money on each month? Although everyone needs some “me time” to wind down, could you not get that by taking a walk or reading a good book you borrowed from the library?

If you can set your budget solidly in place before you head out home or mortgage shopping, you will be far more prepared to purchase your first home.

Following are three top tips to help you prepare for the purchase of your first home:

1.      Set up a savings account. You can deposit a predetermined amount into this account each pay period that you will not touch unless it’s absolutely necessary. This will enable you to put money aside for a down payment and cover closing costs, as well as address ongoing homeownership expenses such as maintenance, taxes and utilities.

2.   Track your progress. There is notihing more frustrating than not knowing where you are heading nor where you have been. To keep the best chance of success, have a simple excel spreadsheet set up and keep track of everything. On a side note, keep every receipt on everything you spend money on. This will help you review where your money is going every month. Great habits start small.

3.      Save up for big-ticket items. As you accumulate money in your savings account, you will be able to also save for specific purchases to help furnish your home – avoiding the buy now, pay later mentality, which can have a negative impact on your credit when you’re seeking mortgage financing.

4.      Surround yourself with a team of professionals. When you’re getting ready to make your first home purchase, enlist the services of a licensed mortgage professional and a real estate agent. These experts are invaluable to you as you set out on the road to homeownership because they help first-time buyers through the home purchase and financing processes every day. They will be able to answer all of your questions and set your mind at ease. A mortgage professional has access to multiple lenders, and can help you get pre-approved for a mortgage so you know exactly what you can afford to spend on a home before you head out house hunting, while a real estate agent will be able to match your needs with a house you can afford. Both parties will negotiate on your behalf to ensure you get the best bang for your buck. And, best of all, these services are typically free. They will also be able to refer you to other reputable professionals you may need for your home purchase, including a real estate lawyer and home appraiser.

      5.  Don't be afraid to ask for help. Even the successful people you know at one point have done so. It
           is not a bad thing to ask for assistance or seek guidance in matters not understood. The worst thing
           anyone could do is just keep the status quo and not make a change. Good change is important. Give
           yourself a chance to be successful.

Until next time....


Kevyn

What to do when you haven't been as diligent with your credit as you should have been

In today’s economic climate of tighter credit requirements and increased unemployment rates taking their toll on some Canadians, there’s no doubt that many people may not fit into the traditional banks’ financing boxes as easily as they may have just a year ago.

One of your best options is to consult your mortgage professional to determine whether your situation can be quickly repaired or if you face a longer road to credit recovery. Either way, there are solutions to every problem.

Mortgage professionals who are experts in the credit repair niche can help credit challenged clients improve their situations via a number of routes. And if the situation is beyond the expertise of a mortgage professional, they can help you get in touch with other professionals, including credit counsellors and bankruptcy trustees.

If you have some equity built up in your home and still have a manageable credit score, for instance, you can often refinance your mortgage and use that money to pay off high-interest credit card debt. By clearing up this debt, you are freeing up more cash flow each month.

In the current lending environment, with interest rates at an all-time low, now is an ideal time for you to refinance your mortgage and possibly save thousands of dollars per year, enabling you to pay more money per month towards the principal on your mortgage as opposed to the interest – which, in turn, can help build equity quicker.

Following are five steps you can use to help attain a speedy credit score boost:

1) Pay down credit cards. The number one way to increase your credit score is to pay down your credit cards so you’re only using 30% of your limits. Revolving credit like credit cards seems to have a more significant impact on credit scores than car loans, lines of credit, and so on.

2) Limit the use of credit cards. Racking up a large amount and then paying it off in monthly instalments can hurt your credit score. If there is a balance at the end of the month, this affects your score – credit formulas don’t take into account the fact that you may have paid the balance off the next month.

3) Check credit limits. If your lender is slower at reporting monthly transactions, this can have a significant impact on how other lenders may view your file. Ensure everything’s up to date as old bills that have been paid can come back to haunt you.

Some financial institutions don’t even report your maximum limits. As such, the credit bureau is left to only use the balance that’s on hand. The problem is, if you consistently charge the same amount each month – say $1,000 to $1,500 – it may appear to the credit-scoring agencies that you’re regularly maxing out your cards.

The best bet is to pay your balances down or off before your statement periods close.

4) Keep old cards. Older credit is better credit. If you stop using older credit cards, the issuers may stop updating your accounts. As such, the cards can lose their weight in the credit formula and, therefore, may not be as valuable – even though you have had the cards for a long time. You should use these cards periodically and then pay them off.

5) Don’t let mistakes build up. You should always dispute any mistakes or situations that may harm your score. If, for instance, a cell phone bill is incorrect and the company will not amend it, you can dispute this by making the credit bureau aware of the situation.

If, however, you have repeatedly missed payments on your credit cards, you may not be in a situation where refinancing or quickly boosting your credit score will be possible. Depending on the severity of your situation – and the reasons behind the delinquencies, including job loss, divorce, illness, and so on – I can help you address the concerns through a variety of means and even refer you to other professionals to help get your credit situation in check.

There is always a plan, just tailoring it to an individuals needs takes honesty and trust in the relationship. Do yourself a favour and get on it earlier rather than waiting.

Until Next time...

Kevyn