2020 is coming to an end and it’s time to make resolutions for the New Year. If you’re like many and would like to purchase a home of your own in the near future, below are three suggested New Year’s Resolutions that will help you to make your goal of home ownership a reality.
Resolution #1: I will have an understanding of my finances and my mortgage affordability which will allow me to plan accordingly.
The first step to home ownership is taking a real look at your finances. Consulting with a financial advisor is always a good idea and can help you in making a solid plan for setting money aside for a down payment. For re-sale homes priced below $500,000, the minimum down payment required is 5%. For re-sale homes priced between $500,000 and $999,999, the down payment is 5% of $500,000 plus 10% of the remaining amount. For re-sale homes priced over $1,000,000, the minimum downpayment is 20%. Keep in mind that these are the minimums required to qualify for a mortgage and anything below 20 percent is a high-ratio mortgage that requires mortgage default insurance. If you are looking to purchase a pre-construction condominium unit, the downpayment amount is typically 20%, but can sometimes be as low as 5% depending on where the project is at in their sales and construction at the time of purchase. I recommend consulting with a mortgage representative who will help you to get the best idea of your current mortgage affordability.
Resolution #2: I will find a trustworthy and knowledgeable realtor and together we will make a home-buying goal.
Whether you’re buying a condo, a townhome or a stand-alone house, it’s imperative to partner with a knowledgeable real estate professional. Your realtor will discuss with you your needs and wants and the costs you can expect for the kind of property you are interested in. Your realtor will be by your side throughout the entire process ensuring things run as smoothly as possible and you are securing the best property for your hard-earned money. Experienced real estate professionals have a team of trusted partners ranging from mortgage professionals to lawyers to contractors and home inspectors. Your relationship with your realtor should extend past your closing date and you should never hesitate to reach out if you find yourself in need a recommendation for a plumber, electrician or handyman.
Resolution #3: I will make sure my credit rating is in a favorable place and my job is steady. I will ensure I do not have any large purchases coming up in the near future.
Qualifying for a mortgage will depend on a few factors with the biggest being your credit rating, your income and your debts. So, don’t go buying that brand new car in January! Lenders measure your ability to repay debt using the Gross Debt Service (GDS) Ratio & the Total Debt Service (TDS) Ratio. These ratios look at how much money you earn and compare it to how much you need to spend in order to service debt. The GDS ratio looks at how well your income services the mortgage payment and housing costs. The TDS looks at how well your income services all your debts, including any car loans, student loans and credit card debt. The lower these ratios, the easier it is to qualify for a mortgage. When it comes to your income lenders typically want to see steady income for at least two years. If you're buying a home with your spouse, lenders will consider your combined gross annual income. In terms of your credit score and credit history, if you have good credit history you shouldn't have trouble getting approved for an appropriate mortgage amount (granted your steady income & down payment amount checks the boxes). However, if you have no credit or you constantly pay your bills late, you can run into trouble in the form of a higher mortgage rate or you might not qualify for a mortgage at all without a co-signer.
Having a full understanding of the steps required to purchase a home is important and I am here to help. Please don’t hesitate to reach out if you’d like to start a conversation about setting yourself up for home buying success in the New Year. With the right preparation, planning, research and partnerships, your goals are attainable.
Cheers to 2021!
The Condo Confidential