A Surefire Plan to Saving a Downpayment
Joe Tomkins • January 19, 2021
If you’re looking to save money for a downpayment; or to save money for anything really, it all starts with clarity. First, you want to get clarity around your income, then clarity around your expenses, and then you need a plan. And although this might seem fundamental, sometimes going back to basics is the best place to start.
If you’re looking to save money for a downpayment; or to save money for anything really, it all starts with clarity. First, you want to get clarity around your income, then clarity around your expenses, and then you need a plan. And although this might seem fundamental, sometimes going back to basics is the best place to start.
Income.
If you’re going to be saving money, you’ll need to identify just how much money you’ve got to work with! You need to get clarity around your income. The best way to do this is to write it down. This could be with paper and a pen or on a spreadsheet; whatever way works best for you is fine. The goal is to have all your income in front of you!
If you’re on a fixed income or receive a salary for work, your calculations might be pretty simple. However, don’t forget to include any variable income sources. This could include work income like overtime, bonuses, or shift differentials. Or it could include other income sources like an annual tax return, child tax or government benefits. Spend time here and make an exhaustive list of all your income sources.
Expenses.
While income is on one side of the coin, expenses are on the other. Once you’ve identified what you have to work with, the next step is to figure out just how much you actually spend to maintain your current lifestyle.
Start by identifying your regular bills, then look at your discretional spending. If you have a budget already in place, you should be able to identify these numbers easily. If not, you can expect that getting clarity around your expenses will be very enlightening. It might be worth looking through a few months of bank statements to see just how much money you actually spend.
Information is the key to finding clarity. The more information you have, the more equipped you will be to save money. Just like your income, write down all your expenses. This will allow you to assess your spending and then prioritize where you spend your money.
Put together a plan.
Once you know your income, and once you’ve identified all your expenses, you need a plan on how to make more money than you spend. And although that sounds so simple. It really isn’t. The majority of Canadians spend more money than they make and incur debt. If you’re spending more money than you are making, you need to increase your income or decrease your expenses. How you do that is completely up to you.
However, the truth is, most people work better when they have a plan to follow. So if you’re still reading this article, chances are you’d like to buy a home in the near future, and you’re looking for guidance as you save for a downpayment. I can help.
As an independent mortgage professional, I can actually help you navigate all aspects of mortgage financing. Because just like saving for a downpayment is about managing income and expenses, so is getting a mortgage. Income and expenses, along with credit and property, are what a lender looks at when assessing your suitability for a mortgage.
While you might assume that putting together a plan for how to save a downpayment is where you should start, it might not be the best place to start. Saving money takes time, and while you're doing that, there are other things you can be doing at the same time to increase your chances of qualifying for a mortgage sooner.
Contact me anytime to get started. Together we can assess your financial situation and put together a plan to not only save for a downpayment but to get you into a mortgage sooner..
If you’re going to be saving money, you’ll need to identify just how much money you’ve got to work with! You need to get clarity around your income. The best way to do this is to write it down. This could be with paper and a pen or on a spreadsheet; whatever way works best for you is fine. The goal is to have all your income in front of you!
If you’re on a fixed income or receive a salary for work, your calculations might be pretty simple. However, don’t forget to include any variable income sources. This could include work income like overtime, bonuses, or shift differentials. Or it could include other income sources like an annual tax return, child tax or government benefits. Spend time here and make an exhaustive list of all your income sources.
Expenses.
While income is on one side of the coin, expenses are on the other. Once you’ve identified what you have to work with, the next step is to figure out just how much you actually spend to maintain your current lifestyle.
Start by identifying your regular bills, then look at your discretional spending. If you have a budget already in place, you should be able to identify these numbers easily. If not, you can expect that getting clarity around your expenses will be very enlightening. It might be worth looking through a few months of bank statements to see just how much money you actually spend.
Information is the key to finding clarity. The more information you have, the more equipped you will be to save money. Just like your income, write down all your expenses. This will allow you to assess your spending and then prioritize where you spend your money.
Put together a plan.
Once you know your income, and once you’ve identified all your expenses, you need a plan on how to make more money than you spend. And although that sounds so simple. It really isn’t. The majority of Canadians spend more money than they make and incur debt. If you’re spending more money than you are making, you need to increase your income or decrease your expenses. How you do that is completely up to you.
