Buying a Home

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.  Make sure you ask about our Bundled Service Program for FREE home buying assistance.

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.  We 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 complex terminology.  GDS, TDS and LTV are extremely important in determining whether the lender will approve you.  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 Canada Guaranty).  These guidelines are often complicated and ever changing.  We know them so you don’t have to.

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 and situations to consider.

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 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 your annual household income would need to be to qualify for that mortgage payment.

**The above calculations are based on a mortgage rate of 3.50%, an amortization of 25 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, a break-even scenario, 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 $5 225 would have been added to the mortgage, meaning you would have owed a total of $195 225.  Your payment based on an interest rate of 3.5% would have been $949 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 to purchase.  Of your $949 payment ($22 776 total over two years) $10 495 would have gone to principal meaning you would owe approx. $184 729 at the time of sale.  When you purchased the home you would have experienced legal costs of approx. $1000.  When you sell 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.  If we factor in an annual property value increase of 2% your home would be worth $208 080 at the time of sale.  So you owe $184 729 and have spent $12 000 on legal costs and down payment.  That is a total of $196 729, which means you may have $11 351 in equity.  Now consider how you are going to sell your home.  Chances are pretty good that you will use a realtor.  If the commission equals 5% of the sales price ($10 404) 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

As mentioned in the mortgage qualification section, down payment can come from many sources.  It will always be expressed as a percentage of the purchase price, and the percentage is a variable based on many other qualification factors.  While true $0 down mortgages have recently left the market there are still ways to purchase a home with no money down.  These packages are not specific to first time home buyers, they are specific to those who have displayed a good credit history.  5% represents the most popular down payment as lenders risk decreases and as mentioned previously, those with 20% down payment or more are in a position to avoid the costs associated with default mortgage insurance.