Renting vs Buying Real Estate - is it right for YOU (PART 2)
Ok, so now you've considered your options and want to explore this buying a home thing more. Why not? More and more people are making that decision and traditional ways of waiting until marriage or having a partner. Even if in a relationship/married, perhaps you wanted to have more time together first, pay off student debts, travel, or whatever your personal situation. It doesn't matter when and it's about being smart and analyzing whether it is or isn't good for your personal needs.
There is absolutely nothing wrong with renting and current lower vacancy rates here in Barrie (and Ontario-wide) are showing that more people are preferring this. So is home ownership over-rated? There's value in both methods and again, it's all about you whatever your lifestyle dictates. There are many programs available so let's look into no money down and rent to own which are many questions we get asked as well.
So, considering the ads with the Zero Down Payment Mortgage? Before you get sucked in and give your information, know what the requirements are. Always remember, if it sounds too good to be true, it probably is.
What you need to know: Credit Score Requirements
To qualify for a no down payment mortgage you need a credit score of at least 680. You are likely to have a 680 credit score if you pay credit cards and other loans on time, and there are no bill collections in your name. You will need to have three (3) years of consecutive employment in order to qualify for a zero down payment mortgage.
A no-down payment Mortgage is not for everyone. Please discuss your personal financial situation with your broker to get informed about this product - and find out if it's right for you. A no-down payment Mortgage is also known as a cash-back Mortgage. This product can also be used to help with mortgage closing costs - or for other things around the house such as furniture, repairs or appliances. Again, it's not for everyone and if you're not good at budgeting, and you also need to know whether the home qualifies (not overprices and will appraise for the value). You're also not going to have instant equity if not putting any money into it so if you need to resell for whatever reason in a shorter amount of time, well, you're not making money either.
How Down Payments Affect your Mortgage and Mortgage Size
- Your down payment is used to determine the maximum price of a home you can afford
- Your down payment will have an effect on your mortgage size and mortgage payments:
- The more money you put down, the smaller your mortgage and the smaller your payments will be.
- Your down payment also determines the amount of CMHC insurance you pay:
- As stated above, a down payment of less than 20% forces a CMHC mortgage default insurance requirement. The cost of the insurance will fluctuate depending on the size of the down payment for your mortgage.
How can you finance your down payment?
Besides traditional saving methods, or the sale of personal assets, various methods of obtaining money for your down payments exist. One of these methods is the Home Buyers' Plan (HBP). It is a program that allows you to withdraw up to $25,000 from your registered retirement savings plan (RRSPs) to buy or build a a home.
The Canada Revenue Agency outlines the Home Buyers' Plan (HBP) as a program that allows you to withdraw up to $25,000 from your registered retirement savings plan (RRSPs) to buy or build a qualifying home for yourself or for a related person with a disability .
Your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the HBP, or they may not be deductible for any year.
Generally, you have to repay all withdrawals to your RRSPs within a period of no more than 15 years. You will have to repay an amount to your RRSPs each year until your HBP balance is zero. If you do not repay the amount due for a year, it will have to be included in your income for that year.
Forms and publications
- Guide RC4135, Home Buyers' Plan (HBP)
- Form T1036, Home Buyers' Plan (HBP) - Request to Withdraw Funds From an RRSP
- Schedule 7, RRSP Unused Contributions, Transfers, and HBP or LLP Activities
RENT TO OWN
You see all the ads, have heard about it and wonder if this is a consideration. Sure, everything is a consideration if it gets you one step closer to your goals. We're here to help educate you and decide what program is or isn't right for you. Fortunately, we work with a lot of investors and mortgage brokers that offer many variations of programs available to people that choose to work with us and seek assistance.
The most important things to know about rent to own?
- it's not for everybody
- it must be a win/win
- must be disciplined or be willing to learn to be disciplined about monthly payments because it's forcing you to save for a downpayment if you're not already able to do so
- it's not for everybody
- must be a win-win
That's right. Intentionally said those twice because that's the only type of clientele we work with. Those that analyze each scenario on a case by case basis to make it beneficial to you, the home buyer and the investor wanting to help you. That's right. The investor purchasing the home to help you be able to buy it and get you one step closer to home ownership that you've only dreamed about.
Not going to mislead you. It is a business and there is an invested interest for the investor of course because there are books out there, courses and online resources teaching people to get on the "rent to own" bandwagon. This is why we interview our investors to find out their intentions of wanting to offer rent to own programs. Yes, we turn people away and only work with a select, elite few and must be referred to us. Why? Here's why...
You've never owned a home before or have owned but got into a financial situation and think rent to own is a good option for you. You seek us out for information and develop a trust. You want to own a home so badly and will practically do anything (legal of course) to get it. Perhaps you may not read the papers before you sign and willing to borrow from anyone to get whatever down payments are necessary so you can be a home owner. We can honestly tell you, this is not the way to be at all. You're setting yourself up to fail before you've even started and actually this is taking you further away from your goal of home ownership. You lose time, money, effort and give yourself even more stress that you bargained for.
If you've never owned a home before, how do you understand those legal documents? You're trusting someone to explain them to you that have an invested interest because they're making commission or sale right? Realtors are governed to be ethical and have a business standards of course. However, there's also the obligation to inform you of everything and probably a good idea to have a conditional clause that you have the right to have reviewed by a lawyer. That's what the professionals are trained for and really important for you to know your rights and entitlements.
After typing, realize rent to own is a whole other topic. So let's make a Part 3 and call this a series!
Happy investing in you and happy new year!
*not intended to solicit anyone with any written agency agreements. This blog is intended to provide information for educational purposes only
Sources:
Canada Revenue Agency
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