However, the truth is, most people work better when they have a plan to follow. So if you’re still reading this article, chances are you’d like to buy a home in the near future, and you’re looking for guidance as you save for a downpayment. I can help.
As an independent mortgage professional, I can actually help you navigate all aspects of mortgage financing. Because just like saving for a downpayment is about managing income and expenses, so is getting a mortgage. Income and expenses, along with credit and property, are what a lender looks at when assessing your suitability for a mortgage.
While you might assume that putting together a plan for how to save a downpayment is where you should start, it might not be the best place to start. Saving money takes time, and while you're doing that, there are other things you can be doing at the same time to increase your chances of qualifying for a mortgage sooner.
Contact me anytime to get started. Together we can assess your financial situation and put together a plan to not only save for a downpayment but to get you into a mortgage sooner.
A no-frills service or product is where non-essential features have been removed from the product or service to keep the price as low as possible. And while keeping costs low at the expense of non-essential features might be okay when choosing something like which grocery store to shop at, which economy car to purchase, or which budget hotel to spend the night, it’s not a good idea when considering which lender to secure mortgage financing. Here’s why. When securing mortgage financing, your goal should be to pay the least amount of money over the term. Your plan should include having provisions for unexpected life changes. Unlike the inconvenience of shopping at a store that doesn’t provide free bags, or driving a car without power windows, or staying at a hotel without any amenities, the so-called “frills” that are stripped away to provide you with the lowest rate mortgage are the very things that could significantly impact your overall cost of borrowing. Depending on the lender, a “no-frills” mortgage rate might be up to 0.20% lower than a fully-featured mortgage. And while this could potentially save you a few hundreds of dollars over a 5-year term, please understand that it could also potentially cost you thousands (if not tens of thousands) of dollars should you need to break your mortgage early. So if you’re considering a “no-frills” mortgage, here are a few of the drawbacks to think through: You'll pay a significantly higher penalty if you need to break your mortgage. You'll have limited pre-payment privileges. Potential limitations if you want to port your mortgage to a different property. You might be limited in your ability to refinance your mortgage (without incurring a considerable penalty). Simply put, a “no-frills” mortgage is an entirely restrictive mortgage that leaves you without any flexibility. There are many reasons you might need to keep your options open. You might need to break your term because of a job loss or marital breakdown, or maybe you decide to take a new job across the country, or you need to buy a property to accommodate your growing family. Life is unpredictable; flexibility matters. So why do banks offer a no-frills mortgage anyway? Well, when you deal with a single bank or financial institution, it’s the banker’s job to make as much money from you as possible, even if that means locking you into a very restrictive mortgage product by offering a rock bottom rate. Banks know that 2 out of 3 people break their mortgage within three years (33 months). However, when you seek the expert advice of an independent mortgage professional, you can expect to see mortgage options from several institutions showcasing mortgage products best suited for your needs. We have your best interest in mind and will help you through the entire process. A mortgage is so much more than just the lowest rate. If you have any questions about this, or if you’d like to discuss anything else mortgage-related, please get in touch. Working with you would be a pleasure!
Deciding to list your home for sale is a big decision. And while there are many reasons you might want/need to sell, here are 3 questions you should ask yourself; and have answers to, before taking that step. What is my plan to get my property ready for sale? Assessing the value of your home is an important first step. Talking with a real estate professional will help accomplish that. They will be able to tell you what comparable properties in your area have sold for and what you can expect to sell your property for. They will also know specific market conditions and be able to help you put a plan together. But as you’re putting together that plan, here are a few discussion points to work through. A little time/money upfront might increase the final sale price. Declutter and depersonalize Minor repairs A fresh coat of interior/exterior paint New fixtures Hire a home stager or designer Exterior maintenance Professional pictures and/or virtual tour But then again, these are all just considerations; selling real estate isn’t an exact science. Current housing market conditions will shape this conversation. The best plan of action is to find a real estate professional you trust, ask a lot of questions, and listen to their advice. What are the costs associated with selling? Oftentimes it’s the simple math that can betray you. In your head, you do quick calculations; you take what you think your property will sell for and then subtract what you owe on your mortgage; the rest is profit! Well, not so fast. Costs add up when selling a home. Here is a list of costs you’ll want to consider. Real estate commissions (plus tax) Mortgage discharge fees and penalties Lawyer’s fees Utilities and property tax account settlements Hiring movers and/or storage fees Having the exact figures ahead of time allows you to make a better decision. Now, the real wildcard here is the potential mortgage penalty you might pay if you break your existing mortgage. If you need help figuring this number out, get in touch! What is my plan going forward? If you’re already considering selling your home, it would be fair to guess that you have your reasons. But as you move forward, make sure you have a plan that is free of assumptions. If you plan to move from your existing property to another property that you will be purchasing, make sure you have worked through mortgage financing ahead of time. Just because you’ve qualified for a mortgage in the past doesn’t mean you’ll qualify for a mortgage in the future. Depending on when you got your last mortgage, a lot could have changed. You’ll want to know exactly what you can qualify for before you sell your existing property. If you’d like to talk through all your options, connect anytime! It would be a pleasure to work with you and provide you with professional, unbiased advice.
