Save, Save, Save!

In the mortgage business, the following are the key factors used to determine success at getting approval on a mortgage or not:  credit, income, downpayment and net worth.  As always, the economy affects the financial industry mood.   Therefore, when the economy is unstable, like today, it determines the way lenders evaluate the factors listed above. 

One strong comment from lenders these days is if the client’s credit is not so great and the person is being given the downpayment from someone else (gifted money) the lenders see this as a weakness and may decline the mortgage application.

If you are not planning to buy for several months, get the gifted money into your account now, so when asked to prove downpayment in the future by giving your three months bank history, the lender does not see the large gifted deposit in your account. 

Of course, the best way to get the mortgage you want is to:

 Save, save, save your money!

Sources of Down Payment

When you decide it’s time to buy a home, I highly recommend using an independent Broker Agent, and this is not entirely self promotion—The truth is, the mortgage industry and a large number of lenders can make understanding and achieving your “perfect” mortgage somewhat complex.   A knowledgeable person who knows the difference between lenders, and has the option to choose multiple lenders to best suit your needs, can speed up and ease you through the process.  To illustrate, I would like to share the main sources that are acceptable to use for a downpayment:

1. Personal savings.  

The full downpayment does not have to be in the bank until 10 days prior to the closing date, but there are limits to the amount you can deposit.  Depending on the lender, a deposit over $1000.00-$2000.00 at any one time must be proven with three months printed bank history.  Or, if you are using money from someone else, this is called a gift.  The lender will require a signed letter stating the money is non-repayable, and must be from an immediate family member (and still requires three months history).

2. RRSPs.

You can use up to $25,000.00 from your RRSP contributions.  This allows the RRSP lender to lend you your desired amount and repayment doesn't begin until after a two year waiting period.  You then have fifteen years to repay in full.  You should ask your financial advisor how long it takes to get the money, and then make sure it is in your account about 1 week before closing.

3. Bank loan/line of credit. 

If you seek a loan, the amount must be calculated into your debt ratios.  This will usually lower the affordable purchase price.  Declare your intention to the Broker Agent so this debt can be factored in.

4. Cash back.

This method is only allowed by a select number of lenders.  In this case the lender provides both the 5% down and 95% mortgage value.  However, you must take into consideration interest rates.  For example, on Nov. 16^th, 2010 I could get a solid client a 3.49% rate for a 5 year term; yet, if using cash back, the borrowing rate becomes 5.19%.  Make sure you advise your Broker Agent of your intention because the higher the rate the less you will be able to afford.

5. Investments (GIC’s, etc.).

Beware of investments—make sure that you can cash yours in without a huge penalty.  If you aren't locked in, they can be used for downpayment.

--Different lenders allow different sources of downpayment, so discussing options and numbers with a Broker Agent is a smart choice.  For more information, e-mail slaney81@gmail.com or call 519-426-9842.