Buying a home is a lot of things. It is a sense of accomplishment and reward. It is a stepping stone towards financial freedom. It is also likely the largest financial decision you will ever make and that decision is often a very stressful one. Let us help take the stress out of the equation. At Axis Mortgage we will walk you through the steps that need to be taken to get you into your new home. Whether it be your first home (see our home buyer’s guide on the home page) or one of many, we know that you will have questions. It is our goal to have most of those questions answered before you ask them. We will let you know when and where you need to take your down payment, when you need to see your lawyer, when you need to have your house insurance in place and when you need to make the final decisions on the mortgage product best suited for you.
From our years of experience we know that one of the major hurdles to purchasing a home is the cash required to do so. There is the down payment, legal costs, property tax adjustments, house insurance, etc. and it can be overwhelming. We will show you how to save in some of those areas and we will assist in making the purchase more affordable. Ask us about our no fee mortgage programs where we may have the lender pay for your legal costs and tax adjustment.
How Much Can I Afford?
Affordability and qualification will be treated the same at most brokerages and banks, however that is not the case at Axis Mortgage. Your personal mortgage planner will definitely tell you what the maximum mortgage you can qualify for is, under the lender imposed guidelines, but that does not necessarily mean it is an affordable mortgage for you. Our holistic approach to your mortgage planning will allow us to factor in your quality of life and spending habits as well as your future goals to help determine what the correct mortgage is for you today.
In determining your maximum qualification we will walk through the terminology used in the mortgage world. GDS, TDS and LTV are extremely important in determining whether the lender will approve you for a potential mortgage. These factors, or calculations, are based on your credit, down payment, where the home is located, and the type of employment you have, amongst many other factors. There are numerous guidelines in place, for both the lenders and default insurance providers (CMHC, Genworth and AIG). These guidelines are often complicated and ever changing. Your mortgage planner will walk you through these guidelines to determine your approval.
A “rule of thumb” is that your monthly mortgage payment, property taxes and an estimated monthly heating cost should not exceed 32-35% of your combined household gross monthly income. We refer to this as you Gross Debt Service Ratio (GDS). Your Total Debt Service Ratio (TDS) takes into account the GDS related expenses and all other monthly commitments you have to any other personal debt, such as credit card payments, car loans and student loans. This combined level of monthly payment can’t exceed 40-44% of your gross household income. These are guidelines only, and are a moving target based on your individual situation. Please call us to discuss your accurate qualification and affordability.
Rent vs. Buy?
Should I stay renting or should I buy? Should I buy now or should I wait for a while? Should I buy a house or a condo? There are so many questions that need to be answered before you take that important step to purchase your first home.
The fact is all of these questions are dependent on what your future goals are, what type of market you are in, and what you could be qualified for. There is no question it is most often beneficial to own vs. rent, and it is most often beneficial to own sooner than later, but that is not always the case. The following table will show approximately what your current monthly rental payment would cover as a mortgage payment, and will show you what you annual household income would need to be to qualify for that mortgage payment.
Rent/Mortgage Payment Mortgage Value Required Annual Income to Qualify
$800 $159 500 $30 000
$900 $179 500 $33 750
$1000 $199 500 $37 500
$1100 $219 500 $41 250
$1200 $239 400 $45 000
$1300 $259 300 $48 750
$1400 $279 200 $52 500
$1500 $299 250 $56 250
$1600 $319 100 $60 000
**The above calculations are based on a mortgage rate of 5.00%, an amortization of 35 years and do not factor in any default insurance premiums, property taxes or any other personal debt. Annual income to qualify is your combined household income. The calculations should be used for comparison purposes only.
The above calculations clearly show that your current rent will afford you a mortgage large enough to own a home. This does not, however, mean that you should rush out and purchase a home. The first year or two of home ownership is often at best times a break even point, unless you are fortunate to have purchased in a market of rapidly increasing home values. This is where understanding the type of market you are in is so very important. The following example will demonstrate the importance of your future goals to determine if you should purchase.
If you purchased a home, knowing that you were going to sell it in two years (future goal) you would have wanted to consider the following. Your $200 000 home purchased with 5% ($10 000) down would have meant you needed a $190 000 mortgage. With 5% down the default insurance of $5 985 would have been added to the mortgage, meaning you would have owed a total of $195 985. Your payment based on an interest rate of 5.5% would have been $1045 per month. This is similar to the amount of rent you would have paid for the same home, which at first glance means it would have been beneficial for you to purchase. Of your $1045 payment ($25 080 total over two years) only $3956 would have gone to principle meaning you would owe approx. $192 029 at the time of sale. When you purchased the home you would have experience legal costs of approx. $1000. When you sell it you will also experience legal costs of $1000. Depending on the type of mortgage you took two years ago you may incur a payout penalty of approx. $2000-2500. By adding this payout to the outstanding principle you can see you owe approx. what you paid for the home. If we factor in an annual property value increase of 5% your home would be worth $221 500 at the time of sale. So you owe $195 000 and have spent $12 000 on legal costs and down payment. That is a total of $207 000 which means you may have $14 500 in equity. Now consider how you are going to sell your home. Chances are pretty good that you will use a realtor to sell your home. If the commission to the selling and purchasing realtor equals 5% of the sales price ($11 075) you can clearly see that you made a small amount of money, but not the amount you may have originally anticipated.
Before you make the decision to rent for long periods of time let us show you the benefit of ownership…………and before you jump into home ownership without a future plan let us show you the benefits of short term rental.
Down Payment……….From None to Lots
It is true, the landscape of the mortgage world has changed dramatically over the past few months, and it has meant changes to the amount of down payment accepted by lenders and default insurance providers. While these changes have occurred we have been working on unique programs and plans for our customers. One of these plans has been the introduction of our zero down mortgage. While the lenders and default insurance providers have eliminated 100% financing (zero down mortgages) we have been able to develop a program that still allows you to purchase a home with little or zero down payment. There are lending guidelines that may make our zero down mortgage unavailable to some customers, however it may be exactly what you are looking for.
You have been reading lots of material regarding default insurance providers. The major factor which determines if you will be required to have CMHC, Genworth, or AIG insurance is the amount of down payment you have in place. By having less than 20% down the lenders are in a higher risk situation and as a result require your mortgage to be insured. This default insurance is a one time charge to you based ont he exact percentage of down payment and amortization of the mortgage you chose. The insurance premium is capitalized in your mortgage so you don’t actually have to pay for the insurance up front, but rather it be added to your regular mortgage payments. If you were to purchase a $200 000 home with 5% down ($10 000) you would have a mortgage of $190 000. If you determined that a 35 year amortization was best suited for you the insurance premium would charged to you at a rate of 3.15%, equaling $5 985. This amount gets added to the $190 000 mortgage meaning you would owe a total of $195 985 and your payments are based on that amount owing. The more you put down and the shorter you amortization the smaller the insurance premium you will be charged.
If you have 20% down your mortgage would be considered “conventional” and not require insurance, however you may, in some cases, still be required to have default insurance. Some lenders will require the mortgage to be insured regardless of the down payment value. This is due to many factors and the risk the lender places on your file. In some cases the lender will cover the cost of the insurance for you , and in other cases they will charge you for the coverage. Our professional mortgage planners will discuss if you are required to have default insurance.