A question that comes up from time to time when discussing mortgage financing is, “If I have collections showing on my credit bureau, will that impact my ability to get a mortgage?” The answer might have a broader implication than what you might think; let's spend a little time discussing it. Collections accounts are reported on your credit bureau when you have a debt that hasn’t been paid as agreed. Now, regardless of the reason for the collection; the collection is a result of delinquency, it’s an account you didn’t realize was in collections, or even if it’s a choice not to pay something because of moral reasons, all open collections will negatively impact your ability to secure new mortgage financing. Delinquency If you’re really late on paying on a loan, credit card, line of credit, or mortgage, and the lender has sent that account to collections, as they consider it a bad debt, this will certainly impact your ability to get new mortgage financing. Look at it this way, why would any lender want to extend new credit to you when you have a known history of not paying your existing debts as agreed? If you happen to be late on your payments and the collection agencies are calling, the best plan would be to deal with the issue head-on. Settle the debts as quickly as possible and work towards establishing your credit. Very few (if any) lenders will even consider your mortgage application with open collections showing on your credit report. If you’re unaware of bad debts It happens a lot more than you’d think; people applying for a mortgage are completely unaware that they have delinquent accounts on their credit report. A common reason for this is that collection agencies are hired simply because the lender can’t reach someone. Here’s an example. Let’s say you’re moving from one province to another for work, you pay the outstanding balance on your utility accounts, change your phone number, and make the move. And while you think you’ve paid the final amount owing, they read your meter, and there is $32 outstanding on your bill. As the utility company has no way of tracking you down, they send that amount to an agency that registers it on your credit report. You don't know any of this has happened and certainly would have paid the amount had you known it was due. Alternatively, with over 20% of credit reports containing some level of inaccuracy, mistakes happen. If you’ve had collections in the past, there’s a chance they might be reporting inaccurately, even if it's been paid out. So as far as your mortgage is concerned, it really doesn’t matter if the collection is a reporting error or a valid collection that you weren’t aware of. If it’s on your credit report, it’s your responsibility to prove it’s been remediated. Most lenders will accept documentation proving the account has been paid and won’t require those changes to reflect on your credit report before proceeding with a mortgage application. So how do you know if you’ve got mistakes on your credit report? Well, you can either access your credit reports on your own or talk with an independent mortgage advisor to put together a mortgage preapproval. The preapproval process will uncover any issues holding you back. If there are any collections on your bureau, you can implement a plan to fix the problem before applying for a mortgage. Moral Collections What if you have purposefully chosen not to pay a collection, fine, bill, or debt for moral reasons? Or what if that account is sitting as an unpaid collection on your credit report because you dispute the subject matter? Here are a few examples. A disputed phone or utility bill Unpaid alimony or child support Unpaid collections for traffic tickets Unpaid collections for COVID-19 fines The truth is, lenders don’t care what the collection is for; they just want to see that you’ve dealt with it. They will be reluctant to extend new mortgage financing while you have an active collection reporting on your bureau. So if you decide to take a moral stand on not paying a collection, please know that you run the risk of having that moral decision impact your ability to secure a mortgage in the future. If you have any questions about this or anything else mortgage-related, please connect anytime! It would be a pleasure to work with you!