A couple of weeks back, we posted Part 1 on the topic of “What does it take to get a mortgage?” Last week we set aside Part 2 in order to address the current COVID-19 crisis. It was the right move.
A lot has changed in the past week, with tougher measures being added every single day. Most of us are now hunkered down. Others are essential workers. And then there are a few in another category: idiots out there who are living in denial and who defy the protocols that have been put into place. Ii is this group that is jeopardizing the health of all of us. I add my voice to urge everyone to get on board with those protocols, especially social distancing and personal hygiene!
Meantime, it’s intriguing and inspiring to see the creative things people are finding to keep occupied and motivated while hunkered down, mostly in their own homes. For me, it’s a bit of an exercise in patience. I’m learning to relax a little more, something I need to learn (I actually watched a movie the other night); I’m stepping up my Spanish learning commitment; I’m catching up on some home projects; I’m watching webinars to build my own education, specifically, financial education; I’m doing more writing than usual; and I’m catching up with friends by telephone instead of in person.
I’m curious what creative ideas you are coming up with to keep occupied and optimistic, as you hunker down. Let me know.
Now, to Part 2 of the previous topic on what it takes to get a mortgage. In Part 1 I stated that four main requirements are required in order to qualify The two we addressed briefly two weeks ago were 1) a secure income, and 2) a track record of responsibility. Here are the other two.
3. A down payment
Although it used to be possible, banks will no longer loan you 100% of what is required to buy a property. The reasons are very simple. First, the lender wants to see that you have some “skin in the game” yourself, i.e., you have something to risk losing if you fail and the bank has to take back the property. This will give you a much stronger incentive to be disciplined and responsible, and so give them the assurance they can trust you with a loan.
Second, the lender wants to be assured that, should they have to foreclose on the loan and take back the property, there will be at least as much value left in the property as the amount of the outstanding loan. They want to assure themselves that they cannot lose money. It costs money to foreclose on a deal, plus a forced sale may often not bring as high a price as an unforced sale, so even if the property has appreciated a little between the time you purchased it and the bank foreclosed on it, the net amount the bank will ultimately get from the foreclosure may be less. If you are getting a mortgage from a lender, the lender will want to make sure that it is your money, not theirs that will be lost. You would do the same.
But, you protest, I don’t have a down payment; so I guess I’m stuck with being a renter. And with rents so high, how can I ever expect to save up the money to get started, even on a modest home? That is a dilemma, to be sure. It will, in most cases, take time, but there are many ways that most people never think of, to save up funds for a down payment (another topic we should maybe address sometime). Even setting aside a little every month will help you to reach your down payment goal sooner than you think. And there are also programs, such as our Rent to Own program, to help you out with some of this.
4. Life stability
Lenders will consider a variety of lesser known “human” factors to determine whether there is enough stability in your life to risk loaning you their money. Some factors that might impede getting a mortgage are: 1) Do you have permanent Canadian residency status, or are you only on a short-term residency status? 2) Are you recently separated or divorced and, if so, is the settlement finalized? 3) Criminal offenses.
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And, to circle back to another topic of the last two weeks: Have you bought $50 on Amazon in the last year? That is, apparently, the requirement in order to rate/review a book on Kindle. From what I hear, almost everyone does a good chunk of their shopping on Amazon, yet I’m getting lots of reports of people being denied the right to review my booklet because of this requirement. See the notice on the sidebar (if you’re on your computer) or below (if on a mobile device). If you can, I’d appreciate your positive reviews/ratings to my booklet Why Own when you can rent: Eight reasons why Owning trumps r.e.n.t.i.n.g. Please click the link and give me a little love. Thanks.